SHOTWELL MFG. CO. v. UNITED STATES

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Argument of George B. Christensen

Chief Justice Earl Warren: Number 16, Shotwell Manufacturing Company, et al., Petitioners, versus United States.

Mr. Christensen.

Mr. George B. Christensen: Mr. Chief Justice, if it please the Court.

The tragic tale that's unfolded by this record is I think one that with tax your credulity where we not able to document it, so well as we assert we have documented it.

And once it's understood it's a -- not only tragic but it's a dark and frightening tale but for two things, those two things are first, your decision in the Jencks case in 1957 that gave us the tools to work with at least to start the investigation by the production of witness statements and that ultimately led to grand jury testimony that disclosed how this record at least upon the remanded proceeding had been put together.

And that in turn led us to the evidence of the perjury that had been offered against the citizens we represent upon their original jury trial.

And of course the second thing that relieves the tragedy of this case that we assert brings a blush of shame to American jurisprudence is the right to apply here for certiorari and fortunately to have obtained it.

Now, the case is complicated.

I fear that you are going to have the greatest of difficulty in following the facts.

Basic to an understanding of it, I think is this, this was a criminal indictment or evasion of a portion of the income taxes of the Shotwell Manufacturing Corporation, a corporation, for the years 1945 and 1946 indictment alleged some $500,000 of gross income or of net income was unreported and that the resulting tax by the time of trial, they claim they had there shown time of trial not $500,000 but approximately $454,000.

Now that mind you is the year 1953 when the trial took place.

Now, there's a greatest difference between that figure and something that had occurred years before and which was in large part, subject to Justice Harlan's opinion when we were here the first time.

Bearing in mind that this alleged evasion is assumed to have occurred in 1945 and 1946 and that the prosecutors delayed until the last day before the statute ran in 1952 before pitching in an indictment.

The fact is that in early 1948 when the Treasury so-called “voluntary disclosure program” was in effect.

These petitioners went to Ernie Sauber then assistant deputy collector in Chicago and made a voluntary disclosure.

Now, mind you, here is where mentally you have to shift gears and you get in to some of the confusion in which this entire case evolves.

The Shotwell Company made candy.

It made a variety of candy that instead of using corn -- instead of using cane sugar, used corn syrup as its principal sweetener.

And in the year 1945, after the V-E Day, the fact was, and there is no dispute about this, that the Office Price Administration's price ceilings upon corn, raw corn, corn in the bin in the hands of the farmer, became totally out of balance with respect to the price on hogs.

And it was of course far more profitable then for a farmer instead of selling his corn to feed it and sell his hogs and there came a time in the late fall of 1945 and I speak from the record that any time I depart from the record, I will tell you so.

When cash corn virtually disappeared from the greatest corn market in the world, the Chicago Board of Trade, the Commodity Credit Corporation either in late 1945 or early 1946, I forget which itself went out on the so-called black or gray market and began paying anywhere from 25 cents to 50 cents a bushel upward for corn.

Well, what went on, I don't but obviously, the war was over, the period of price controls was about over.

They were not adjusted until some time in about June 30th, 1946.

That is near enough when the ceiling upon corn was removed, it became plentiful and after that, there became plenty of corn syrup and on we went in our way.

Now, during that time, it is our contention that to get cash, it did not show upon Shotwell's books so that we wouldn't be caught by the OPA inspectors.

We sold some candy.

A character by the name of Lubben whom you've met before, not merely in your first go-around with this case but in the Long and Giglio cases arising out of New York.

We sold candy to him in which he paid in addition to the ceiling invoice price of the candy, a premium per pound.

A great dispute as to what the amount of that premium was.

We then took that cash, didn't record it, said nothing about it and we used that in turn to pay elevator operators or so-called “bird dogs”, you would pay them the premium price upon corn and they would sell and then make corn available to corn products refining, Hubinger, Penick and Ford, whoever the corn refiner was.

They grind the corn and they in turn would sell you corn syrup at ceiling.

Now, this has all been done secretly.

As the fellow Lubben fell into the greatest of difficulties as he well could with the characters he was associated with that reflected by your record in United States versus Long and Giglio and Justice Brennan knows that experience with Mr. Lubben in New Jersey that led to a disbarment there and a rectification of a distillery swindle he got into later on.

He wanted a loan and my corporate client sends its outside auditor.

He used to take a look at Lubben's books and to see what shape he was in.

Should we loan him some money?

He'd go into the candy business.

This auditor, a gentleman by the name of Busby, an auditor, a public accountant of unquestioned integrity, went out there and he came back and he saw our clients Harold Sullivan and Byron Cain and he said he's in hopeless shape, don't loan in any money and what's more?

His books would indicate that he's been paying you some over ceiling premiums back in 1945 and 1946.

And you never told me anything about that.

I made your tax returns.

What are you guys been up to?

And Lubben had with him on this trip, and this becomes crucial, Shotwell's own comptroller or head bookkeeper, a fellow by the name of Graflund.

Chief Justice Earl Warren: I thought he was Busby.

Mr. George B. Christensen: I beg your pardon, thank you sir.

Busby had with him this gentleman by the name of Graflund.

And Graflund on this trip, told him yes and as he put it in testifying to United States grand jury, “I didn't spare the horses in telling you.”

They returned to Chicago on the 11th of January and Busby goes to his clients and says, “What are you been up to?”

So you're in tax difficulties and this is a fine kettle of fish and they say to one in substance, “Look, we took the money in.

We spend it for corn, what's the tax problem?”

He said, “The tax problem is this, that under Treasury regulations, what you acquire or receive is premium payments, is gross income that you must account for.

What you may have spent over ceiling for raw material cannot be taken as part of the cost of goods or any other, for our purposes, let's say, deductible item.

You are going to be taxed upon the gross amount.”

He then told them about the voluntary disclosure program.

Busby is not a lawyer and he had never made a voluntary disclosure although he knew about it.

And the essence of the voluntary disclosure program and you will find at the back end of both our petition for certiorari in our main brief, the official statements of it.

It never came out in a regulation but pronouncements from the Secretary of Treasury as the general counsel of the Treasury and they were in substance, you've got something wrong with your tax return.

Come in and tell us about it.

You'll be taxed, you may get civil penalties but there will be no criminal prosecution.

This is the way to avoid going to jail.

It was part of a concerted right during those years to get in money, tax money, resulting from precisely transactions of this kind.

It was feared that much of it would escape taxation.

They said, Busby find out how to do it.

Busby went to Sauber, he talked with him without disclosing the name of his client, simply finding out what to do and putting it up as a hypothetical case.

And then he went on and reported to his clients, “Yes, we can do it, it will be all right.

All right, go in and disclose and tell them who we are.”

And that was done.

Now, I'm not trying to be precise on dates.

I will get to that and that was part of the controversy when we were here before.

They said, “We don't know what we did with this money.

We can't prove it.

We didn't want to know too much about these people, it was dirty business.”

And the deputy collector said, “As Treasury regulations at that time 1948 required, you will get no credit for a dime that you spend over ceiling no matter how you documented or proved it.

It makes no difference whether you know what you did with this money or who you paid it to you aren't going to be able to take it as a deduction or an offset or as a part of your cost to goods.

Don't bother to file an amended return, you apparently haven't got accurate records, assemble such information as you can, from memory, from notes, from what you can gather here, there and the other places, an agent will be out to investigate and turn it over to him.”

Justice Potter Stewart: Whose words are you paraphrasing now, the deputy collector?

Mr. George B. Christensen: Well, I am -- the Deputy Collector's words, the words of Busby who testified with the same conversations and the words of Cain upon the original suppression hearing in 1952.

They're all to the same general effect, Mr. Justice.

Chief Justice Earl Warren: No contradictory testimony on that?

Mr. George B. Christensen: I say not.

No contradictory testimony.

The Government claim before it had circumstances inconsistent with that.

Justice Byron R. White: What did you say the date was?

Mr. George B. Christensen: January to March of 1948.

Justice Byron R. White: The Secretary had several conversations or with one?

Mr. George B. Christensen: It occurred over three conversations, possibly four.

My memory isn't sharp enough to answer that any more accurately than that Mr. Justice.

He first went in and put it hypothetically.

How do I do this?

What do I do?

And he went back and he reported to Cain and Sullivan, “This is what you can do and it will probably be alright.”

They said, “Alright.”

Go in and disclose.

He went in and ultimately he took Cain who was the president of the company and the two of them talked.

Now --

Chief Justice Earl Warren: Cain and Sullivan were told?

Mr. George B. Christensen: Cain was the president of the corporation.

Chief Justice Earl Warren: Oh yes.

Mr. George B. Christensen: And Sullivan was the general counsel and treasurer or vice president, I forgot which.

And they or their families were the principal stockholders of the Shotwell Company.

Now, this was done and then they prepared.

I don't know whether you have before you the petitions for certiorari but we're talking about suppressing of documents and the copies of these documents that appear in the photo stacks or the Xerox copies at the back end of the petitioner for certiorari are the most legible reproductions of it.

These are what are known as the disclosure documents, this with some others but this is illustrated.

Unknown Speaker: (Inaudible)

Mr. George B. Christensen: Those were filed in August of 1948 when the agent came out.

Now, they told him, “We don't know what to do”.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: Yes.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: Yes, I am.

Now they told him, “We don't know.

We don't have any records and we know this fellow Lubben is going to claim everything and of course they knew that whatever they said about these transactions would be checked by the Treasury with whatever Lubben claimed and we know we had trade deals with this fellow in which he would go out and locate some fellow who had an oversupply of chocolate or milk or whatever it may be and we trade him some candy at ceiling for him making oral goods.

We will disregard all of that.

We will consider that on every town the candy we saw Lubben, we got the highest possible rate of overage that he ascribes to it.

We will try to make such a computation and when we come up with that, we'll say, that's our best recollection and you tax us, you tax us.”

So they prepared these things.

They got to hold to some of Lubben's record in January or February.

They found Lubben who'd gotten in difficulty, had some of his records in the hands of a public accountant, (Inaudible) in New York.

They got his things.

They got themselves together but they weren't dragged, didn't go on all the time, Busby who was in charge of it, went away on vacation.

And finally along in June, the Treasury began investigating Mr. Lubben in New York.

New York Treasury agents began investigating Lubben.

And so New York said to its brothers in Chicago, “Go out and see what Shotwell's record show about Lubben.”

That was on the 21st day of June 1948.

Justice John M. Harlan: Who is the agent that was involved in that?

Mr. George B. Christensen: That was a fellow by the name of Sam Krane and he also then, at a subsequent date, he came, the chief agent for the intelligence section who investigated our case.

But on June 21, 1948, Sam Krane was simply running an errand for his counterparts in New York to get confirmatory information from Shotwell for the use of the New York agents in investigation.

Justice John M. Harlan: What was the official relationship between Krane and Lima -- agent Lima who came into the picture later?

Mr. George B. Christensen: Well, agent Lima --

Justice John M. Harlan: Lima --

Mr. George B. Christensen: That's the way he pronounced it.

Agent Lima is simply an ordinary agent.

Krane is in the so-called detective intelligence section they worked in different departments.

Now, they prepared these things then Cain finally said to his people “get together”.

They owned an interest in the Belden-Stratford Hotel.

He said, “Get out to the factory.

Come out to the hotel.

Let's sit down and everybody get together and get this over with.

There's going to be an agent out here and I want to know where we stand.”

In the meantime, early in June and this came out on the remanded hearing you ordered.

Harold Sullivan had been in a hospital and there was another fellow from the Treasury and he'd known for quite awhile was a room or two away from him.

And on the 4th of June, Harold is getting early to leave the hospital and this fellow Horrigan had just come in.

They had the same doctor and he said, “Look, I've got your friend Horrigan down the hall,” and Harold said, “Well, I'll go down and say goodbye to him before I go.”

And he gets in there and he loans him a portable radio and he says, “What's the trouble with this fellow Sullivan?

Why doesn't he send an agent out to investigate?”

And Horrigan says, “Well, I'll jog him up.”

And so Horrigan calls up Sullivan and says, “What are you doing?”

Sullivan is in here complaining to me.

He says, “Oh well, you know things take time.”

Or that is -- I haven't got it quite right but that is substantially it.

Now, in any event, they prepared these computations and you will see if you examine, they start out sales is recorded in the Shotwell records and down there, if it please the Court, is every transactions, every sale ever called in to question in this case.

And down there, there may be a clerical error here and there but for all practical purposes on there is every scrap of information of our books digest.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: Yes.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: Yes.

That would be -- now, if I may, I'm not referring on each one of the sheets Mr. Justice Brennan.

If I may, let me switch over before I answer that to the other side of the sheet.

And you'll see that as headed “memo taken from Lubben record”.

Now, you'll recall, I told you they tried to find out what Lubben --

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: Well, I'm looking at 86 but it's the same on 87.

It's --

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: And they took the way that Lubben appeared to reflect on such records as he had his counterpart at these transactions.

Now, then if I may go back to get to your question, you'll see under memo taken from Lubben record, his record, and you compare that with our figure on the first line of the page I'm looking at is $2600 item.

Lubben showed it as a $6100 item.

And then we show he added some $34,000.

Now, that is taken -- that difference is translated into pounds and that furnishes the per-pound figure shown on Shotwell on recorded per-pound upon the assumption of Lubben's claims, you would add that much per-pound.

Now, bearing in mind and it's found that Lubben's testimony was exaggerated on the new hearing you ordered.

And Lubben was charging off --

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: Certainly.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: Yes sir.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: Added from Lubben records.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: Yes.

Those were -- see this is in 1943 or 1944 whether our records weren't in existence.

These were sales he showed he'd receive from us that didn't -- weren't reflected on our records.

Justice Mr. Justice Brennnan: Would that mean that you have (Inaudible)

Mr. George B. Christensen: $16,336.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: I beg your pardon.

Well, judge, that is -- that's the total of the whole page, I think.

No, I don't know.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: I'll get an explanation for that.

I can't make that for you at the moment.

Justice Arthur J. Goldberg: Mr. Christensen, before you viewed the record, did you consider it to show the events, the legend you made out by Shotwell as far as to Sullivan?

Mr. George B. Christensen: I'm coming to that, if I may, Mr. Justice Goldberg.

Now, accepting our thesis for a moment that by taking his figures that from the very first moment, we told Sullivan and everybody were wrong but we said, “We want this immunity.

We want no fight with this man.

We contest his figures.

We're going to have a tax hearing or some kind and these people did not want any record in Chicago.

They'd been in the black market even to this extent.

We'll take whatever he said.”

And by -- to that extent and for purposes of a civil settlement in gaining immunity, saying, “We'll take Lubben's figures.

They then show in this first sheet at 85 is a summary or a recapitulation of the big sheets.

They show on there accounts receivable or income that was far greater than the truth.

Now, they knew they weren't going to get any credit for whatever they'd spend out and they couldn't make a truthful account having been willing to confess or admit or say for this purpose, “Alright, we'll take his figures”.

They couldn't make an accurate account of disbursements.

If you pay me a thousand dollars and I admit I got $5,000, I can't show anybody in God's world from now to the end of eternity how I spent that other $4,000.

These figures were never filed as a deduction, as an amended return or any benefit claim on them whatsoever as you read Judge Nordbye's opinion, you will find that it is the bottom half of this so-called cash account down here that is used to condemn our people.

Those figures were never filed with the Government.

These were part of Busby's work papers turned over to agent Lima when pursuant to the disclosure he came to make his own investigation.

My people went ultimately as this investigation went on and on and on and they say, “Who do you pay this black market money to?

Who should buy it for and from?”

The Court of Appeals found the first time they were wanting us to turn the informer.

Now, when we confess upon Shotwell and disclose on Shotwell, we are not required to turn informer on our suppliers.

Or if you accept Judge Nordbye's theory which we thoroughly contest, that some of this money found its way into the personal pockets of the corporate officers for which they have never been indicted or at a jury trial.

The corporation is not obliged to turn informer upon those corporate officers.

Justice John M. Harlan: Were all these transactions in cash, the receipts, the Lubben receipts?

Mr. George B. Christensen: Yes, yes.

Justice John M. Harlan: The disbursements for black markets supplies --

Mr. George B. Christensen: Yes.

Justice John M. Harlan: -- that you described all in cash.

Mr. George B. Christensen: All in cash.

Lubben would pay him cash.

They'd accumulate cash.

There was a dentist the Board of Trade as you will recall is in an office building downtown where they got a lot of people in that office, there was a dentist doctor.

His name was Dr. Dowell we first heard about it.

This dentist was an operator in this field.

You can get an envelop with a lot of bills in it and take it down to Dr. Dowell and Dr. Dowell would say there's going to be Northern Pacific car number so and so, Burlington car so and so, so and so and so and so.

They will show up a week from now at corn products refining.

Pays a ceiling price, corn products will pay the ceiling price you get.

That was that kind of an operation.

Justice Arthur J. Goldberg: (Inaudible) were not turned over to the Government.

Were they not facts?

Mr. George B. Christensen: If I said it an unqualified fact and I did not mean to.

Yes, they were.

They were turned over to Agent Lima.

And they were turned over to the intel -- they were turned over to Agent Lima approximately the 1st of August when he came out to commence his investigation and when the intelligent people got in at some six to eight weeks later, they had some of them and more of the work papers that went with them but they were not turned in Mr. Justice as a claim for deduction.

They were not turned in as being true.

They are saying, “Here's what we put together and here's the basis on which we did it.”

Justice Mr. Justice Brennnan: And he says what you suggested (Inaudible)

Mr. George B. Christensen: That's right.

Unknown Speaker: (Inaudible)

Mr. George B. Christensen: Your guess is as good as mine.

We say that Judge Nordbye's -- they won't make any findings.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: 1945 and 1946 of the indictment years on.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. George B. Christensen: They're saying this.

Cain said, “I didn't spend or just drop down the line or two”, Judge.

He said, “I didn't spend $45,000 for chocolate”.

That's what they're talking about.

I'm going to say --

Justice Arthur J. Goldberg: Mr. Christensen, before you leave or start (Inaudible)

Mr. George B. Christensen: Well, now, you've asked two or three questions.

Number one -- number one, there's no question of false statement in this case.

We weren't indicted.

Number two, these were turned over for what they were worth and they were turned over with every perjury agent, saying, why they put the disbursements on there at all.

Cain says, “Well, I hope they'll think I'd paid out something.”

Everybody said at that time, “You're going to get no credit for whatever you put down there.”

We can't do it in the perjury regulations quoted in our brief wouldn't let it.

Justice Arthur J. Goldberg: Doesn't the record show that payment made (Inaudible)the settlement tax liability on the basis of the statement?

Mr. George B. Christensen: No sir.

Justice Arthur J. Goldberg: Because you didn't put it in the record.

Mr. George B. Christensen: I say it doesn't show whatnot by any stretch of the imagination, not by any stretch of the imagination, not remotely by that.

This fellow, Lima said, he made out of $20,000 payment after he'd sworn to the grand jury that he didn't and we finally drop it out and we ask him, “How did you arrive at the $20,000?”

“I don't know.”

“Was it for 1945 or was it for 1946?”

“I don't know.”

“Was it for both years?”

“I don't know but it was $20,000.”

Justice John M. Harlan: Am I wrong in thinking that there is something in the record to indicate that Shotwell reserved the right to contest the Treasury Department ruling or position at that time?

Mr. George B. Christensen: Correct, you're correct.

Justice John M. Harlan: That these disbursements that were not deductible.

Mr. George B. Christensen: We have that right.

Justice John M. Harlan: You have that right.

So the figures did have some --

Mr. George B. Christensen: But if we -- had we done that -- had we done that Justice Harlan, we of course would add to come in with a claim for a refund.

Prove document completely and precisely, every penny that we claimed as an offset.

And I want to and I'm going to sit down in just two or three minutes because I do wish to save some time for rebuttal and my brother Kirby have some time to speak.

And I haven't yet gotten to the issues about which we complain so bitterly in our petition and in our brief.

You sent this case back on the basic ground that all these the Government had told you and I am painting with the wide brush, I understand, but time permits me to do no other way.

The Government came in here and they told you, we are going to prove that no disclosure was made.

This is all an utter perjurious fabrication.

We are going to prove to you and to any court that Mr. Busby never reveal -- that Mr. Graflund never revealed these transactions to Mr. Busby in January of 1948, so he could not have made a disclosure.

We are going to prove to you that Huebner threatened to tell the truth on the stand in 1952, so they kept him off the stand and so forth and so on.

Judge Nordbye return to a pretty harsh opinion against us but he finds that that claim to this Court was false that Busby did reveal, that Busby did reveal, that Graflund did reveal to Busby in January 1948 which was the genesis of this disclosure.

When Huebner got on the stand and had to face cross-examination, he gave not one syllable of this conspiracy of perjury that he'd been kept off the stand.

And at the time, the representations were made to this Court that nothing like this had taken place, the United States prosecutors had in their possession sworn grand jury testimony by this fellow Graflund.

Yes, I told Busby all about this in January and I didn't spare the horses in telling.

They had Agent Lima saying, “I never heard of a $20,000 settlement.

I never heard of any corruption in this case.

I never heard of an 870 form which is the form you use to close a case out with.

That was all in the possession of the Treasury Department and the prosecutors in the field at the time we were up here some years ago having these heeded arguments.

And we finally dragged it out.

Fortunately, by starting under Jencks and progressing to the grand jury next.

I can't say what you would have done that you control what the actual facts were in 1957 when we argued this case before.

I doubt whether you would render this remand.

But at least you were entitled to know.

And as American citizens, my client were entitled to have the United States deal fairly with it and say that either these affidavits that they have now given us after months and months and months of refresher courses and I used the term of the witness, Lima, are false or their repeated sworn statements obtained by us before this very grand jury our perjury that lie behind this case.

I've only scratched the surface of it.

You are going to have a hard time with the briefs.

I would like to save the rest of my time.

Justice John M. Harlan: You're saying in effect, and I want to make sure I understand.

You're saying in effect the former Solicitor General either consciously misrepresented the situation in the --

Mr. George B. Christensen: I'm not saying that.

Justice John M. Harlan: -- Court or overreached the Court.

Mr. George B. Christensen: I'm not saying that.

Justice John M. Harlan: Well, what is your point then?

Mr. George B. Christensen: I'm saying at some point in the Department of Justice and certainly the prosecutors in the field have the knowledge.

I would make no claim against the Solicitor General.

He may have been a little indulgent with his boys and taken too much on faith.

Quite certainly, the Solicitor General would not come in here remotely.

I don't think and dream this.

The record is silent on it.

I am making no charges whatsoever against the Solicitor General.

I am making charges against some of the man in the field who heard this very evidence, who'd obtained it and filed an affidavit that no disclosure had been made and nothing like this took place.

Now, where the lapse came, I don't know but it can.

Justice Tom C. Clark: What did Judge Nordbye said about --

Mr. George B. Christensen: I beg your pardon.

Justice Hugo L. Black: What did Judge Nordbye said about the disclosure?

Mr. George B. Christensen: Judge Nordbye said the disclosure was made.

He says that it was made before June 21.

The Government told you, they'd show nothing was done before June 21 and says necessarily it was made before June 4.

He quibbles about the date but he says the disclosure was made.

He says it was made in about the way we say it was but because the corporate officers in disclosing on Shotwell didn't say as he believes the fact to be and as we say is not the fact and in any event is immaterial to Shotwell's taxes that the corporate officers got some so-called constructive dividends and should have disclosed upon themselves personally that this was not in good faith and therefore we forget about it.

That, as I understand it is the gist of Judge Nordbye's reason.

Thank you.

Chief Justice Earl Warren: Mr. Kirby.

Argument of William T. Kirby

Mr. William T. Kirby: I speak for the petitioner, Harold Sullivan who is a lawyer in Chicago and during all the years, the question was engaged in a substantial law practice and acting as a master in chancery.

Now, he -- the proof is very plain that Harold Sullivan, the petitioner, did not prepare the tax returns in question and did not see that.

Indeed, he became a vice-president of the company only after the return which is Count 1 of the indictment was filed.

Now when --

Justice William O. Douglas: Is there a separate brief of your claim?

Mr. William T. Kirby: No sir.

It's 0.5 of the general brief.

When this case was here before, it was pointed out that the case was now going to be sent back for a limited area of inquiry and that the merits of the first verdict with respect to any of the petitioners were not being reached.

And this Court said at that time, that verdict clearly must stand or fall on the sufficiency of the evidence already introduced on the trial.

And it pointed out that no questions of substances of the petitioners not yet been reached but could be reached and it's those points with respect to Harold Sullivan that I address myself.

Justice John M. Harlan: In relation to the suppression issue.

Mr. William T. Kirby: I address myself with respect to Harold Sullivan on two points as to the merits of the trial.

Our subsection 5 of the general brief has captured that Sullivan did not have a fair trial.

Suppression question has basically been treated by Mr. Christensen.

My point on the suppression issue is very simple.

You did not want to reach the question of whether these documents were constitutionally inhibited until you got to the question of whether the documents came in as a part of a disclosure.

It went back down to Judge Nordbye and Judge Nordbye said, “Yes, these documents came in as a part of the disclosure and indeed they say it was used in the disclosure recap.”

It's what he found but he said, “I'm not satisfied with the truth of it.”

But of course in Rogers versus Richmond, you decided that truth or falsity does not decide the question of constitutional permissive use.

But that's another question.

They think constitutionally, these documents cannot be used.

That's in the other portion of the brief.

But with respect to Harold Sullivan, the only truth about Harold Sullivan, the trial is exceedingly limited.

This was a trial four defendants that lasted several weeks with 75 witnesses but when it was over, Judge Nordbye asked -- he reserved the question of the motion of acquittal for Sullivan and he pondered that six weeks after the jury trial.

He asked for briefs and he only asked for small portions of the testimony of two witnesses to be written up out of the 75.

And the only testimony that runs through Judge Nordbye's whole opinion denying the acquittal of Sullivan is that this man Lubben said that he had gone to Sullivan's office on February 14, 1946 and he tendered some checks and Sullivan said, “I don't want checks, we want cash.”

And as Lubben so testified, he produced check forms dated February 14, 1946 but with the names of the payees' cut out.

That's to prove his case.

Now, that's all there is about Sullivan.

Accordingly, when you go to Judge Nordbye's careful written opinion, that's all there is.

Now, I point out that the next morning, Lubben took the stand and referring to divine guidance recanted, said he wasn't there in February, it was in the fall.

Well, in the fall?

He could have been there about February 14 checks and this poisonous point, “he didn't want checks, he want cash” couldn't have occurred in the fall.

Now, this Court, therefore have this to Sullivan an instance where the whole case as to Sullivan is upon an alleged extrajudicial admission uncorroborated therefore the corpus delicti cannot be established with the U.S. versus Smith and U.S. versus Collin.

But not only is this an extrajudicial admission which is uncorroborated.

It's recanted the very next morning and I say with all respect that as you said that verdict must stand or fall on the evidence that was in then, as to Sullivan, it must fall.

Justice William O. Douglas: I wasn't clear whether the recanting related to the date of the conversation or to the existence of any conversation.

Mr. William T. Kirby: The mechanics of the recanting were, he said, I had “a conversation” in the fall.

He never gave the context or the text of it so I say that it's a recantation in full.

At least it is no corroborated extrajudicial admission of that substance that is needed to supply that one thing to hold Mr. Sullivan.

Now, at the very least, further, and as an additional point with respect to Sullivan, this case presented a problem which is often occupied the attention of this in other courts where you have a number of man in a long complicated trial in evidences admissible against some but not others.

And then the question is, has the one against to whom the evidence was not admitted can protect so that his faith is not decided by evidence which is not admitted or admissible against him.

Judges Learned Hand and Jerome Frank and a number of the justices of this Court have taken the view that where the evidence is vital and dramatic, it is impossible for the jury to perform the mental gymnastics of just simply striking it from their mind.

And some fine opinions have been written where it is said that where you have that vital evidence, it just will be transferred inevitably.

But in any event, this Court has in two cases where the Court gave very strong restrictive instruction that the evidence should not be transferred over to the person against whom that was not admitted.

In two cases, this Court is permitted the conviction to stand, those being Blumenthal and Delli Paoli.

That even in Delli Paoli, there was a very strong dissent by Justice Frankfurter for himself and Justices Black, Douglas and Brennan which said that psychologically it was impossible for the jury not to consider that strong dramatic evidence against the other petitioner.

Now, in this case involved and in two cases where the judge didn't make that impregnable barrier, convictions were reversed.

Those two being Anderson and Kotteakos.

Now, in this case, most of the evidence was never admitted, much of it was never even offered against Sullivan but when it came time to instruct the jury, the judge affirmatively directed them to consider that evidence against Sullivan.

There was an affirmative misdirection not a mere equivocation.

For instance, Lubben testified about many conversations out of the presence of Sullivan and Cain and they were highly dramatic with money piled up by motel beds.

They were not admitted against Sullivan but in the instructions, the jury was told to consider them against Sullivan.

The claimed oral admissions of Cain where he was asked many, many questions about how he made up some figures, they were not offered against Sullivan, they were not admitted against Sullivan but in the charge of the jury, the judge very vividly recall them and told the jury to consider them against Sullivan.

Now, the documents --

Justice Byron R. White: All these over objection?

Mr. William T. Kirby: Yes, indeed over objection and the good judge said to me when I made the objection, he said, “Didn't I tell the jury that when the documents were admitted that they weren't to be considered?”

I said, “Yes, Your Honor but you are now telling them just the opposite.”

With all respect in the world, he told me to hurry on.

Justice Byron R. White: (Inaudible)

Mr. William T. Kirby: Yes, he did.

Justice Byron R. White: That those were to be considered evidence (Inaudible)

Mr. William T. Kirby: That's exactly true.

It's exactly what he said.

However, where you have an abstract to destruction, and that abstract to destruction generally something that occurs out of the presence of the defendant is not admissible against him.

But then as the judge, you recite details of evidence and important evidence, indeed the so-called Exhibit 185 Series, the Government time after time has said it's one of the two legs upon which the conviction stand.

Those were not even admitted against Sullivan or offered against him and Judge Nordbye described them in particular and he said those could be used to determine the intent of Sullivan to violate the tax law.

And in Kotteakos, it was pointed out that if you have an equivocal and unilluminating instruction but then you have misdirection, then this risk that this evidence will be transferred over against the defendant is surely there.

Justice Byron R. White: (Inaudible)

Mr. William T. Kirby: I -- this was not a conspiracy case.

The Government in a footnote says that in a conspiracy case, they might have been able to put it in a conspiracy case.

But I don't think sir that we can -- I don't think that we can say that much of this evidence under any circumstances would have been admissible against Sullivan.

From a deep familiarity of the record, I assure you especially some of the most crucial evidence which they didn't even proffer against Sullivan.

So we have here a case of affirmative misdirection which certainly produced equivocation.

The Government and the court below said, well, we gave one good instruction and that should satisfy it.

Gentlemen, it satisfies none of the tests of the leading cases and I humbly submit that at least as to Sullivan there must be a reversal.

Thank you.

Chief Justice Earl Warren: Mr. Howard.

Argument of Joseph M. Howard

Mr. Joseph M. Howard: The Court please, I will handle the second, third, fourth and fifth questions in the briefs and Mr. Oberdorfer will take the first question, the question of the suppression of evidence of the voluntary disclosure.

The jury found these defendants guilty after six weeks trial with very lengthy evidence about 3,000 pages of the transcript printed.

Judge Nordbye found that the voluntary disclosure, the alleged voluntary disclosure was false.

He found that after two lengthy hearings, one before the trial and the other one after this Court had remanded the case.

He found that the unrecorded receipts which had been disclosed by the voluntary disclosure had not been spent for raw materials as had been claimed in the alleged voluntary disclosure.

Judge Nordbye also found that there was an attempt to fix this case by some sort of mechanisms within the revenue service.

I like to give just a brief summary of the facts to support those two findings of the jury and of the -- of Judge Nordbye.

At the trial, the evidence showed that corporation through its officers had received $400,000 in black market receipts during the years 1945 and 1946.

And that those receipts had not been reported on the returns.

There's plenty of evidence of this, direct evidence not only from Lubben of his payments but also from others who had made payments for Lubben.

And there was a wealth of documentary evidence to support that to corroborate the testimony that Lubben gave as to this approximately $400,000 in payments.

The defense was that the taxpayers had received that is that the corporation had received only $150,000 and the defense further claimed and put on evidence to support it that they had spent all of that.

The evidence was not different.

There was no evidence of any specific payment at all it was very general.

The issues that went to the jury then were how much did the corporation get in the first place.

Did it get $400,000 or did it get $150,000?

And the second issue was where did it go?

Did it go in payments for raw material as the defendants claim or did it go someplace else?

There was a sharp conflict in the evidence on this, the evidence on both sides.

It was purely a question of credibility which group of witnesses was the jury going to believe or the jury believed the Government's witnesses and convicted the defendants.

On the voluntary disclosure, the evidence at those hearings showed that sometime early in 1948, the defendants began worrying about these 1945 and 1946 returns.

Justice Mr. Justice Brennnan: May I ask you, Mr. Howard?

Mr. Joseph M. Howard: Yes sir.

Justice Mr. Justice Brennnan: Am I right that the inflection of voluntary disclosure in view of the proceeding (Inaudible)

Mr. Joseph M. Howard: The jury was allowed to consider everything that came before them as to the voluntary disclosure and there was a great deal.

They were instructed that they could consider that as to the intent of the defendants whether or not they had acted in good faith.

The instruction was given at the requests of the defense and in substantial, almost, well, it was very substantially as requested by the defense and there was no objection.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: Criminal intent, that's right.

They began to worry about this early in 1948 and the reason for that was that Lubben was beginning to have tax troubles himself.

Lubben's tax troubles dated back as far as 1945 or certainly in February 1946 when he filed his income tax return and included only a partial payment and gave certain reasons why he had not paid the full thing.

The Treasury began to investigate him at that time.

And as Judge Nordbye found in his opinion, Shotwell, people knew that when Lubben began having tax troubles, their day of reckoning was not far away.

Consequently, some time before June 21, 1946 -- 1948 Busby and Cain went in to see Mr. Sauber who was at that time a high official in the Chicago Office of the Revenue Service and this is Judge Nordbye's finding on the -- after the supplemental hearing.

Sauber told them to make a complete computation of the receipts and the disbursements.

Now, the other side has challenged our statement that he wanted -- that Sauber told them to make a computation of both receipts and expenditures.

But that is the testimony of Sauber at the original suppression hearing.

It's the testimony of Busby at the trial and it's the testimony of Graflund who quotes Cain at length and saying that this is what Sauber told them to do.

The testimony of Graflund at the suppression hearing or at the supplemental hearing after the case went back.

On June the 21st, Agent Sam Krane arrived on an errand asking for records of the corporations dealings with Lubben.

There was, as the record shows, immediate consternation.

Justice Mr. Justice Brennnan: How long was it from the disclosure?

Mr. Joseph M. Howard: That's uncertain.

Judge Nordbye finds that the conversation with Sauber was not in January as Busby and Cain testified.

It was not in March as Sauber testified.

It was some time later and that the March date was in arbitrarily hooked up date between Busby, Cain and Sauber.

That's his finding.

He says he cannot pin it down exactly but it was sometime before June 21 when Agent Krane came in.

Justice Arthur J. Goldberg: Mr. Howard, am I correct in assuming that the Government pointed to as well as to petitioner that the timeliness of the disclosure is not involved?

Mr. Joseph M. Howard: That's right.

Judge --

Justice Arthur J. Goldberg: You accept the finding that existed --

Mr. Joseph M. Howard: Right sir.

Justice Arthur J. Goldberg: -- at the time -- sometime before Krane visited.

Mr. Joseph M. Howard: Right sir.

He made his finding -- we're not concerned with that.

Justice Arthur J. Goldberg: No quarrel with that point?

Mr. Joseph M. Howard: No sir, no sir.

When the case was here before, we thought we had proof that it had not occurred at that time.

All of that proof was put before him and he made his finding.

After -- immediately after Krane's visit on June the 21st, there were a number of frantic conferences among the defendants as to what should be done.

And at that time as Judge Nordbye found, they first began to exert themselves to collect the figures on the attempted voluntary disclosure.

Very shortly after also, Cain with a New York attorney by the name of Grace at a meeting with Lubben and his attorney whose name was Davidson in a night club outside of New York, the Riviera Club.

And Cain told Lubben and Davidson that he was attempting to settle a case by political contacts and he mentioned a member of the Cabinet.

And I might say that the investigation that has been made as shown no connection of that member of the Cabinet with this case whatsoever.

There's other evidence in the record that Cain was a notorious name-dropper and that he was likely to say that he had gone all the way to the top.

So I want to make it clear that although that name is in there, nothing has been shown to connect him with in any way at all.

At any rate, Cain said, he was trying to settle it in this manner and he urged Lubben to go to South America and stay there for two years to keep out of the way.

Grace said that he was going to pay a visit to the office of Dan Bolich who was the Internal Revenue agent in charge in New York.

He was in charge of the fraud cases.

And this Court knows of Mr. Bolich through the Grunewald case where he appears very prominently and in fact, he was a defendant.

After the meetings in New York, Cain called the various interested members or officers of the corporation together in the Belden-Stratford Hotel in Chicago in order to work out the figures which were to be submitted to the Revenue.

Those figures showed receipts of $400,000 and they also showed expenditures of $400,000.

I'm using it in a very approximate term.

Cain admitted that those expenditure figures were merely plug figures and there is considerable evidence in the record that the officers of the corporation tried to work out the expenditures and the most they could come to is about $125,000 or $150,000.

And Cain said, “Sauber told us we had to have this in here and we've got to make the figures matched”.

He said, “Give me a piece of paper and I'll work it out.”

And in about two minutes, he scribbled down the figures which we have at the bottom of this exhibit to show the so-called expenditures.

Justice John M. Harlan: Does the record show why Sauber insisted on the figures in view of the then policy of the department that these figures were not deductible?

Mr. Joseph M. Howard: No sir.

The record simply shows that Cain said or I mean Sauber said, “Prepare the figures on the receipts and on the disbursements and I will then send an agent.

I will see to it that an agent comes out to make an audit to determine how much you actually owe”.

I think --

Justice John M. Harlan: (Inaudible)

Mr. Joseph M. Howard: Sauber himself did not testify to that, no sir.

At a later date, other officials in the Revenue said that they would refuse to close the date or close the case until they found out where that actually went until they got the proof.

After the figures had been completed, agent --

Justice Mr. Justice Brennnan: Mr. Howard.

Mr. Joseph M. Howard: Yes sir.

Justice Mr. Justice Brennnan: I wanted to -- did the $400,000 (Inaudible)

Mr. Joseph M. Howard: No, not exactly, no sir.

I'm --

Justice Mr. Justice Brennnan: That figure comes close with the figures at the trial.

Mr. Joseph M. Howard: It comes pretty close to it.

That was the figure at the trial, yes sir.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: Well, I think that's -- the total of the trial, the total proof there was about $450,000.

Justice Mr. Justice Brennnan: 450?

Mr. Joseph M. Howard: That's right.

And the total on the sheets is slightly different, so I was using $400,000 just as an approximate figure.

Justice Arthur J. Goldberg: Mr. Howard, (Inaudible)

Mr. Joseph M. Howard: Yes sir.

Yes sir.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Joseph M. Howard: He says that it may have been very probably exaggerated, yes sir.

He doesn't give any details because he says in the amount that we're -- it is something that we're not concerned with on this particular --

Justice Arthur J. Goldberg: The stated amount, there's no doubt about that --

Mr. Joseph M. Howard: Well, he doesn't say that.

He just says that it may very well have been exaggerated.

After this, Agent Lima came to the plant and talked to Busby and was handed just the top sheet, just the summary.

He wasn't given the entire set of papers.

He was told by Lima that he could have all of the papers if he could come to an agreement that the figures on this summary were acceptable to the revenue.

So Lima went back to his office and he prepared a draft of reports at the instructions of Johnson who was his superior.

And in that report, he allowed deductions for all of these unclaimed expenditures, unreported expenditures which under the policy of the department at that time were not being allowed.

Justice John M. Harlan: Was that before the case that was decided against the department?

Mr. Joseph M. Howard: Yes sir.

Justice John M. Harlan: Ultimately, it was held, was it not?

Mr. Joseph M. Howard: That was -- ultimately, it was held that they should have been allowed.

The first --

Justice John M. Harlan: That decision came after this episode, is that right?

Mr. Joseph M. Howard: Came after this episode, that's right.

First decision --

Justice John M. Harlan: Had there been any court decisions --

Mr. Joseph M. Howard: To that?

Justice John M. Harlan: -- after that time?

Mr. Joseph M. Howard: At that point, there had not been, no sir.

It was in dispute and ultimately, the first decision was the Sullenger decision in the Tax Court which is cited in our case and that was followed up by three or four Circuit Court cases.

And finally, just before the trial, the Commissioner acquiesced in and of itself.

He allowed all of these claimed expenditures although he had been presented with no substantiation for them whatsoever.

And it's been admitted all along they can't be substantiated.

And he came up on the draft of his report with a $20,000 deficiency.

Shortly after this, Cain told Huebner and Graflund that he had settled the case for $20,000

Justice Mr. Justice Brennnan: Now, this was only in 1945?

Mr. Joseph M. Howard: 1945 and 1946, yes sir.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: Those are the allowed expenditures, I believe, Your Honor.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: Well, he allowed -- he disallowed those I think.

Those that you've got there are those that he disallowed.

He said, he would not allow them.

What he allowed --

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: Oh, I'm --

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: Yes, that's right, that's right.

He was proposing to allow almost all of those expenditures.

All of the claimed expenditures for raw materials he was allowed.

There were a few others in there that he disallowed, exactly why it's never been explained but they were a very minor amount of the claimed expenditures.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: Right, right sir, that's right.

Cain told Graflund and Huebner that he could settle it for $20,000, and shortly after that, he asked Huebner for $10,000 to take care of the fix of the case.

Well, this was in the late summer of 1948 and about this time, somebody in the Revenue Service apparently got suspicious of the case and a fraud investigation was began, and thereupon followed the destruction of quite a number of records.

Lima's draft of a report was destroyed within the Revenue Service on the instructions of his superior, Johnson who is by the way a defendant in the other case which is pending in Chicago at the present time.

Cain directed that Graflund destroy a record which Mrs. Merrill had kept of the so-called corn box.

Money was coming into the corn box and being paid out for the raw materials according to the general testimony at the trial.

The record had been kept to that and Cain ordered it destroyed.

Graflund had kept a record of money which was transferred from that corn box to a safety deposit box in the bank.

This was all the black market receipts.

Cain destroy -- or Cain directed him to destroy that record.

Finally, sometime later, when the revenue agents were already working in the plant, Revenue Agent Mammel, whose name was mentioned throughout the record, discovered that there had been some studies of inventory.

And he asked for those and Cain at that point directed that they'd be destroyed and they were.

Graflund went down to the plant on a Saturday afternoon and destroyed them also.

As to the second point which is the charge that we submitted false affidavits to this Court when the case was here before.

Justice Arthur J. Goldberg: Mr. Howard, before you get to that, could you advise me of whether in your opinion the inhibit further through (Voice Overlap) did it had false statement about the alleged exhibit which constitute a basis for the prosecution provided by Section 145 (b) or the general section on false statement?

Mr. Joseph M. Howard: Yes sir.

It could.

Justice Arthur J. Goldberg: It could.

Mr. Joseph M. Howard: Yes.

Justice Arthur J. Goldberg: The Government could have proceeded --

Mr. Joseph M. Howard: Could they?

Justice Arthur J. Goldberg: -- so elected to prosecute, on those -- on those statutes.

Mr. Joseph M. Howard: Right, right, it was another offense, separate offense.

Justice Arthur J. Goldberg: And that the material document, the material false statement be served (Voice Overlap).

Mr. Joseph M. Howard: Right, right but of course that occurred to us during the course of the proceedings but we saw no reason to begin a new prosecution when we have this one in the stage that it was.

As to the contention that we submitted false affidavits to this Court and that we withheld evidence from the Court when the case was here before, so far as the false affidavits are concerned, they are the affidavits of Mr. Yaden, Mr. Russo, Mr. Huebner and Mr. Graflund.

All of which were submitted to the Court at one time or another in support of the motion to remand.

When the case went back before Judge Nordbye, all of the witnesses testified as we said they would.

There wasn't any material variance.

There were some things that they did not testify to.

But as to the statements that we made to the Court as to what witnesses would testify, I think it's clear from the record that they did testify as we said they were going to.

And Judge Nordbye heard those witnesses and saw them on the stand.

And he has found that nothing that was submitted in the affidavits to this Court was false.

He found that there was one mistake in the statement of Graflund that he had not told Busby about the black market dealings in January.

As to --

Chief Justice Earl Warren: That's a rather important thing, wasn't it?

Mr. Joseph M. Howard: Yes sir, it was.

That's right.

It was crucial to our argument on the timeliness part of it.

And as to that, he found that Busby had made a mistake.

He also found --

Chief Justice Earl Warren: Busby had made a mistake?

Mr. Joseph M. Howard: I'm sorry, Graflund, yes sir.

That Graflund had made a mistake.

He also found specifically that he had done it honestly.

And he says in at least two points in his opinion that he was satisfied that Graflund was trying to tell the truth.

He may have been mixed up on that one point where he was trying to tell the truth.

Chief Justice Earl Warren: Was that the only thing that Judge Nordbye questioned?

Mr. Joseph M. Howard: The only thing that -- so far as I know Your Honor, when we filed a brief here before, we included in it a summary of what our witnesses would testify to when the case got back before Judge Nordbye.

So far as I know, that's the only thing in which he has found that we were mistaken.

Justice Mr. Justice Brennnan: (Inaudible)

Chief Justice Earl Warren: Yes.

Mr. Joseph M. Howard: Yes sir.

That was part of it.

There were two parts --

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: That's right, that's right.

Justice Mr. Justice Brennnan: Well do you have this -- I forgotten whether the affidavits or the (Inaudible)

Mr. Joseph M. Howard: We have the testimony of a man as I recall it now of a man name Irvin who was going to testify about a meeting that he had have with the defendants and that was the basis of -- a part of our position when we were here before on the timeliness.

Now, Irvin had a stroke before the trial -- before the rehearing and in fact died a short time later, so he was not available to us.

Later on, after we had filed those claims, Graflund did change the testimony that he had given to us earlier.

After the -- I'll use the word “refresher courses” that we had given the --

Justice Mr. Justice Brennnan: Just before arguing to -- the same that you were arguing (Inaudible)

Mr. Joseph M. Howard: I'm not sure.

Yes, he did, yes sir.

Justice Mr. Justice Brennnan: No one told you about it?

Unknown Speaker: Was that it in Graflund's affidavit?

Mr. Joseph M. Howard: It was in Graflund's affidavit.

Not the change, no, the fact that the testimony that he had not talked to Busby about this in January was in his affidavit.

We said nothing about the change.

Justice Mr. Justice Brennnan: Well, I think that the affidavit that he handed to you was he had not (Inaudible)

Mr. Joseph M. Howard: Right.

Justice Mr. Justice Brennnan: It was on that affidavit that he actually decided to (Inaudible)

Mr. Joseph M. Howard: Right.

That's right, that's right.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: That's right.

Before the remand, he said that but he had at that time talked to Busby and in -- no.

He was saying that he had not talked to Busby at the time the case was here before until June, until some time after Sam Krane had appeared in the Court.

And that's the posture in which the case was in at the time it came before you in the Court.

Justice Mr. Justice Brennnan: But the time he filed the affidavit, when did you finally -- in relation to this time, he decided that has been remanded, when did he tell you he doesn't know, “I was wrong” and I said (Inaudible)

Mr. Joseph M. Howard: It was before the remand because that was the effect of his affidavit.

Justice Byron R. White: Was there -- is there any (Inaudible) the affidavit that's up here?

Mr. Joseph M. Howard: Yes sir, yes sir.

Justice Byron R. White: (Inaudible)

Mr. Joseph M. Howard: Found against his story.

That's right, that's right, I'm sorry.

Chief Justice Earl Warren: Well, if it was beforehand, why weren't we advised of this change?

Mr. Joseph M. Howard: Because Your Honor, this was a question of credibility of the witnesses and we after a long thorough investigation of all of these witnesses, had concluded that the story that was being told to us at that time was the true story.

Chief Justice Earl Warren: Even though --

Mr. Joseph M. Howard: And the --

Chief Justice Earl Warren: -- the man whose affidavit you presented to us had repudiated his affidavit?

Mr. Joseph M. Howard: Oh no, he hadn't repudiated his affidavit.

He had repudiated his earlier story.

The story he -- what he had said in the first place was that he had talked to Busby in January.

And then he -- certain things were brought to his attention and he changed his testimony.

He said, “I didn't talk to him until Sam Krane had appeared at the plant.”

That was what was put into the affidavit that was submitted to this Court.

Chief Justice Earl Warren: And that's what he testified to before Judge Nordbye.

Mr. Joseph M. Howard: That's what he testified to before Judge Nordbye, that's right.

Chief Justice Earl Warren: I see.

Mr. Joseph M. Howard: Judge Nordbye found that he was mistaken but that he is honestly mistaken.

And our reason for not submitting the contradictory statements to this Court was that we believe that the story of the witnesses were telling us at that time was a true story and we have examined it over a period of about 18 months and checked it in every way we possibly could and we felt that it was a question of credibility.

And this Court does not usually pass on questions of credibility if this had been --

Chief Justice Earl Warren: Not that the court below has done it but you were passing on it yourselves, were you not, without giving us both sides of it?

Mr. Joseph M. Howard: Well, we were saying, this is what the witnesses will testify to at this time and we submit, I think this is the language that we used in our motion to remand that this Court and the Court of Appeals are not equipped to decide issues of credibility.

And for that reason, we ask that it'd be sent back so that those questions of credibility could be decided back there.

Justice Arthur J. Goldberg: The matter was presented in affidavit before the Sam Krane affidavit?

Mr. Joseph M. Howard: Yes sir.

Justice Arthur J. Goldberg: Then before the remand has been changed, is that correct?

Mr. Joseph M. Howard: No sir.

No, if he had change prior to that time.

The affidavit that we presented to this Court was what he testified to at the remand.

He had given us a much earlier statements here that this investigation went long for 18 months and when these people were first called in to be questioned, they had -- this was a matter that had happened 10 or 12 years before.

And the first time they were called in, they were encouraged to give anything that they recalled about the thing.

Justice Arthur J. Goldberg: I understand but I thought you said that the affidavit that happens to be before this Court is definitely not talking about the one that you have reviewed.

Mr. Joseph M. Howard: That's right.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Joseph M. Howard: That's right.

Justice Arthur J. Goldberg: Isn't that correct?

Mr. Joseph M. Howard: That's right.

Justice Arthur J. Goldberg: And then at some point Graflund changed it, did he change --

Mr. Joseph M. Howard: No, he had change before that.

Justice Arthur J. Goldberg: I know but he testified earlier, about January.

Mr. Joseph M. Howard: Right.

Justice Arthur J. Goldberg: And then you presented the man in this Court.

Mr. Joseph M. Howard: Yes sir.

Justice Arthur J. Goldberg: In which you said that that was wrong and --

Mr. Joseph M. Howard: No.

We didn't say it was wrong, we said that what he would testify to that is --

Justice Arthur J. Goldberg: Now, we have something different.

Mr. Joseph M. Howard: Right.

Justice Arthur J. Goldberg: Now, when did he ever change that?

Mr. Joseph M. Howard: No.

No, He's stuck to that thereafter.

Justice Arthur J. Goldberg: Thereafter?

Mr. Joseph M. Howard: Right.

He changed only once and he is stand to that story afterward.

Judge Nordbye found --

Justice Arthur J. Goldberg: He found relief.

Mr. Joseph M. Howard: No sir.

He found that he was mistaken.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Joseph M. Howard: That's right, that's right.

He found that he was --

Justice Arthur J. Goldberg: But other (Inaudible)

Mr. Joseph M. Howard: That was all in the record.

Justice Arthur J. Goldberg: All of them.

Mr. Joseph M. Howard: Sure.

Chief Justice Earl Warren: Mr. Howard, if the jury had come to the conclusion that Judge Nordbye came to that he did not testify but didn't say accurately if he wish on the date of disclosure, would that in your opinion had been an important fact in this decision?

Mr. Joseph M. Howard: Not for the jury, no sir.Of course, all of this was -- I can't see that that would have made --

Chief Justice Earl Warren: Well --

Justice Mr. Justice Brennnan: At the trial is it the Government's contention that the disclosure that one is made and not made entirely of (Inaudible)

Mr. Joseph M. Howard: No, no sir.

The contention that we had made at the first hearing was that the --

Justice Mr. Justice Brennnan: Not the hearing.

I'm speaking of what the theory had been.

What was he doing (Voice Overlap)

Mr. Joseph M. Howard: That question --

Justice Mr. Justice Brennnan: -- lack of exposure.

Mr. Joseph M. Howard: No, that question didn't come up.

Justice Mr. Justice Brennnan: Well, at the jury I gather with Mr. Christensen an issue of this disclosure to accredit his claim --

Mr. Joseph M. Howard: Right, not when --

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: That's right, that's right.

Justice Mr. Justice Brennnan: Now, what was in the evidence is the date of disclosure of Sauber?

Mr. Joseph M. Howard: January.

The Sauber did not testify at the trial.

Justice Byron R. White: Sauber did not testify?

Mr. Joseph M. Howard: No sir.

Cain and Busby testified at the trial and they said it happened in January.

Chief Justice Earl Warren: Yes, and did you have anyone to testify that it didn't occur until later?

Mr. Joseph M. Howard: No sir.

Not at that time at all.

We were not concerned with that point at the trial.

Justice Tom C. Clark: Did that came to your attention later?

Mr. Joseph M. Howard: It came to our attention much later, that's right, when after the petition for certiorari had been filed.

Justice John M. Harlan: As you have said, the only finding that Nordbye made on the first suppression hearing is that the disclosure is not being made in good faith.

He didn't --

Mr. Joseph M. Howard: That's right.

He did not --

Justice John M. Harlan: -- rule on timeliness at all.

Mr. Joseph M. Howard: He did not make any finding as to timeliness at all.

There had been an argument about it.

We were saying that the case had been assigned to an agent back in December but he said, it's not necessary for me to make any finding on that at all because I find that it's entirely lacking in good faith.

Justice Hugo L. Black: I gather in the Court's opinion, I've just been reading now and it's also brought out in this case.

It was rather crucial as to this day what the perjury and the manner indicates that it's crucial on page 239 of this opinion.

Mr. Joseph M. Howard: This is Judge Nordbye's?

Justice Hugo L. Black: No, this is this Court's opinion.

Mr. Joseph M. Howard: Oh!

Oh right.

Justice Hugo L. Black: Where this Court has acted?

Mr. Joseph M. Howard: Yes sir.

Justice Hugo L. Black: And has acted on the basis Graflund swears quite differently to what some others were insisting that the -- no time prior to a meeting held in July 1948 were they ever advised or led to believe by respondents to Shotwell's black market receipts had been disposed to the Treasury.

Mr. Joseph M. Howard: Right.

Justice Hugo L. Black: Because as I understand it, I want to see if I'm wrong, at that very time, the department did have an affidavit from Graflund showing that that was not true.

Am I right in this?

Mr. Joseph M. Howard: That was the affidavit that he had submitted.

We had other statements.

Justice Hugo L. Black: If these affidavits passed has paid a sharply different picture of the entire facts --

Mr. Joseph M. Howard: Yes sir.

Justice Hugo L. Black: That Court is explaining why turning it back.

Mr. Joseph M. Howard: Right.

Justice Hugo L. Black: I dissented and I have no right of course.

Mr. Joseph M. Howard: Right.

Justice Hugo L. Black: Indeed, they flatly contradict detail and unfold it on behalf of respondents in the District Court.

That was that they had conferred with the Government to get immunity before June 23rd.

But this Court as the basis for its remand said, indeed they flatly contradict the detail.

More specifically, Graflund swears that the first time he discuss the black market transaction, was at Busby's home in late June 1948.

Mr. Joseph M. Howard: Right.

Justice Hugo L. Black: Now, did the Government at the very time this happened -- we relied -- the Court here relied on that.

Did the Government have an affidavit from Graflund, showing that Busby was not until late June but back in February?

Mr. Joseph M. Howard: We had earlier statements that Busby --

Justice John M. Harlan: Well, the trial record already showed that, that's what he testified to at the trial, isn't it?

Mr. Joseph M. Howard: No sir.

No, he --

Justice John M. Harlan: In the suppression.

Mr. Joseph M. Howard: No, he didn't say anything about it there at all.

We did have such statements which he had given --

Justice Hugo L. Black: And the Court's opinion states Graflund's affidavit on which we acted --

Mr. Joseph M. Howard: Yes sir.

Justice Hugo L. Black: -- and placed it at a different date, doesn't it?

Mr. Joseph M. Howard: That's right, that's right.

Justice Hugo L. Black: And although --

Mr. Joseph M. Howard: You said --

Justice Hugo L. Black: -- the Government had an affidavit from Graflund at this very time showing that Graflund was now admitting that the thing had happened in April?

Mr. Joseph M. Howard: No.

No, no.

No sir.

No sir.

What we had were the earlier statements that Graflund had given which were the other way.

That is that he had talked to Busby on the train and --

Justice Mr. Justice Brennnan: What he was reiterating was the various statements of a January or some other --

Mr. Joseph M. Howard: That's right, that's right.

Justice Mr. Justice Brennnan: Why he can't go out with a story that did not happened in June now what you're telling us --

Mr. Joseph M. Howard: That's correct.

Justice Mr. Justice Brennnan: -- he never changed that --

Mr. Joseph M. Howard: No sir.

Justice Mr. Justice Brennnan: -- even when he got back before Judge Nordbye.

Mr. Joseph M. Howard: No sir, he didn't change it.

Justice Mr. Justice Brennnan: And Judge Nordbye made his finding that he was in error on the record.

Mr. Joseph M. Howard: That's correct.

Justice Mr. Justice Brennnan: (Inaudible)

Mr. Joseph M. Howard: That's correct, yes sir.

Justice Byron R. White: (Inaudible)

Mr. Joseph M. Howard: No, no, they didn't know.

This Court did not know anything about the earlier statements because we told this Court what we thought Busby would testify to when the case went back.

What we thought was the truth, Busby had given his earlier statements and we have gone over those and over those and pointed out to him various things.

And finally, something that was said, some incident stirred his mind and he finally decided that he must have been wrong about the January conference with Busby on the train and decided that it could not have been until June.

Justice Hugo L. Black: That, however, this Court was not told at that time.

Mr. Joseph M. Howard: No sir, no sir.

Because our feeling never even -- I handled a good bit of this and it never even crossed my mind that we should submit to this Court all of the various statements that we have.

Some of which were different from those which we were telling the Court, the witnesses were going to testify to.

I don't know how we could have done it.

Chief Justice Earl Warren: But you wanted this to give credibility to his present affidavit, didn't you?

Mr. Joseph M. Howard: No sir, we wanted you to send it -- we wanted you to send it back to Judge Nordbye, so that he could determine who was telling the truth about this.

We didn't want to --

Justice Hugo L. Black: Which time they were telling the truth but we didn't know about all the time as to what they'd said.

Mr. Joseph M. Howard: Well, Your Honor, we vouched for his testimony as of that moment.

That is that this is what he would say and that's what Judge -- well, I'm sorry on this one.

On this particular one, Judge Nordbye found that he was mistaken.

Justice Mr. Justice Brennnan: But he did say it to Judge Nordbye.

Mr. Joseph M. Howard: He did say it to Judge Nordbye, that's right.

Justice Mr. Justice Brennnan: Sworn to Judge Nordbye that that was in June.

Mr. Joseph M. Howard: That's correct.

Justice Mr. Justice Brennnan: Judge Nordbye nevertheless concluded that he was quite mistaken.

Mr. Joseph M. Howard: That's correct.

But honestly, he emphasizes that but he thought that Graflund was mistaken but that he had made an honest mistake.

Chief Justice Earl Warren: We'll recess now, Mr. Howard.

Print this transcript Transcript: 

Argument of Louis F. Oberdorfer

Chief Justice Earl Warren: Shotwell Manufacturing Company, et al., Petitioners, versus United States.

Mr. Oberdorfer.

Mr. Louis F. Oberdorfer: Mr. Chief Justice, may it please the Court.

I want to discuss in the remaining time available to the Government the defendant's contention that the individual defendants have been compelled to be witnesses against themselves in violation of the Fifth Amendment to the Constitution.

And that the so-called voluntary disclosure that was made in this -- at the administrative stage in this case should not have been admitted in evidence during the trial.

The voluntary disclosure policy of the Internal Revenue Service and the Treasure Department prevailed for a period in the 1940s until 1952.

That policy was a corollary of our self-assessment federal tax system.

That system assumes that when -- that the individuals assess themselves that they -- when they make out of tax return, they write down on the return the true facts of their liability, their income, and their deductions, and they file it.

And it is from this that their civil liability is established.

The voluntary disclosure policy in the period that we're discussing developed, as I say, is a corollary of that self-assessment system.

It was understood by the then tax authorities that during World War II because manpower -- enforcement manpower were short because of the temptations of war time business and a lot of other things, that people may not and many people may not have met their tax -- their civil tax obligations on the return date.

And the voluntary disclosure policy was adopted not to empty the jails and not to forgive people for crime, but to collect the taxes that might have been missed in those circumstances.

And the policy was essentially very simple.

A person who had omitted income or understated his taxable income was told in a general statement that if before an investigation had been begun of his tax return, particular year, he came in and made a voluntary disclosure which presumed in its context and I -- we say in its text, that the taxpayer told all the facts were necessary to establish his civil liability and cooperated in the settlement of it that he would, having paid the civil liability and his civil penalties that mightily do, other government would not prosecute him for the crime of tax evasion.

In this case, we have -- so far as this voluntary disclosure is concerned, the question A of whether the disclosure was timely, that is whether it was made before an investigation had begun.

And secondly, whether the other terms of the policy were met namely that the taxpayer cooperated with the authorities in achieving what was the basic objective of the policy namely; the establishment and payment of a civil liability.

In the posture of the case now, we do not contend that the so-called statement was untimely.

We acquiesce in Judge Norbye's finding that the disclosure occurred before an investigation had begun.

We do contend, and this is one of the areas, it's already been discussed on the facts that not only did these defendants fail to cooperate in the determination of their civil liability.

They didn't just sit silent and wait to be pursued which might be a questionable case.

They affirmatively and overtly attempted to deceive the authorities as to their civil liability acting under the smoke screen of their so-called voluntary disclosure.

The courts have had, the lower courts have already had cases involving the question of whether a so-called voluntary disclosure made after an investigation had begun, was admissible in evidence.

And the Second Circuit among others has held that an untimely disclosure that is one begun after an investigation, one made after an investigation has begun is not admissible.

And as a matter of fact, the -- these cases include cases where the taxpayer was ignorant of the fact that the investigation had begun.

(Inaudible) and the lower courts have nevertheless held that such disclosures are admissible in evidence because the terms of the voluntary disclosure policy which are fairly clear were not met.

And as --

Justice Arthur J. Goldberg: (Inaudible)

Mr. Louis F. Oberdorfer: Yes Your Honor.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Louis F. Oberdorfer: Relative.

Justice Arthur J. Goldberg: I mean, is that (Inaudible)?

You say that -- it's confusing (Inaudible) or is it involved or you require it or you can tell me and tell the very (Inaudible).

I think this is (Inaudible).

I find in other (Inaudible).

Mr. Louis F. Oberdorfer: Mr. Justice Goldberg, there are some additional remarks in that particular speech which I'll just quote.

“In excusing the man from criminal prosecution, we are merely taking a sensible step to produce the revenue called for by law with the minimum cost of investigation.

The man who makes a voluntary disclosure saves us a lot of money in investigating.

In return, we can spare him a turn in jail.

This is your business from his standpoint and it is good business from the Government's standpoint.

That's as far as once your statement itself is concerned.

In addition, this statement of Secretary Schneider on May 25, 1947, which was subsequent to Mr. Wancho's statement which was before the so-called voluntary disclosure in this case and which is perhaps more authoritative than Mr. Wancho said having described the voluntary disclosure policy, “This presumes of course, that the recipient taxpayer cooperates with agents of the Bureau in determining the true tax liability”.

Justice Arthur J. Goldberg: Are there any series involving the (Inaudible)?

Mr. Louis F. Oberdorfer: We have to concede, Mr. Justice, that there was never a ruling or a regulation having the formality and the precision of the (Inaudible) state, that certainly true.

But the whole context of the policy, we believe, puts -- put any taxpayer on notice that even if he -- if he, in this case for example, had come to the Treasury and said, “I know I've received some unreported income.

I'm not sure of what I did with it.

Or even, I don't care to tell you what I did with it.”

That would be one thing.

This is a case where the taxpayer said that he'd received some unreported income.

But then came in affirmatively and attempted to mislead by a series of actions, a series of statements, and by the finding of documents, a filing which almost has the dignity of the filing of an amended return.

And this series of representations, oral representations to Mr. Sauber, the filing of documents to Mr. Lima, and the evidence we have of an attempt to fix the case by a settlement which presumed that the fictitious expenditures had in fact been made.

All those things are not mere passive acquiescence.

Actually, they are acts.

They are steps in the commission of the crime that's charged here, namely the evasion of taxes from 1945 and 1946.

Mr. Justice Goldberg, you asked the other day about whether the filing of those statements was a crime and the answer that we gave at that time may have suggested merely that it was a separate crime punishable by a separate indictment.

But the fact is, under this -- particularly under this Court's decision in the Beacon Brass case of which is cited in our brief, this particular act or this series of acts are, as I say, steps in the commission of the crime that was tried here.

And you recall that taxpayer's counsel suggested that this indictment was brought on the eve of the exploration of the statute of limitations.

Under the Beacon Brass case, the statute of limitations began to run all over again when these taxpayers made these fraudulent representations which I say almost have the dignity of an amended return.

There is a question lurking here as to whether or not assuming as we do in this Judge Norbye found that these representations were fraudulent.

You recall it, Judge Norbye found in -- I quote his statement on page 1766 of the appendix.

The defendants made a dishonest, faults and fraudulent disclosure because such a disclosure did not conform to the true facts.

The so-called voluntary disclosure was concocted for the expressed purpose of misleading the tax official.

Justice Hugo L. Black: May I ask you, was that --

Mr. Louis F. Oberdorfer: Yes sir.

Justice Hugo L. Black: -- an issue before the original jury that convicted him?

Mr. Louis F. Oberdorfer: Not in those terms, Mr. Justice Black.

The original jury was charged that if it found that the payments received by the defendant corporation were expended for inventory, the jury should acquit the defendants.

And we say that the conviction, the verdict of conviction necessarily reflects a finding of fact by the jury that whatever happened to the money, a large sum of it did not -- was not spent in the inventory.

Justice Hugo L. Black: On the evidence, the -- as to the finding of the jury on the evidence then they hold.

Mr. Louis F. Oberdorfer: Yes sir.

Justice Hugo L. Black: And was this buttressed and the hearing before Judge Norbye was referenced to this crucial point in the trial of the case?

Mr. Louis F. Oberdorfer: By buttressed, there was -- the matter was not referred back to the jury.

Justice Hugo L. Black: Was there new evidence?

Mr. Louis F. Oberdorfer: There was -- there was a --

Justice Hugo L. Black: New evidence to prove the Government's side of that issue, wasn't it?

Mr. Louis F. Oberdorfer: There was additional -- there was evidence that proved not only that the funds were not expanded for inventory.

There was evidence which Judge Norbye found in support of his conclusion, his finding of fact that the money which had been represented to have been spent for inventory actually was taken out of the corporation by the individual defendants.

Justice Hugo L. Black: Was that an issue in the original trial?

Mr. Louis F. Oberdorfer: That was not established that they were -- although, that -- there was evidence to that effect at the original trial.

Justice Hugo L. Black: And it was relevant, was it not?

Mr. Louis F. Oberdorfer: Not necessary to the verdict, no sir.

It was not necessary to the verdict that the money found its way into the individual's pockets.

Justice Hugo L. Black: The evidence of time and it was relevant, was it not?

Mr. Louis F. Oberdorfer: The timeliness was not an issue before the jury as I recall it sir, no sir.

Justice John M. Harlan: The whole issue is (Inaudible)?

Mr. Louis F. Oberdorfer: Well, I would say, Mr. Justice Harlan, that this Court's previous opinion and decision and disposition of the case confirmed what the -- in effect, confirmed what the lower courts had done namely, tried this issue of admissibility to the judge.

The -- as I recall it, the defendants requested in their original motions to suppress that the matter be tried to the judge.

And this proceeding that is -- followed this Court's opinion, namely, the second suppression hearing is in effect a continuation of the original suppression hearing before the judge.

Justice Hugo L. Black: But they -- one of the crucial issues in that case was whether they had decided to follow the Government by this alleged report of that limit.

Mr. Louis F. Oberdorfer: Oh, yes sir they --

Justice Hugo L. Black: And that Judge Norbye has announced -- strengthen that, has he not, about the evidence which was heard a part which he says is based on evidence before the grand jury of which he has now found either to be grossly exaggerated, exonerated of thought.

Mr. Louis F. Oberdorfer: Before the petit juries.

Justice Hugo L. Black: Yes, before the petit jury.

Mr. Louis F. Oberdorfer: The -- if I understand your question, Mr. Justice Black, the -- what happened before the jury has not been disturbed at all by the suppression hearing.

Justice Hugo L. Black: Had not been sup -- disturbed --

Mr. Louis F. Oberdorfer: The jury's verdict --

Justice Hugo L. Black: -- of his right --

Mr. Louis F. Oberdorfer: Sir?

Justice Hugo L. Black: -- finding is the same but how do we know it would have been the same?

How do we know what the jury would have found in the original trial of these defendants if it had this evidence which now has been found that was referenced to the witnessed used against them where Judge Norbye has found that it's exaggerated or grossly exaggerated?

How can we know what their verdict could've been?

Mr. Louis F. Oberdorfer: Mr. Justice Black, the finding of Judge Norbye about the dimension of the word exaggeration if I may so, sir, has been exaggerated in turn.

Justice Hugo L. Black: But my -- my question is based on the fact whether it's exaggerated or false, whether it was -- has the judge found peculiar or there's nothing wrong about it on that witness' part, whether he just testified wrong.

Mr. Louis F. Oberdorfer: Well --

Justice Hugo L. Black: Why is that not a jury question which should have been sent back in the jury to the trial on a motion on the new trial?

Mr. Louis F. Oberdorfer: I --

Justice Hugo L. Black: That's my -- that's my question.

Mr. Louis F. Oberdorfer: Well, I will -- I'll address myself to that.

The -- in an income tax -- criminal income tax case, the Government does not have the burden of proving the exact amount of the gross income or deductions or taxable income that has been erroneously and fraudulently reported.

It's enough and if -- and this Court has held that, it's enough to have proof that there was a substantial amount relatively speaking.

Now Judge Norbye's finding about exaggeration on the part of the witness Lubben is followed by this if I may quote it and then I'll come back directly to your question, sir.

But the evidence is overwhelmingly clear and I'm quoting from page 1758 of the appendix.

Justice Hugo L. Black: This is Judge Norbye's opinion on the motion for new trial on this evidence which was crucial at both sides.

Mr. Louis F. Oberdorfer: This is the motion -- this is the supplemental hearing on the motion to suppress.

Chief Justice Earl Warren: This is on remand.

Mr. Louis F. Oberdorfer: Yes sir.

Chief Justice Earl Warren: Yes.

Mr. Louis F. Oberdorfer: But the evidence is overwhelmingly clear that not only were substantial sums of black market money paid to Shotwell as premium payments by Lubben during 1944, 1945, and 1946, totaling between $300,000 and $400,000.

But also that the greater part of this so-called black money -- market money was appropriated by Cain, Huebner, and Sullivan for their own personal use.

So that what Judge Norbye found -- still, even though he suggested that perhaps this witness may have exaggerated and he didn't challenge his good faith in this respect.

He still found a substantial, a very gross amount of omitted income more than enough to have supported the original verdict of the jury if the evidence had been $300,000 or $400,000 rather than whatever it was at the trial.

Justice Hugo L. Black: But unless my memory is wrong, the defense put up by the defendant's was that all -- that amount was crucial to them because they claimed that they had spent enough on black market contents to offset.

Was not that the case in the original trial?

Mr. Louis F. Oberdorfer: That was their con -- that was their contention and --

Justice Hugo L. Black: It was submitted to the jury was it not, with that issue, with this evidence as to the amount that had been spent, the Government now brings up evidence to show what exaggerated by the witness so that the jury grant -- the petit jury did not get the advantage of that evidence.

Mr. Louis F. Oberdorfer: But we must measure the alleged exaggeration and we find that even exaggerated, there was -- Judge Norbye found that the evidence was overwhelmingly clear, that's his word, that the amount on -- admitted -- the amounts submitted were between $300,000 and $400,000.

Justice Hugo L. Black: Well, my problem frankly and that it -- what it was before.

Who's been this (Voice Overlap) on trial for his life or his liberty whether the amount was overwhelmingly (Inaudible) -- to this extent or to that extent?

Mr. Louis F. Oberdorfer: Well, we -- we --

Justice Hugo L. Black: (Inaudible) of the judge.

Mr. Louis F. Oberdorfer: We say --

Justice Hugo L. Black: And can that -- in that view, (Inaudible) anymore by remanding a case by rehearing by a trial judge that it could in the original trial.

Mr. Louis F. Oberdorfer: One further answer, Mr. Justice Black.

We don't believe that if this additional evidence that was produced at the supplemental hearing had been offered in support of a timely motion for new trial.

Then under the decisions of this Court under the authorities that a new trial would have been justified by that offer for --

Justice Hugo L. Black: I'm not talking about a new trial.

I'm talking about in the original trial before the jury commands that people are convicted on one, that basis of issue and evidence of witnesses said to be truthful.

As I recall it, the prosecuting attorney vouched for the truthfulness of this particular witness.

That being the case, its remanded by a hearing by the judge to see whether there was anything wrong then he finds that the witness is supposedly exa -- or exaggerated it, certain other facts.

Mr. Louis F. Oberdorfer: The --

Justice Hugo L. Black: This witness that had been said to be so truthful.

Mr. Louis F. Oberdorfer: We -- we've not and not -- the only answer that the -- the final answer that I can -- that I would give, Your Honor is that the alleged exaggeration was in effect de minimis and it was not material to the result and it would not have supported a motion for a new trial.

Chief Justice Earl Warren: Mr. Oberdorfer, when the case was here before, the Government files certain affidavits with us and said that the witnesses would so testify if the case went back.

And the Government also said that those cases -- that those affidavits would prove perjury on the part of the defendants, the petitioners here.

And the -- and also that it would possibly show corruption in the Internal Revenue Department.

Now may I ask you, if Judge Norbye, in this hearing on remand, found that those affidavits had the effect that you represented to -- now, you -- I mean the Government represented to this Court that they would have, if the Government had an opportunity to have a hearing.

Mr. Louis F. Oberdorfer: But I can't find the reference Your Honor.

On the -- I refer to the Court, Mr. Chief Justice to page 1770 of the appendix.

Chief Justice Earl Warren: Yes.

Mr. Louis F. Oberdorfer: At the very bottom of the page, Judge Norbye in a -- our quoting, on this record in view of the convincing evidence, there must be a finding and I do so find that fraud permeated the showing made by these defendants before me at the original suppression hearing as well in to -- as at the trial, in the supplemental hearing.

Chief Justice Earl Warren: But that isn't the finding that these affidavits of yours were true.

On the contrary, I thought Judge Norbye found that they were not true in very material respects.

Mr. Louis F. Oberdorfer: As I recall it, the only place where -- the only one item which -- I don't think that Judge Norbye found that our affidavits were not true.

Chief Justice Earl Warren: Well, that's what they point out to you.

I may be mistaken --

Mr. Louis F. Oberdorfer: Yes.

Chief Justice Earl Warren: -- on the record but I thought that if the original hearing and that -- and possibly at the trial, one of the crucial questions was whether the defendants have had ever started to make a disclosure to the Government or had ever made any mention of it to the authorities on or before June 21st of this year, I think that the (Voice Overlap) --

Mr. Louis F. Oberdorfer: 1948.

But I (Voice Overlap) -- the Government 1948, yes sir.

Chief Justice Earl Warren: -- it was.

The defendants claiming that they -- that they started making it on January 18th, and the Government contending that it was not made until the 21st of June.

And your affidavits that were here, as I remember them, showed that you have the testimony that would prove that the defendants had committed perjury in asserting that they had started and had informed the Government on January 18th.

And as I understood it, Judge Norbye found that the affidavits that you submitted to us were not true, and that in all probability, the defendants were right in their testimony that they had brought this thing to the attention of the Government before the 21st of June.

And in all probability, it was on the 18th of January, as they said in the course of a train ride from Chicago to some other place.

Mr. Louis F. Oberdorfer: I think Mr. Chief Justice that on the suppression hearing if Judge Norbye reached the conclusion that we were right when we said that it didn't happen in January --

Chief Justice Earl Warren: So, it did not happen.

Mr. Louis F. Oberdorfer: Did not happen in January.

Chief Justice Earl Warren: Yes.

Yes.

Mr. Louis F. Oberdorfer: That it -- did not happen before March 15th.

Chief Justice Earl Warren: I thought it was June 21st.

Mr. Louis F. Oberdorfer: That it -- but they -- but Judge Norbye was compelled to conclude that it occurred sometime relatively shortly before June 21st, (Voice Overlap) --

Chief Justice Earl Warren: I thought he also said and possibly on this ride on January 18th, am I wrong in that?

Mr. Louis F. Oberdorfer: I just --

Chief Justice Earl Warren: Well, if you know --

Mr. Louis F. Oberdorfer: Yes sir.

Chief Justice Earl Warren: -- the record better than I do, we'll see it later but --

Mr. Louis F. Oberdorfer: It was --

Chief Justice Earl Warren: -- if I'm wrong on it, why was the (Voice Overlap) wrong --

Mr. Louis F. Oberdorfer: It was -- we were both -- I think that -- I think the complete answer, Mr. Chief Justice is that we were both wrong.

That is, that it didn't occur in January.

Chief Justice Earl Warren: But you claimed --

Mr. Louis F. Oberdorfer: And that it --

Chief Justice Earl Warren: -- that there was perjury in being wrong and yours was just exaggeration or a mistake.

Mr. Louis F. Oberdorfer: It was a -- the -- if the -- if Your Honor when you examine Judge Norbye's discussion of the testimony of Mr. Graflund, he explains that Mr. -- when Mr. Graflund's affidavit was presented here, Mr. Graflund then believed and incidentally subsequently testified as he -- as his affidavit indicated he would, as to the date of the episode at Busby's home.

Graflund denying that the train ride had occurred.

Judge Norbye traces Graflund's thinking process on this.

Graflund never repudiated his affidavit.

Graflund's affidavit was traversed by other evidence and he was crossed examined.

And Judge Norbye concluded that Graflund was mistaken in his affidavit and explains how he became mistaken.

Chief Justice Earl Warren: How he might've become --

Mr. Louis F. Oberdorfer: Yes, sir.

Chief Justice Earl Warren: -- mistaken but in that -- in -- at all events, the affidavits that you gave us here to the effect that the perjury would be shown was not substantiated by Judge Norbye's theory.

Mr. Louis F. Oberdorfer: Not it -- not completely so.

There was the -- in other words, there was a -- I think I just -- I wish I could put my finger right on it but I believe that Judge Norbye agreed with us that this episode of January did not occur in January, it didn't occur anytime during the winter.

I believe Judge Norbye also --

Chief Justice Earl Warren: Did he say so?

Mr. Louis F. Oberdorfer: Yes sir, I wish somebody would -- if I can put my finger on that finding.

Also Judge -- I believe Judge Norbye concluded that the preparation of the material to be submitted did not begin (Voice Overlap) --

Chief Justice Earl Warren: Well that's different.

That wasn't the affidavit that was made here to cause this Court --

Mr. Louis F. Oberdorfer: Again.

Chief Justice Earl Warren: -- to do what it did.

The thing that caused the Court to do what it did was the fact that you -- the Government made certain representations here that the result below on the suppression was arrived at because the defendants had engaged in perjury and fraud in connection with the testimony.

And you filed affidavits in support of that.

And the case went back.

And as I – as I have read the record, I haven't read it all, but as I've read it, Judge Norbye did not support you insofar as those affidavits were concerned.

He took the whole testimony that he had taken before at the motion on suppression, thrust these things and then he rationalized all of them and said as a package, it showed convincingly that fraud had been performed.

But what I want to know from you is what testimony you brought to this case as a result of those affidavits that were presented to this Court that caused him to change his mind or that caused him to find that conclusively that this was untimely --

Mr. Louis F. Oberdorfer: Well, he didn't find that it was untimely, Mr. Chief Justice.

We concede that the --

Chief Justice Earl Warren: Well, that is -- that it --

Mr. Louis F. Oberdorfer: -- that it was fraudulent.

Chief Justice Earl Warren: That it was fraudulent.

Mr. Louis F. Oberdorfer: The --

Chief Justice Earl Warren: Yes.

Mr. Louis F. Oberdorfer: The particular things that I would point to are first of all the testimony of Huebner who was an employee who did not testify at the original trial.

And who, in the supplemental hearing, testified with precision that had not been available before as to the disbursement of this money to the individual defendants.

We also brought in as it was -- as we'd advised the Court at the time the case was here before, the testimony relating to the report that had been prepared by revenue Agent Lima which would have settled the case on the assumption that the fictitious expenditures had in fact been incurred.

Chief Justice Earl Warren: Did the judge make a finding that that was fraudulent or that it was merely a suspicious circumstance?

Mr. Louis F. Oberdorfer: He -- it was regard to Lima's report, he found that Lima had prepared such a report and then had destroyed it --

Chief Justice Earl Warren: Yes.

Mr. Louis F. Oberdorfer: -- which was new.

Chief Justice Earl Warren: We find that was fraud within the Bureau or as you represented it, it would show?

Mr. Louis F. Oberdorfer: I don't think that he actually reached the conclusion that that was in so many words fraud.

Chief Justice Earl Warren: Did the hearing --

Mr. Louis F. Oberdorfer: It was --

Chief Justice Earl Warren: Did this hearing proved any fraud in the Department of Internal Revenue?

Mr. Louis F. Oberdorfer: Not in those terms, no sir.

Chief Justice Earl Warren: In any terms?

Mr. Louis F. Oberdorfer: No sir.

It did prove that there had been conversations on the taxpayer's side.

Chief Justice Earl Warren: Yes, I didn't want you -- told us about the conversation?

You said possible fraud in this Court using some other authorities where the defendant had been convicted --

Mr. Louis F. Oberdorfer: Yes.

Chief Justice Earl Warren: -- on questionable testimony, gave the same benefit of doubt to the Government and gave you a chance to go back to the Court and use these affidavits.

Now it seems to me, it's terribly important whether or not, the judge found these affidavits that the Government made to us, word in all essentials true or substantially true.

Mr. Louis F. Oberdorfer: He did not find in so many -- in terms that as a matter -- as a conclusion, that fraud had been committed in the Internal Revenue Service.

He found specific facts which could have led to that conclusion but he was not -- he did not reach the final conclusion that there was in fact fraud.

Justice Arthur J. Goldberg: How about (Inaudible)?

Mr. Louis F. Oberdorfer: We found that there was a conversation about that but he never found that that had actually been paid to an Internal Revenue Service officer within the corporation.

There had been -- there was -- there were statements made which could have led to the conclusion that they were fraud but in answer to Chief Justice's question, I can't say that the court below found, in fact, that there are, as a conclusion of law, that there was fraud.

Chief Justice Earl Warren: Mr. Oberdorfer, another thing that I was wondering about.

I noticed from the dates here that it would be five years tomorrow since this Court remanded that case, what is the explanation of that five years in having a simple remand of that kind and it coming back to this Court?

Mr. Louis F. Oberdorfer: Well, part of -- part of the explanation is the delay of few months of it, the delay on account of the illness of one of the defendants.

Chief Justice Earl Warren: Well, a few months since the --

Mr. Louis F. Oberdorfer: That -- yes.

Chief Justice Earl Warren: -- we will take that out of five years, that isn't very important.

Mr. Louis F. Oberdorfer: And part of it, this case was supposed to have been argued here last spring which accounts for a few more months.

Chief Justice Earl Warren: Takes a few more months out.

Mr. Louis F. Oberdorfer: And other than that, so far as I know, Mr. Chief Justice, it was the grinding process of getting ready for this proceeding and conducting it.

Chief Justice Earl Warren: For four years --

Mr. Louis F. Oberdorfer: It --

Chief Justice Earl Warren: Four years, (Voice Overlap) --

Mr. Louis F. Oberdorfer: It should not have take --

Chief Justice Earl Warren: -- year for those things and four years --

Mr. Louis F. Oberdorfer: It should not have --

Chief Justice Earl Warren: -- of having a simple remand on the case of this kind on facts that go back to 1946.

Mr. Louis F. Oberdorfer: Yes, yes.

This is a serious problem.

Chief Justice Earl Warren: The -- I noticed that the indictment was not filed until the last day before the statute of limitations right, six years.

Mr. Louis F. Oberdorfer: Right, correct.

Chief Justice Earl Warren: And then it took five years from that date to get to this Court, we remand it and it takes five years for it to come back, isn't that a commentary on a --

Mr. Louis F. Oberdorfer: It is a -- it is a factor that has concerned -- concerned us.

If Your Honor will look at this record in that view, I think you will observe that the defense has been very active in this matter.

They have made motions.

They are -- I have one thing that pops into my mind is a recollection of a proceeding on remand to disqualify Judge Norbye on the proceedings on remand.

There have been number of motions to assign the case to different judges that the case -- I don't think that the Government or the court below is entirely responsible for the time it's been consumed.

Justice Hugo L. Black: May I ask you one other question --

Mr. Louis F. Oberdorfer: Yes sir.

Justice Hugo L. Black: -- because of your familiarity with the record.

I want to get this figured.

I consider this case very important, not merely for these defendants here, but with reference to the right of trial by a jury --

Mr. Louis F. Oberdorfer: Yes.

Justice Hugo L. Black: -- provided by the Constitution.

Who were the chief witnesses against the defendants?

With that reach, the case could not have proceeded?

Mr. Louis F. Oberdorfer: In the original trial, the --

Justice Hugo L. Black: That's right.

Mr. Louis F. Oberdorfer: -- principal witness was Mr. Lubben.

Justice Hugo L. Black: Mr. Lubben.

Mr. Louis F. Oberdorfer: And his bookkeepers.

Justice Hugo L. Black: Who was that?

Mr. Louis F. Oberdorfer: I don't remember their names now but Mr. -- Miss Feldman.

Justice Hugo L. Black: Why was Mr. Lubben's testimony so important?

Mr. Louis F. Oberdorfer: Because Mr. Lubben testified -- Mr. Lubben was the customer to whom the sales and over-ceiling prices were made and who paid the amounts which the defendants were accused --

Justice Hugo L. Black: (Inaudible)

Mr. Louis F. Oberdorfer: -- of omitting.

Sir?

Justice Hugo L. Black: Which were not before you.

Mr. Louis F. Oberdorfer: Yes.

Chief Justice Earl Warren: In other words, he was a black marketeer with these people as you allege them to be.

Mr. Louis F. Oberdorfer: He was their customer and he paid them more than the O.P.A. ceiling for the merchandise --

Justice Hugo L. Black: Have you testified and his evidence was essential, was it not?

Mr. Louis F. Oberdorfer: Yes sir, I believe so.

Justice Hugo L. Black: Have you gotten along with that, as I recall it, am I wrong in thinking that the prosecuting attorney told the jury that he vowed for his integrity?

Mr. Louis F. Oberdorfer: I have -- I --

Justice Hugo L. Black: That's one of the objections they made?

Mr. Louis F. Oberdorfer: I believe that he didn't make some remark to that --

Justice Hugo L. Black: Yes, Mr. Lubben is the man whose evidence was sought to be supported by these affidavits, was it not?

Mr. Louis F. Oberdorfer: I don't -- it wasn't Mr. Lubben's evidence that was supported by these affidavits, it was -- you see, Mr. Lubben didn't have -- was not a witness to the distribution of the money.

This was -- so to say, to support his testimony, --

Justice Hugo L. Black: But the --

Mr. Louis F. Oberdorfer: -– I think isn't correct, it was to -- it was some additional relevant evidence that wasn't available to him as a witness.

Justice Hugo L. Black: The importance of his testimony was that he could testify, they had turned in -- they had failed to turn in a lot of payments that he had made them on the black market.

Mr. Louis F. Oberdorfer: Yes sir.

Justice Hugo L. Black: When it went back, for some reason, Judge Norbye found it necessary to go into great detail to find that while he had misstated the evidence or had not directly stated the evidence, or had exaggerated it, or whatever you please, that he found he was not guilty of deliberate perjury but had merely misstated it.

Mr. Louis F. Oberdorfer: Exaggerated.

Justice Hugo L. Black: Now, suppose that evidence had been presented to the jury, petit jury, would that have been revelant -- relevant to attack the credibility of Mr. Lubben?

Mr. Louis F. Oberdorfer: This could have been develop on cross-examination --

Justice Hugo L. Black: Could have been developed --

Mr. Louis F. Oberdorfer: That's right.

Justice Hugo L. Black: -- and they didn't have it, and they didn't get it until finally the Government brought it out on this motion for rehearing, motion for --

Mr. Louis F. Oberdorfer: Suppress.

Justice Hugo L. Black: -- remand.

So that you have a case where relevant evidence, relevant, exceedingly relevant to the defendants, is not submitted to the jury to support its verdict but submitted to the judge by piecemeal to support its verdict, to support the Government's case, is that not true?

Mr. Louis F. Oberdorfer: I wish I could be clear about this but it is my impression that the -- first of all, that the evidence which caused Judge Norbye to say that Mr. Lubben exaggerated was not available to the Government at the time of the trial.

Justice Hugo L. Black: Let's suppose it's not of the -- Let's suppose its not.

Mr. Louis F. Oberdorfer: Well --

Justice Hugo L. Black: There you have a case that the Government is getting its verdict to stick on evidence which have been -- which had it been offered by the defendant would likely have given him a right for a new trial before a jury with all that evidence in.

Mr. Louis F. Oberdorfer: Well, but --

Justice Hugo L. Black: Is that not correct?

Mr. Louis F. Oberdorfer: But I don't concede that this evidence would have if -- would have supported a timely -- sustained a timely motion for a new trial.

Justice Hugo L. Black: Well, that -- that would -- it would -- then you're saying that it's not strong enough to give a new trial but it is strong enough to let the Government keep a verdict that was obtained by evidence now found to be wrong and by witness who could've been at least considerably impeached by the evidence.

Mr. Louis F. Oberdorfer: Well, the -- if -- the -- I come back to the finding of fact that I quoted that even if Lubben was exaggerating there was still -- I forget the adverb now, overwhelmingly clear demonstration that the crime had been committed in substantially the way that it had been presented.

Justice Hugo L. Black: The judge's finding --

Mr. Louis F. Oberdorfer: Yes.

Justice William J. Brennan: Not as through a jury.

Well Mr. Oberdorfer in that connection, this type that we were discussing with Mr. Christensen and Mr. Howard was the other day maybe with both of this Appendix D at page 85 of the petition, was that, you know, was that an evidence before the petit jury?

Mr. Louis F. Oberdorfer: Yes sir.

Justice William J. Brennan: Now, I noticed at the bottom of that, my arithmetic's any good, this indicates receipts of roughly around $368,000 collection.

By whom was that offered, by the Government or by the defendants?

Mr. Louis F. Oberdorfer: This was offered by the Government in rebuttal.

Justice William J. Brennan: And where did the Government get it?

Mr. Louis F. Oberdorfer: The Government got it originally when it was handed to Revenue Agent Lima --

Justice William J. Brennan: By whom?

Mr. Louis F. Oberdorfer: -- in August of 1948.

Justice William J. Brennan: By whom?

Mr. Louis F. Oberdorfer: By Busby, I -- by the auditor for Shotwell, by Busby --

Justice William J. Brennan: On behalf of Shotwell.

Mr. Louis F. Oberdorfer: Yes sir.

Justice William J. Brennan: So that in that sense, in -- an admission was it?

Was it offered as an admission by the Court?

Mr. Louis F. Oberdorfer: It was offered as an admission.

Justice William J. Brennan: So I gather --

Mr. Louis F. Oberdorfer: It was offered as rebuttal.

As -- in as -- but if -- I -- the answer to your question is yes.

It was offered as an admission (Inaudible).

Justice William J. Brennan: Now, how far at the trial did Lubben's testimony as to the amount that he paid, Shotwell exceed or was it less than (Voice Overlap) --

Mr. Louis F. Oberdorfer: As I recall it in the proceedings, it -- Lubben's tabulation on page 19 of our brief shows the total.

Justice William J. Brennan: What was the total?

Mr. Louis F. Oberdorfer: Of Lubben, now --

Justice William J. Brennan: No, we're still talking about the trial.

Mr. Louis F. Oberdorfer: Yes sir.

Justice William J. Brennan: Well, what was his total then?

Mr. Louis F. Oberdorfer: $453, 872.40.

Justice William J. Brennan: So that does exceed Shotwell's own admission --

Mr. Louis F. Oberdorfer: Yes sir.

Justice William J. Brennan: -- to what it received, by roughly what?

Not -- by the hundred --

Mr. Louis F. Oberdorfer: A hundred -- that a $100,000.

Justice William J. Brennan: Now, I gather your position is that without Lubben's testimony, their own admission showed what the expense is.

Mr. Louis F. Oberdorfer: They did do a --

Justice William J. Brennan: Unrecorded income of around $368,000.

Mr. Louis F. Oberdorfer: Their own admissions and the -- their own admissions plus the testimony of Lubben's bookkeeper.

Of course, in turn, this is a tangled web.

Part of their admission is based on information that they got from Lubben.

They had conversations with Lubben.

Justice Byron R. White: The -- Mr. Oberdorfer, isn't it true that at the trial, the jury had the -- these two different versions of the amounts that were involved.

The Lubben capitulation and the defendants own capitulation of the amounts which vary to in $75,000, $80,000, $90,000.

Mr. Louis F. Oberdorfer: That's correct.

And as a matter of fact, this -- I'd -- I believe this explanation was made at the trial.

It was certainly made here the other day that this admission was prepared by the defendants as they say out of an abundance of caution.

They claimed they exaggerated.

The jury had (Voice Overlap) --

Justice William J. Brennan: But as I gather Mr. Oberdorfer from the Government's position is that, as far as you know, the petit jury may completely have disbelieved Lubben and have accepted their own admission --

Mr. Louis F. Oberdorfer: That's --

Justice William J. Brennan: And on the strength of that had made a finding of guilt because by their own admissions there had been these various substantial amounts around the corner.

Mr. Louis F. Oberdorfer: That's a logical possibility although --

Justice William J. Brennan: This was a general verdict that they put.

Mr. Louis F. Oberdorfer: That's correct.

But (Voice Overlap) --

Justice Hugo L. Black: Well, where were their admission?

What did --

Mr. Louis F. Oberdorfer: Sir?

Justice Hugo L. Black: -- they admit?

How much did they admit they receive on the stand?

Mr. Louis F. Oberdorfer: On the stand -- let's see.

The (Inaudible) --

Justice Hugo L. Black: As I understand it, they refused, they attacked these figures and said they were given to them by Lubben and they didn't know whether --

Mr. Louis F. Oberdorfer: That's correct.

Justice Hugo L. Black: -- that's correct or not.

Mr. Louis F. Oberdorfer: They had -- they -- it seems to me they admitted somewhere in the neighborhood of a $150,000 out of their own mouths.

That is the testimony.

Justice Hugo L. Black: And they claimed did they not that they had stamped of black market commodities --

Mr. Louis F. Oberdorfer: Purchases.

Justice Hugo L. Black: -- an amount equal to that $150,000 which they extented.

Mr. Louis F. Oberdorfer: They were -- the jury was specifically charged on that issue.

Justice Hugo L. Black: That's why -- that was the real crucial issue, wasn't it?

Mr. Louis F. Oberdorfer: The jury was charged on that.

Justice Hugo L. Black: And that the jury had to rely on evidence of Lubben or evidence he had supplied to them and put in this -- put in here in order to reach a conclusion as to whether that defense was good or bad.

Mr. Louis F. Oberdorfer: Correct.

Justice Hugo L. Black: And he was a very material witness.

Mr. Louis F. Oberdorfer: He was.

Chief Justice Earl Warren: He --

Justice Arthur J. Goldberg: (Inaudible)

Chief Justice Earl Warren: No, go right ahead.

Justice Arthur J. Goldberg: (Inaudible) the Chief Justice as to where (Inaudible).

You preferred that they disclosed more (Inaudible) -- until March 15, 1948, (Inaudible).

And in other words, (Inaudible) 1945 and in the 1946 taxes (Inaudible) -- that any concern effort was made by a (Inaudible) has taken up this so-called (Inaudible).

Doesn't that (Inaudible)?

That there was a file, March 15, about the (Inaudible).

Mr. Louis F. Oberdorfer: I --

Justice Arthur J. Goldberg: (Inaudible)

Mr. Louis F. Oberdorfer: I had the impression and I'm sorry to be fuzzy on this because I should be precise.

I had the impression that the thing that convinced Judge Norbye that the visit occurred before June 29 -- 21st was a exchange of -- in the hospital with a Mr. Horgan, this was just a few days before June 21.

And I had the impression that Judge Norbye had found that this was the thing that cinched it for him, that the interview had occurred before June 21.

He couldn't disbelieve Horgan.

And that -- now, I can't now tell whether that's what Judge Norbye found or whether that's just an inference that we draw.

Chief Justice Earl Warren: Very well.

Mr. Louis F. Oberdorfer: Thank you sir.

Justice Tom C. Clark: Can I ask you a --

Mr. Louis F. Oberdorfer: Yes.

Justice Tom C. Clark: -- question on that (Inaudible) Johnson, did I understand you say the other day that it has been indicted now?

Mr. Louis F. Oberdorfer: That's correct.

They are indicted.

Justice Tom C. Clark: Now, were they indicted subsequent to our remand?

Mr. Louis F. Oberdorfer: I don't think so.

But I -- the -- I'm told that this indictment was returned two days after the cert petition was granted.

That's before the remand.

Justice Tom C. Clark: -- the third petition is one that had these affidavits here.

Mr. Louis F. Oberdorfer: Yes, in the -- well, the affidavits were before you at the time you granted the cert petition, yes sir.

Justice Tom C. Clark: (Inaudible)

Mr. Louis F. Oberdorfer: But they weren't -- you had -- there were some affidavits there, was it not?

Unknown Speaker: Did Huebner (Inaudible)?

Justice Hugo L. Black: The motion on that was another trial?

Mr. Louis F. Oberdorfer: No sir.

Unknown Speaker: (Inaudible) to gather these people?

Mr. Louis F. Oberdorfer: Sauber was the Deputy Commissioner, Johnson was a Revenue Agent.

Chief Justice Earl Warren: Very well, Mr. Oberdorfer.

Mr. Louis F. Oberdorfer: Thanks.

Chief Justice Earl Warren: Mr. Christensen.

Argument of George B. Christensen

Mr. George B. Christensen: May it please the Court.

The turn of events this morning of course has been very interesting to us.

I would like however to go back and clear up a couple of things on which I was not as precise as I should have been on questioning the other day.

Mr. Justice Brennan asked me to explain page 86 of these figures.

You will recall when -- Mr. Justice, you and I were trying to look at the -- that little memo at the foot of 86 added from L records from Lubben records?

Justice William J. Brennan: Yes.

Mr. George B. Christensen: That figure sir is $1633.06.

Justice William J. Brennan: No, not a $163,000 (Voice Overlap) --

Mr. George B. Christensen: No.

It is carried over, you can see it's carried across the page here and then added in to the total of $29,000 for the year 1944 which is not an issue in the indictment.

Justice William J. Brennan: I see.

Mr. George B. Christensen: Now, you spoke sir, a moment ago of this being received against the defendants as an admission.

It was so received before the petit jury on the trial.

We say without as until out of evidence that it was an admission.

Its reception was upheld by the Court of Appeals on that basis.

In the face of the evidence, number one, that it was procured by a promise of immunity, and number two, that all of the evidence said, "This is what we make out from Lubben's records, go ahead and assess on any basis you want."

Now they -- there has been some talk this morning of these workpapers and here they are, all stretched up.

Here's a reproduction of them.

Justice William J. Brennan: May I ask you, Mr. Christensen.

Do I understand all of four sheets were in evidence, is that it?

Mr. George B. Christensen: Yes sir.

Justice William J. Brennan: Yes.

Mr. George B. Christensen: If you look them over carefully, you will see that the big sheets are the supporting sheets from which the so-called recapitulation, a little sheet is made up.

Justice William J. Brennan: On the first (Voice Overlap), yes.

Mr. George B. Christensen: Then you will see also that right across the top of it, they show what this accountant was doing, memo taken from Lubben record as compared with our records.

And they're turned over to the agent, make out of it what you can.

Here is what it shows.

Now, with respect to the cash account at the bottom, the disbursement section, there was some question about that the other day.

And in our brief, we say that Mr. Sauber never told us to render an account of the disbursements and I was taken a task of them.

And Mr. Howard and I do not read the record alike.

Mr. Howard says that Busby testified to that and that Cain testified to that and that Sullivan did.

I've had the benefit of the weekend.

I have reviewed that char -- testimony as carefully as I can.

Busby testified at Record 181 that the payouts for raw materials were not deductible, they were immaterial.

Mr. Cain testified to that general effect at 229, 232, 244, 252, 257, 262, 268, 274, and he testified that on the original 1952 suppression hearing before the Government puts Sauber on the stand.

Sauber never testi -- never contradicted that, but he said, “Well, get together, you people can't file an amended return.

You don't know what's going on.

Reconstruct an account as best as you can.”

He said, “Well, talk with everybody that knows about the over-ceiling receipts and disbursement.

And that and this I think is important.

I think Sauber was being perfectly alright, a little cute with our people.

He wanted to get these payouts, I assume if he could to lead on to people who might have received them the old informer trying to pull us along.

He said reconstruct the figures for an accurate tax return.

Now that, if it please the Court, gets us into one of the difficulties that clouds everyone's thinking and it's so easy to do it.

Mr. Sauber was speaking as of 1948.

And at that time, these payouts were utterly immaterial.

We could not take a deduction for him whether we paid them as constructive dividends for raw materials or anything else.

By the time of trial -- by the time of trial in 1952, the law had trade and if we could show we paid out what we took in we had no net income.

Now, there'd been talk about how much this exaggeration was.

Permit me to take the worst figures I can for my clients, the figures which I can backup from Judge Norbye's findings erroneous though we think some of them are.

Justice Arthur J. Goldberg: Mr. Christensen, may I ask you what do you (Inaudible)?

Mr. George B. Christensen: No difference.

No difference because --

Justice Arthur J. Goldberg: What?

Mr. George B. Christensen: -- you are talking -- you were talking solely of the return to corporation, the Shotwell Manufacturing Company.

It had to account for all of these as income, as gross income.

And until we claim a deduction for it which we couldn't claim in 1948 either as constructive dividends, couldn't take that as a deduction of course, nor as a payout for raw materials.

And what Judge Norbye has been saying for years and years and years when you disclose on behalf of a corporation, you've also got to tell if the corporation officers personally have been up to any hanky-panky.

He thinks they have.

We say it isn't so.

But it would not be material to Shotwell's tax return on the law as of the time of the 1948 disclosure.

Now as to the amount of the exaggeration, it was -- the Government claimed, it proved $454,000 by Lubben and his book which Government proof, not our proof, Government proof upon the remanded hearing showed had been doctored.

Justice William J. Brennan: But tell me Mr. Christensen, wasn't the issue of Lubben's credibility before the jury in face of his testimony, whether from the books or (Inaudible) or both of $450,000, these papers constructing, reconstructing $368,000 and as I understand it, the testimony the defendants themselves that know -- was only a $150,000.

Now, did that confront the jury with an issue of Lubben's credibility.

Mr. George B. Christensen: Yes.

What it confronted it, it confronted it, Mr. Justice Brennan in this posture with the United State attorney standing up, not merely on the theoretical endorsement of the witness they're vouching for but striving in front of that jury saying, “I'll tell you, David Lubben is an honest citizen.

This is so.

And his books are correct.”

Now the Government proof on the remanded hearing shows that Lubben is a confirmed perjurer both Graflund and Huebner testified the instances, $145,000 payment, another sum, $50,000 of where Lubben lied.

This is Government evidence brought out by the Government.

And Government evidence out of the mouth of Huebner, that a Treasury employee, a fellow by the name of Tobias and one time worked for Lubben said, “Yes, I worked with Lubben doctoring up his books and charging items up to Shotwell they never had.”

Justice Hugo L. Black: Was that evidence have been admissible to impeach Lubben's credibility --

Mr. George B. Christensen: It would sir.

Justice Hugo L. Black: -- before the petit jury?

Mr. George B. Christensen: It would certainly would, and you were then faced with precisely what you are putting your finger on Mr. Justice Black, when you have admittedly false evidence, exaggerated evidence, not mistaken evidence.

Before a jury, can a judge say, “Well, I think the exaggeration wasn't enough that jury would have come in and found them guilty anyway.”

And we say there's nothing in the history of this Court that indicates that our right to jury trial can be violated that much.

In the Mesarosh case and the Communist Party case I think it was a contention was made.

Well, there's enough valid evidence in the record to support the finding of the Subversive Control Board.

This Court said, “That isn't -- they answered it.

Get that out of the record.

Get detained off and let the tribunal take a fresh look at it.”

Now, the -- there was a question in this process of the Graflund conversion to this new story in which the chronology was quite involved the other day.

If I might take a moment to give you that, Graflund testified as a Government witness on the original trial, he was asked, nothing particularly relevant to the disclosure although he had been thoroughly interviewed.

And the notes that were brought out in the remanded hearing showed that.

When the reinvestigation started, he was interviewed by the Treasury on November 8, 1955.

He didn't tell the story about this of being true.

On May 10, 1956, the prosecutors who had a grand jury working interviewed him at great length.

On August 28, 29, and 30, 1956, he was before the grand jury and he said, “I revealed all of these to Busby on a train in January.

I told them all about it.

That's the starting place of the disclosure.”

He was very graphic about it.

He put in details that no one had ever heard of.

Now the proceeding is going on here.

The motion to remand was filed in this Court on October 15, 1956 in an amendment form a month later.

And on the 24th of November 1956, we filed our answer to the motion to remand in which we tried to be as vigorous as we could and we were unconvincing to the Court.

We said this is hearsay, all you've got is a hearsay affidavit from a Treasury detective and a Government lawyer.

Where are the witnesses?

What are they talking about?

The prosecutors then went back to Mr. Lubben on February 3rd, 1957.

And they made no record of what happened upon that interrogation.

So I assume he didn't change his testimony.

They went back at him and got him in for another session on February 17, 1957.

And again, they made no notes or record of that one.

So, we must assume that was unsuccessful.

But on February 20, 1957 for the first time, Mr. Lubben said, “Oh” -- or Mr. Graflund said, “Oh, it's a mistake.

I've never told this to Busby on the train.

Nothing like that happened.

I went out to see him in July and he was startled to hear there'd been any black market transactions."

And then several months later on August 17, 1957, his affidavit to that effect was filed here.

That is the chronology of Graflund, its set forth in a chronology attached to our brief.

Justice Hugo L. Black: What is the materiality of that to the original trial and this?

Mr. George B. Christensen: Well, (Inaudible) --

Justice Hugo L. Black: The two being with reference to the date.

Mr. George B. Christensen: The materiality of it to the suppression issue Mr. Justice Black, is this.

And it's very material, it's crucial in my humble judgment.Because my people have always said, “The reason we made the disclosure was because our tax adviser, our tax accountant, Busby told us to.

We've never had any other -- never made any other statement as to the genesis of the disclosure.”

And the significance then of the affidavit to you that Graflund or that Busby knew nothing about this until the following July is pre --

Justice Hugo L. Black: Is that after the investigation started?

Mr. George B. Christensen: Oh, when the -- when the --

Justice Hugo L. Black: When did the investigation of the Government started?

Mr. George B. Christensen: The investigation of the Government never started except as a consequence of this disclosure.

They made no independence --

Justice Hugo L. Black: When did it start?

Mr. George B. Christensen: It started about -- Lima came out on August 1st, but the case had been started in the Chicago office and was delayed --

Justice Hugo L. Black: When did it start in the Chicago office?

Mr. George B. Christensen: We say it started when we talked to Sauber which was --

Justice Hugo L. Black: When did the Government say it started at that time, the time of the trial?

Was that -- what I'm get -- was there are dispute?

Was there an issue before the jury?

I'm not sure.

Mr. George B. Christensen: No.

Justice Hugo L. Black: Was there an issue before the jury --

Mr. George B. Christensen: No.

Justice Hugo L. Black: -- this question?

Mr. George B. Christensen: No, there was not.

Justice Hugo L. Black: Did they report before or after?

Mr. George B. Christensen: No, there was not.

There was not an issue --

Justice Hugo L. Black: (Voice Overlap)

Mr. George B. Christensen: -- before the jury.

There was an issue on the suppression of this evidence obtained by promises of immunity.

This came out on the suppression hearing, on the voluntary disclosure.

Justice Hugo L. Black: When was the first issue raised with reference to whether the Government received the report before or after it started its investigation?

When did that first become material in the case?

Mr. George B. Christensen: Well, it became material of 1952 when they filed a motion to dismiss and the motion to suppress.

The Government's theory --

Justice Hugo L. Black: You mean, since the original trial --

Mr. George B. Christensen: Its --

Justice Hugo L. Black: During your original indictment?

Mr. George B. Christensen: The original indictment.

Justice Hugo L. Black: And the Government took the position what, with reference to the report?

Mr. George B. Christensen: Well, it's so confusing --

Justice Hugo L. Black: (Voice Overlap)

Mr. George B. Christensen: -- that this will take me off on a little different attack.

Justice Hugo L. Black: Well, (Voice Overlap) --

Mr. George B. Christensen: At that time -- at that time, the Government said, it doesn't make any difference what you did anytime in 1948, the time -- your last date of the disclosure was in December 1947.

Justice William J. Brennan: That was on the first suppression hearing, wasn't it?

Mr. George B. Christensen: Well, it was right through.

It was until after the Court of Appeals decided the case in 1955.

Justice William J. Brennan: Was that the position taken at the trial?

Mr. George B. Christensen: Yes.

Justice William J. Brennan: Was there a testimony on the Government --

Mr. George B. Christensen: The Government --

Justice William J. Brennan: They have at --

Mr. George B. Christensen: There was testimony --

Justice William J. Brennan: So, (Inaudible) on the way (Voice Overlap) --

Mr. George B. Christensen: -- you would see a testimony as to what -- as to how files tax returns are sent to Washington and what constitutes the initiation of an investigation.

The Government took the unsound position that the timeliness date fell in December of 1947 and that anything my people did after that was not untimely.

They have long since abandoned that position.

Justice William J. Brennan: But that was the position at the trial itself?

Mr. George B. Christensen: Yes sir.

Yes sir.

Justice Byron R. White: Was that an issue before the jury?

Mr. George B. Christensen: No sir.

Justice Byron R. White: Was not an issue in the trial?

Mr. George B. Christensen: No.

What?

Now, I have got to sit down if it please --

Justice Arthur J. Goldberg: (Inaudible)

Am I mistaken if the (Inaudible) --

Mr. George B. Christensen: You are not mistaken.

That was the main allegation Mr. Justice Goldberg that was made here.

They tipped their theory upside down and when they came in with these remand proceedings.

Now, they said the timeliness date was June 20 or 21, 1948 and we're going to show you nothing happened prior to that date.

And that went -- that what went back to Judge Norbye and they couldn't demonstrate it and Judge Nor --

Justice Hugo L. Black: In other words, you are saying, as I understand it, which -- and it's been a point at which I have been uncertain about what both (Inaudible), you're saying that when the motion was made here, timeliness was material and that --

Mr. George B. Christensen: Yes --

Justice Hugo L. Black: -- the Government was insisting that it did not have a report made to it by them of the shortage, of the deficiency, on the (Inaudible), the Government had already started this investigation and therefore, it did not come within the terms of the promised immunity of Secretary (Voice Overlap) --

Mr. George B. Christensen: Precisely.

Precisely.

Now, before I sit down and I've only scratch the surface of the constitutional doctrine that obtains here.

I've only haven't touch upon the argument that you don't let confessional material in because it's false.

According to Dean Wigmore, that's why you keep it out material obtained by a promise of immunity.

And there is in this case and we think of tremendous importance to the entire country and not peculiar to the facts of this, a question of jury selection procedures.

This record establishes indisputably that the court commissioners elected not a one of the grand jurors, not a one of the petit jurors in this case.

We have challenged the Department time after time show any evidence in this record that Mr. Crux picked out a juror.

Show any evidence that volunteers were lawful at this time.

The jury question is one that cuts under everything here and we think there's a tremendous importance to the Court.

Chief Justice Earl Warren: Did you make time of the objection to that?

Mr. George B. Christensen: They say we did not.

We say we did.

We didn't find out about these facts until the case was pending in this Court that after this Court had set aside the judgments and you will -- Mr. Justice Harlan will recall, in your opinion you used the phrase, “Justice is not a one way street”.

With the case reopened to go back to a pretrial suppression of evidence hearing, we said reopen this to let us move to dismiss this indictment on the ground of a new legal grand jury and the verdict on the ground of an illegal petit jury and they say, “We aren't timely."

Then we say justice is not a one way street.

In the unusual twist and turn, this case is taken as quickly as we found out that contrary to the presumption that public officials are doing their duty, that crux just wasn't doing anything except exercise in ceremonial functions, we proved this matter.

And there was a hearing.

It's in the briefs.

I haven't the time.

I'm beyond my time as you can see.

But we think the issue is of vital importance to the entire jury system.

Thank you.