On December 13, 1982, the Sentry Armored Courier Corp. warehouse in Bronx County was burglarized and robbed of some $11 million by individuals unconnected to Sentry, who were later apprehended and prosecuted. In the aftermath of the robbery, the Bronx County District Attorney's office focused its attention on Sentry's-own business practices. A series of indictments charging Sentry and its principals with various counts of larceny and misapplication of property ensued. The question presented for our consideration is whether the indictments' allegations concerning defendants' handling of the money entrusted to their care would, if proven, support convictions for the crimes charged.
I. PROCEDURAL HISTORY
The six indictments presently before us collectively charge defendants John Jennings, Angela Fiumefreddo, John Finnerty, Sentry Armored Courier Corp. and Sentry Investigations Corp. with several counts of grand larceny in the second degree and misapplication of property. At the time the indictments were issued, Sentry was principally engaged in transporting and storing large sums of cash and performing related services on behalf of its clients. Defendant Jennings was the president of the Sentry Armored Courier Corp., defendant Fiumefreddo was the senior vice-president of that corporation, and defendant John Finnerty was the vice-president and cashier of the Hudson Valley National Bank, which played a role in one of the alleged misappropriation "schemes."
The case has a complex factual and procedural history. The larceny and misapplication charges arose out of four separate courses of conduct, which the People claim demonstrate defendants' criminal mishandling of their clients' funds. The first Grand Jury to consider the People's evidence handed up five indictments. Of these, three were dismissed entirely by Justice Vitale, with leave to re-present. The other two indictments were sustained against defendants Jennings and Fiumefreddo but dismissed against the only named corporate defendant, Sentry Armored Courier Corp. The second Grand Jury handed up four new indictments, naming Jennings, Fiumefreddo, Finnerty, Sentry Armored Courier Corp. and Sentry Investigations Corp. as defendants. All six outstanding indictments were dismissed by the then Presiding Judge, Justice Goldfluss, on the ground that the proof before the Grand Jury was legally insufficient (see, 123 Misc.2d 560). Two of the indictments, which named Jennings and Fiumefreddo as defendants, were reinstated on the People's appeal to the Appellate Division, and the People, as well as defendants Jennings and Fiumefreddo, were granted leave to take cross appeals to this court.
II. THE THRESHOLD PROCEDURAL ISSUES
Initially, the People advance a number of procedural arguments in support of their position. First, they contend that all counts against Fiumefreddo and the corporate defendants should be reinstated because, unlike defendants Jennings and Finnerty, the corporate defendants did not make written motions to dismiss the new indictments against them and
We agree with the People that under CPL 210.45 (1) a defendant must provide them with written notice of and a reasonable opportunity to respond to a motion to inspect and dismiss an indictment made under CPL 210.20. However, by failing to complain of the flaws they now assert, by either raising the problem before Justice Goldfluss made his decision or moving for reargument within a reasonable time thereafter, the People in this case waived their right to insist upon conformity with the procedural requirements of CPL 210.45 (1) (see, People v Singleton, 42 N.Y.2d 466, 470-471). Unlike the timing requirements of CPL 210.20 (2) and 255.20, the written notice requirement of CPL 210.45 (1) is not directly related to "the strong public policy to further orderly trial procedures and preserve scarce trial resources" (People v Lawrence, 64 N.Y.2d 200, 207; see also, Matter of Veloz v Rothwax, 65 N.Y.2d 902; People v Key, 45 N.Y.2d 111; People v Selby, 53 A.D.2d 878, affd 43 N.Y.2d 791). Rather, the rule's principal purpose is to ensure that the People have fair notice of the claims that the moving defendant intends to present to the court. Inasmuch as the requirements of CPL 210.45 (1) are designed primarily to protect the People from unfair surprise, no overriding public policies are offended by treating the People's silence as a waiver of their right to written notice under that statute (cf. People v Lawrence, supra). We note that the People here have not shown how they were prejudiced either by the failure of Fiumefreddo and the corporate defendants to make formal written submissions or by the failure of defendant Jennings correctly to identify by number each indictment he was challenging.
Similarly, while we agree that, unless Justice Vitale was unavailable for referral, Justice Goldfluss should not have dismissed the counts that Justice Vitale had previously upheld
III. THE PROPER STANDARD FOR REVIEW
Having determined that there are no procedural grounds for upsetting the Appellate Division order, we turn now to the proper standard for reviewing the sufficiency of evidence before a Grand Jury. The Grand Jury may not indict unless the People present evidence establishing a prima facie case of criminal conduct (see, People v Dunleavy, 41 A.D.2d 717, affd 33 N.Y.2d 573). The sufficiency of the People's presentation is properly determined by inquiring whether the evidence viewed in the light most favorable to the People, if unexplained and uncontradicted, would warrant conviction by a petit jury (see, People v Pelchat, 62 N.Y.2d 97, 105).
In granting the motions to dismiss all of the indictments in this matter, however, the reviewing Justice erroneously applied a higher standard to determine whether the People's circumstantial evidence of a larcenous intent was sufficient. Citing People v Ryan (41 N.Y.2d 634), People v Borrero (26 N.Y.2d 430), People v Cleague (22 N.Y.2d 363), People v Bearden (290 N.Y. 478) and People v Newman (80 Misc.2d 975, affd 85 Misc.2d 761), the court demanded that the People's evidence be "`"wholly inconsistent with innocent intent or belief"'" (123 Misc.2d 560, 564). The cases cited to justify this heightened scrutiny, however, only addressed the question whether the circumstantial evidence of larcenous intent adduced at trial supported a petit jury's finding that guilt was established beyond a reasonable doubt. Manifestly, such cases are not controlling on a motion to dismiss an indictment prior to trial
The Criminal Procedure Law provides that a Grand Jury may indict a person when the evidence before it both establishes all the elements of the crime and also establishes reasonable cause to believe that the accused committed the crime to be charged (CPL 190.65 ). The first prong requires that the People present a prima facie case; the second dictates the degree of certitude grand jurors must possess to indict. It is thus clear from the statute that the applicable degree of certitude is "reasonable cause," not "beyond a reasonable doubt" or "moral certainty" where the principal proof of guilt is circumstantial. Furthermore, on a motion to dismiss an indictment under CPL 210.20 (1) (b), the inquiry of the reviewing court is limited to the legal sufficiency of the evidence; the court may not examine the adequacy of the proof to establish reasonable cause, since that inquiry is exclusively the province of the Grand Jury. As we said in People v Sabella (35 N.Y.2d 158, 167): "`"Legally sufficient evidence" means competent evidence which, if accepted as true, would establish every element of an offense charged and the defendant's commission thereof * * *' In determining whether the People have reached this stage, all questions as to the quality or weight of the proof should be deferred. In other words if the prosecutor has established a prima facie case, the evidence is legally sufficient `even though its quality or weight may be so dubious as to preclude indictment or conviction pursuant to other requirements.' To further illustrate the point the Commission Staff noted that `evidence may be "legally sufficient" to support a charge although it does not prove guilt "beyond a reasonable doubt," and for that matter, although it does not even provide "reasonable cause" to believe that the defendant committed the crime charged.' (See Commission Staff Comment to Proposed CPL 35.10, now CPL 70.10.)" (See, also, People v Mayo, 36 N.Y.2d 1002, 1004.)
IV. THE REPURCHASE AGREEMENT PLAN
Indictments Nos. 4379/83, 4380/83 and 370/84, on which the named defendants are John Jennings, John Finnerty, Sentry Armored Courier Corp. and Sentry Investigations Corp., all concern a business practice that the People have dubbed the "Repurchase Agreement Scheme." All of the counts in these indictments were dismissed by the trial court, and the dismissals were upheld on the People's appeal to the Appellate Division. We agree with the Appellate Division that the facts presented to the Grand Jury were legally insufficient to support the charges of second degree grand larceny and misapplication of property that were contained in these indictments.
Taken in the light most favorable to the People, the evidence before the Grand Jury showed that Sentry had an agreement with its client, Chemical Bank, under which Sentry was to pick up from Chemical's Water Street offices certain "bulk deposits" that Chemical had received from its commercial customers. Sentry was to "fine count" this money in its warehouse and then deliver it within 72 hours to Chemical's account at the Federal Reserve Bank in lower Manhattan, reporting any overages or shortages discovered in the counting process.
Reluctant to retain all of the cash on Sentry's premises for the full 72-hour period, defendant Jennings met with defendant Finnerty, an officer of Hudson Valley National Bank, and arranged for the "fine counted" money to be delivered to Hudson's account at the Federal Reserve Bank, with the funds
The "repurchase agreement" plan was implemented in July of 1981. By late August, Chemical had noticed that its funds were being routed through Hudson and demanded an explanation. Although an officer of Sentry told Chemical's representative that the rerouting had been initiated for "insurance purposes," Chemical was evidently unsatisfied and directed Sentry, both orally and in writing, to deliver the "fine counted" money directly to Chemical's account at the Federal Reserve Bank. Despite this admonition, Sentry continued its practice of routing the money through Hudson until November of 1981, when Chemical decided it could "fine count" its bulk deposits internally. During the period when its arrangement with Hudson was in effect, Sentry gained a total of nearly $17,000 in interest earned on over 40 "repurchase agreements." The full amount of the principal belonging to Chemical, however, was always returned to its owner within the allotted 72-hour time frame.
The People have advanced several theories in support of their larceny charge, including a "breaking of the bale" and an unlawful "separat[ion] of the value of the money from its engraved ink and paper container." None of the theories the People have proffered, however, would support a larceny conviction under our modern statutes defining that crime. While Sentry's conduct may have provided a basis for civil liability in some form, that conduct did not constitute criminal larceny.
As one commentator has noted, the concepts of "deprive" and "appropriate," which "are essential to a definition of larcenous intent," "connote a purpose * * * to exert permanent or virtually permanent control over the property taken, or to cause permanent or virtually permanent loss to the owner of the possession and use thereof" (Hechtman, Practice Commentaries, McKinney's Cons Laws of NY, Book 39, Penal Law § 155.00, p 103). The intent element of larceny is therefore very different in concept from the "taking" element, which is separately defined in the statute (Penal Law § 155.05 , ; see, Penal Law § 155.00 ) and is satisfied by a showing that the thief exercised dominion and control over the property for a period of time, however temporary, in a manner wholly inconsistent with the owner's continued rights (see, People v Olivo, 52 N.Y.2d 309, 318; People v Alamo, 34 N.Y.2d 453, 457-458). Indeed, in People v Olivo (supra, at pp 315-319), where we discussed the principles underlying the "taking" element at length, we noted that "the intent prescribed by [Penal Law § 155.05 (1)]" must be separately considered (52 NY2d, at p 318, n 6).
The "taking" element of the crime of larceny was established prima facie here, since for certain periods, however temporary, defendants exercised dominion and control over Chemical's funds in a manner that could be found to be wholly inconsistent with Chemical's ownership (see, People v Olivo, supra, at pp 316-318;
The gist of the People's claim is that by investing Chemical's money for periods up to 48 hours, defendants evinced an intent to deprive its true owner of the money's "economic value or benefit," that is, the interest that the money was capable of generating. The mens rea element of larceny, however, is simply not satisfied by an intent temporarily to use property without the owner's permission, or even an intent to appropriate outright the benefits of the property's short-term use.
The problem presented in this case is similar to that presented in "joy-riding" cases, in which it was held that the intent merely to borrow and use an automobile without the owner's permission cannot support a conviction for larceny (e.g., Van Vechten v American Eagle Fire Ins. Co., 239 N.Y. 303, 305; People v Kenney, 135 App Div 380, 382-383).
For similar reasons it cannot be said that defendants committed larceny by intentionally and permanently stealing the interest earned on Chemical's money, as distinguished from the money itself. First, absent proof of an agreement to the contrary, Chemical cannot be deemed the true owner of the interest earned while its money was in defendants' custody pursuant to the parties' "fine counting" agreement (see, Matter of Surrey Strathmore Corp. v Dollar Sav. Bank, supra).
Finally, we note that neither Sentry's patently false response to Chemical's inquiry concerning the rerouting of its money through Hudson nor Sentry's disobedience when ordered by Chemical to deliver the money directly are sufficient to establish that Sentry was acting with the larcenous intent required by Penal Law § 155.00 (3), (4) and § 155.05 (1). At worst, Sentry's conduct demonstrates its unwillingness to relinquish what was obviously a profitable short-term use of Chemical's money. It does not, however, alter the inescapable and uncontradicted inference that Sentry was merely emulating the behavior of many reputable financial institutions by taking advantage of the "float" on the temporarily idle money in its possession.
Having determined that the People's proof did not establish a larceny, we turn now to the question whether it was sufficient to establish the lesser crime of misapplication of property, which is defined in Penal Law § 165.00 (1) as follows: "A person is guilty of misapplication of property when, knowingly possessing personal property of another pursuant to an agreement that the same will be returned to the owner at a future time, he loans, leases, pledges, pawns or otherwise encumbers such property without the consent of the owner thereof in such manner as to create a risk that the owner will not be able to recover it or will suffer pecuniary loss."
In this case, although the evidence before the Grand Jury was sufficient to support a finding that the "repurchase agreements" were the equivalent of a "loan" to Hudson Valley Bank within the meaning of this statute, that evidence, even when viewed in the light most favorable to the People, was insufficient to support the misapplication charge because of the absence of proof that these loans were made "in such manner as to create a risk" of loss. There was no actual risk here that the money would not be repaid, since even in the unlikely event of a default by Hudson, the "loans" to Hudson were secured by A-rated bonds held in Hudson's Federal Reserve Bank vault. Indeed, these "agreements" were deemed so secure by the industry that, as the undisputed testimony shows, no FDIC insurance was required.
We reject the People's present contention that the use of wire transfers created a legally cognizable risk of loss through electronic accident or deliberate computer hijacking. There is nothing on the present record to demonstrate that such a risk in fact existed and, absent meaningful proof, such an alleged source of risk is far too speculative and remote to support an indictment under Penal Law § 165.00 (1). Similarly, we decline to adopt the People's view that the statute was violated because defendants encumbered Chemical's money in such a way as to create a risk that the exact same bills entrusted to Sentry would not be recovered. Inasmuch as money is quintessentially fungible property, the certainty that the exact same amount of money will be recovered is enough to defeat application of the statute.
Finally, we note that even if the "creation of risk" element of Penal Law § 165.00 (1) had been satisfied, we would nonetheless affirm the dismissal of the misapplication counts in indictments Nos. 4379/83, 4380/83 and 370/84, since the
In short, however unethical defendants' conduct may have been, it did not constitute the crimes of larceny or misapplication of property. Accordingly, the indictments charging those crimes were properly dismissed.
V. THE COMPENSATORY BALANCE MATTER
Another set of charges against Jennings and Fiumefreddo arises from a second business arrangement that Sentry had with Chemical Bank. Under this arrangement, Sentry kept a "rolling inventory" of Chemical's dollar bills and coins in a segregated area of its money room. This money was to be delivered to various branches of Waldbaum's supermarket, Chemical's customer, whenever a need for additional cash arose. Defendants allegedly took some $100,000 out of this "rolling inventory" and deposited it in a "compensatory balance" account at Citibank. Their apparent purpose in opening this account was to enable Sentry to obtain a lower interest rate on a refinanced equipment loan it had with Citibank. There were no restrictions on Sentry's use of the "compensatory balance" account, and Sentry's principals had full access to its funds at all times.
In late 1982, discrepancies began to appear in the amount of coins in the "rolling inventory" Sentry was storing for Chemical. An audit revealed substantial shortages in the "rolling inventory," and, as a consequence, the chairman of Sentry's board of directors attempted to withdraw the funds in the Citibank account. Citibank, however, refused his request and instead called in the demand portion of Sentry's equipment loan, freezing the "compensatory balance" account in an apparent preliminary attempt to set off its claim against Sentry. On January 11, 1983, Sentry returned Chemical's "rolling inventory" with a shortage of over $122,000. An
These are the basic facts that led the second Grand Jury to hand up indictment No. 369/84, which charged Jennings and Fiumefreddo with second degree grand larceny and misapplication of property. The indictment was dismissed by Justice Goldfluss, but was reinstated on the People's appeal to the Appellate Division. We conclude, however, that the larceny count arising from the "compensatory balance" account arrangement has the same flaw as the larceny count involving the "repurchase agreement" plan, and, accordingly, we reverse the Appellate Division's order to the extent that it resuscitated the former count.
As in the case of the "repurchase agreement" indictment, the facts underlying the "compensatory balance" account indictment demonstrate, at best, a short-term taking of the money entrusted to Sentry by its true owner, Chemical Bank. By removing the money from the storage area where the "rolling inventory" was kept and placing it in a bank account in Sentry's name, defendants could be found to have exercised dominion and control over the money in a manner that was inconsistent with Chemical's ownership (see, e.g., People v Olivo, supra).
The facts before the Grand Jury, however, do not support an inference of larcenous intent, as that element is defined in Penal Law § 155.00 (3), (4) and § 155.05 (1). Again, what is lacking here is the intent permanently to deprive the owner of the funds or to exercise control over the money "for so extended a period or under such circumstances that the
We reach a different conclusion with respect to the count charging those defendants with misapplication of property in connection with the "compensatory balance" account matter. The elements of that count were satisfied by the evidence showing that defendants had encumbered Chemical's funds in such a manner as to place them at risk. Although there was no showing that the funds in the "compensatory balance" account were expressly deposited as security for Citibank's loan to Sentry, the bank's right of setoff (see, e.g., Marine Midland Bank v Graybar Elec. Co., 41 N.Y.2d 703) made those funds the indirect equivalent of security.
VI. ALLEGED MISAPPROPRIATION OF INSURANCE PROCEEDS
Defendant Jennings was also charged, in indictment No. 638/83, with having committed second degree larceny by failing to remit insurance proceeds to the intended beneficiaries.
On September 3, 1982, one of Sentry's armored cars was robbed of more than $231,000 after having made several cash pick-ups. About two months after this robbery, which does not appear connected to the later warehouse robbery, Sentry Investigations' insurer sent it a $20,985.54 check in full settlement of its insurance claim. This check represented payment for the losses sustained by three of Sentry's clients. Sentry reimbursed one of those clients, Queensboro Farm Products, for the full amount of its $18,620 loss, but did not distribute the remainder of the insurance proceeds to its other two clients, Amity Westchester and City Hospital Center of Elmhurst, each of which had sustained losses in excess of the $2,365 balance and had submitted proof of loss. Instead, Sentry retained the excess proceeds for itself, an act which led to the present second degree grand larceny charge against defendant Jennings.
It is true that in Yannett we stated that a larceny prosecution might lie against a person who had converted to his own use funds that were given to him in trust for another (49 NY2d, at p 303; cf. People v Valenza, 60 N.Y.2d 363, 368-369). It is also true that our prior decisions indicate that a bailee who receives casualty insurance payments in reimbursement for the loss of bailed property holds those payments in trust for the bailor (see, Waring v Indemnity Fire Ins. Co., 45 N.Y. 606; Stillwell v Staples, 19 N.Y. 401). However, these principles do not provide a basis for the imposition of criminal liability in this case.
First, the People have neither claimed that Sentry held the proceeds of its insurance coverage in trust for the clients whose property was lost nor made an effort to show that the insurance policy under which payment was made was a casualty policy rather than one merely insuring against liability. Even more importantly, the trust that our cases impose on casualty insurance proceeds is one that exists, if at all, by operation of equitable principles and not by express agreement of the parties (see, Stillwell v Staples, supra, at pp 406-407; cf. People v Robinson, 284 N.Y. 75). It is clear that an alleged misuse of funds on which only an equitable or constructive trust has been imposed cannot support a larceny prosecution (People v Yannett, supra, at pp 303-304; see, People v Epstein, 245 N.Y. 234, 242-243). This conclusion follows from the fact that the "beneficiaries" of a constructive trust "simply
As the named holder of the insurance policy, Sentry was the legal owner of the funds paid to it by the insurer. While its clients may have had a civil claim against Sentry, and even a right in the funds superior to Sentry's creditors, they did not have a right superior to that of Sentry to possess the proceeds of Sentry's insurance policy. Moreover, if the insurer had wanted assurance that the funds would be given directly to the companies that had actually sustained loss, it could have simply issued individual checks jointly payable to them and Sentry. In any event, there was no unlawful taking of funds from their rightful owner here, and the indictment charging defendant Jennings with larceny because of his failure to pay all of the insurance proceeds to Sentry's clients should not have been reinstated.
VII. THE MISSING COINS AND MONEY
The final set of charges, consisting of three counts of second degree larceny asserted against defendants Jennings and Fiumefreddo in indictment No. 640/83, arises out of a series of incidents in which Sentry simply failed to deliver money with which it had been entrusted. In one instance, Sentry allegedly failed to deliver to Chemical Bank's Water Street offices some $38,000 in coins that it had picked up on January 5, 1983 from a concern called Hercules Coinomatic Company. Instead, it deposited a check, which was subsequently dishonored, in Hercules' account at Chemical. In a second instance, Sentry had been given two checks by its client, Freedom National Bank, which checks were supposed to have been used by Sentry to purchase an assortment of coins for delivery to two of Freedom National's branch offices on January 12, 1983. The checks, written in the amounts of $31,500 and $40,500, were negotiated by Sentry, respectively, on December 31, 1982 and January 7, 1983. The coins, however, were never delivered and Freedom National was never reimbursed for its advance payments. The third charged incident involved Sentry's alleged mishandling of payroll money belonging to the New York Telephone Company, resulting in a loss to that company of some $133,141 over the period from December 29, 1982 to January 13, 1983.
Defendants' primary contention with respect to each of these counts is that they had both been relieved of their authority at Sentry by January 3 or 4, 1983 and therefore could not have been responsible for the losses, all of which had come to light thereafter. There are, however, two difficulties with their position. First, the proof regarding when these defendants were actually relieved of their corporate duties was not conclusive. Second, regardless of their formal status, there was affirmative evidence of defendants' continued participation in the activities of the corporation, including a papershredding episode involving defendant Fiumefreddo and defendant Jennings' presence at an audit, both occurring after the date when their ties to the company were supposed to have been severed.
Hence, if we view the evidence before the Grand Jury in the light most favorable to the People, as we must (People v Pelchat, supra), we are led to the conclusion that the Grand Jury could have rationally returned indictments charging defendants with larceny in connection with the Hercules Coinomatic, Freedom National Bank and New York Telephone Company shortages. Defendants' larcenous intent could have been inferred from such surrounding circumstances as the paper-shredding incident and the evidence of an ongoing practice of commingling clients' funds (see, People v Meadows, 199 N.Y. 1), as well as from the unexplained disappearance of the money itself (see, People v Olivo, 52 NY2d, at p 320, n 8, supra). Accordingly, the dismissal of indictment No. 640/83 against defendants Jennings and Fiumefreddo was error.
To summarize our conclusions, we hold that the Appellate Division correctly affirmed the dismissal of indictments Nos. 4379/83, 4380/83 and 370/84, charging defendants Jennings, Finnerty, Sentry Armored Courier Corp. and Sentry Investigations Corp. with second degree grand larceny and misapplication of property arising out of the "repurchase agreement" plan. We further hold that the misapplication of property count in indictment No. 369/84, involving the "compensatory balance" account, was properly reinstated. Our disagreement with the Appellate Division lies in its disposition of the counts in indictment No. 640/83, involving the various "missing money" incidents, and the larceny count in indictment No. 638/83, involving the alleged misappropriation of insurance proceeds, as well as the larceny count in indictment No. 369/84. The counts in the "missing money" indictment, asserted at this point against defendants Jennings and Fiumefreddo alone, should have been reinstated, while the dismissal of the larceny counts asserted in the "compensatory balance" account indictment and the indictment involving the insurance proceeds should have been affirmed.
Accordingly, the order of the Appellate Division should be modified by reversing so much thereof as affirmed the dismissal of indictment No. 640/83 against defendants John Jennings and Angela Fiumefreddo, reversed the dismissal of the larceny count against those defendants in indictment No. 369/84 and reversed the dismissal of the larceny count against Jennings in indictment No. 638/83; indictment No. 640/83 should be reinstated and the matter remitted for further proceedings on that indictment, as well as on the misapplication of property count in indictment No. 369/84.
I cannot concur in the majority's remarkably indulgent determination that defendants were merely emulating the practices of "reputable financial institutions" (majority opn, at p 121), and that Sentry's use of Chemical Bank's money for esoteric investment schemes or to secure favored loan conditions for itself amounted to little more than a noncriminal financial "joyride" (majority opn, at pp 121, 125). Investing the "float" may be legal in a debtor-creditor relationship, but a bailee for hire undertakes to protect and preserve the bailor's property with
My differences with the majority are more fundamental than the significance attributed to the evidence, however. In my view, the majority and the courts below have given an overly restrictive interpretation to the applicable statutes. Thus, while I agree with the court's findings that the People have failed to preserve their claimed procedural errors, and with the rulings discussed in parts I., III. and VII. of the majority opinion, I disagree with its interpretation of the pertinent statutes and the disposition of the counts of the indictment charging larceny involving the repurchase agreements (except as to defendant Finnerty) discussed in part IV., the compensatory balance scheme discussed in part V., and the misappropriation of insurance proceeds discussed in part VI. I, therefore, dissent.
Turning first to the larceny counts, the majority concedes, as to the repurchase agreement scheme and compensatory balance scheme, that the evidence supports the Grand Jury's finding that defendants wrongfully took substantial sums of money from Chemical Bank, the rightful owner, by depositing them in Hudson Valley National Bank and Citibank. Defendants did so by exercising "control over property inconsistent with the continued rights of the owner" (People v Olivo, 52 N.Y.2d 309, 316; People v Alamo, 34 N.Y.2d 453, 457-458). However, the majority does not find sufficient evidence before the Grand Jury of defendants' larcenous intent in those takings.
The majority finds it necessary that the People show defendants intended to appropriate the economic value of the property although the statute clearly provides a legally sufficient alternative: the appropriation of "a major portion of its economic * * * benefit" (id.), i.e., its ability to make more money. There can be little doubt that defendants intended to use Chemical's money to their own financial advantage; they invested it with Hudson Valley National Bank, and earned $17,000 in the process, and they also used it to collateralize a loan with Citibank. This evidence was more than sufficient to establish defendants' intent to acquire the economic benefits of Chemical Bank's funds within the literal language of Penal Law § 155.00 (4); § 155.05 (1).
The majority also claim that the necessary mens rea for the larceny was lacking because any intent to appropriate the economic benefit of the funds was only the intent to deprive Chemical of its property temporarily or "short term" (majority opn, at p 121). The statute does not specify how long a defendant must intend the appropriation to last, it merely requires, inter alia, an intent to appropriate "for so extended a period or under such circumstances" as to acquire a major portion of its economic benefit (Penal Law § 155.00  [emphasis added]). Regardless of the limited time involved in diverting the funds involved in the repurchase agreement or the compensatory balance schemes, the defendants appropriated the property "under * * * circumstances" in which they acquired all the economic benefit of the property for the time they held it. That being so, the time and/or the circumstances were sufficient to establish the crime. The majority finds little difference
The conclusory assertion of the majority, based upon the Practice Commentary (see, Hechtman, Practice Commentaries, McKinney's Cons Laws of NY, Book 39, Penal Law § 155.00, p 103), that there must be a "purpose * * * to exert permanent or virtually permanent control over the property taken" is not only without legal support, it is contrary to our decisions (see, People v Shears, 158 App Div 577, 582, affd no opn 209 N.Y. 610 [construing Penal Law of 1909 § 1302, now incorporated in Penal Law § 155.05 (2)]; People v Meadows, 199 N.Y. 1, 7), and to the clearly manifested broad sweep of the statute which does not limit the intent to appropriate in terms of the time involved. Rather, the statute defines the crime as an appropriation "under such circumstances" as to acquire the economic benefit of the property.
The general nature of the repurchase agreements is set forth in the majority opinion, but it has not delineated the five discrete steps taken on each of the more than 40 occasions when defendants transferred Chemical Bank's money to Hudson Valley. According to the plan between Sentry and Hudson Valley: (1) Sentry would deposit the "fine count" funds into Hudson Valley National Bank's account at the Federal Reserve; (2) Hudson Valley National Bank would credit the amount of such deposit to the newly created escrow account for Sentry Armored Courier Corporation; (3) the principal in the escrow account was then used to buy A-rated bonds owned by Hudson Valley National Bank and stored at the Federal Reserve; (4) Hudson Valley National Bank would later repurchase these bonds and credit Sentry's escrow account for the amount of the principal plus interest, less Hudson Valley National Bank's broker's fee (the interest was then transferred to another account at Hudson Valley National Bank held in the name of Sentry Investigations Corp.); and finally (5) prior to the expiration of the 72-hour period allotted to Sentry for the "fine counting", an employee of Sentry Investigations Corp. would telephone Hudson Valley National Bank and authorize a wire transfer of the principal in the escrow account held by Sentry Armored Courier Corp. to Chemical Bank's account at the Federal Reserve. A wire transfer fee
Chemical had retained Sentry to "fine count" in early 1981; the repurchase agreement scheme started in July 1981 and the contract between Sentry and Chemical was terminated in November of the same year. During the months that the scheme existed, Sentry and Hudson Valley invested approximately $26 million of Chemical's funds in the repurchase agreements.
The majority makes the unwarranted assumption that, absent production of the written bailment contract, the Grand Jury could not find that Sentry's acts in these transactions were contrary to its provisions. The speculation is rebutted by testimony not only by the Bank's officers but by that of Sentry's own employees as well. Thus, Chemical's officer, David Williams, testified that when he discovered Sentry was using Chemical's funds contrary to the Bank's wishes, in August 1981, he called Mr. Mead, an officer of Sentry, to inquire about it. When Mead gave a patently pretextual excuse that the transfers were dictated by insurance considerations, Williams instructed him that Sentry was to stop these transactions immediately. After the telephone conversation, Williams wrote a letter to Sentry confirming his demand that Sentry stop using Chemical's money in a manner contrary to the contract. The Grand Jury could reasonably conclude from all of this not only that Sentry's investment of Chemical's funds was contrary to the bailment agreement but also, because of the false excuse given by Sentry's officers, that Sentry knew that to be so. Moreover, the Grand Jury could reasonably assume that Sentry's confirmed possession of Chemical's funds was conditioned on its acceptance of this direction and that, had Sentry not indicated that it would discontinue the practice, Chemical would have terminated the agreement. Notwithstanding Chemical's instructions given by telephone and letter, however, Sentry continued the repurchase scheme until the coin counting contract was terminated in November. This evidence was sufficient, prima facie, to establish defendants' larcenous intent to appropriate the economic benefit of Chemical Bank's funds to itself.
Similarly, there was more than enough evidence to permit the jury to find defendants possessed the requisite larcenous intent when Sentry improperly took Chemical's funds and deposited them in Citibank to its own credit in its compensatory balance scheme. By so depositing the money, Sentry obtained the major portion of the economic benefit of the funds during the period of the deposit because it, in effect, collateralized its loan from Citibank with Chemical's money and it also received a reduced interest rate on the loan. This improper transfer and deposit notwithstanding, defendant Fiumefreddo claims that the evidence was insufficient to connect her to the crime, or to establish the requisite intent as to her. Fiumefreddo participated in the transfer of Chemical Bank's funds to the Citibank account, however, and she signed the account's signature card. Moreover, she was in charge of Sentry's money room, and its daily audit reports showed falsely that the $100,000 deposited in the Citibank account was located at Sentry. Fiumefreddo was also the Sentry officer who told the independent auditor that $100,000 of the Chemical Bank shortfall in the Sentry money room deposits was located in a Citibank account. Manifestly, such evidence is sufficient to establish Fiumefreddo's knowledge of the crime, her connection with it and her requisite larcenous intent.
Furthermore, I disagree with the majority's discussion of the misapplication of property statute as applied to the repurchase agreement indictments against Jennings and the corporate defendants. I would dismiss those indictments, however, because Chemical Bank suffered no loss from these particular transactions (see, Penal Law § 165.00 ).
The misapplication of property statute provides that: "1. A person is guilty of misapplication of property when, knowingly possessing personal property of another pursuant to an agreement that the same will be returned to the owner at a future time, he loans, leases, pledges, pawns or otherwise encumbers such property without the consent of the owner thereof in such manner as to create a risk that the owner will not be able to recover it or will suffer pecuniary loss" (Penal Law § 165.00 ). The statute apparently has never been judicially construed and the legislative history of the present provision, the substance of which dates back to the 1881 Penal Code, is scant. As now codified, the crime was substantially derived from the Penal Law of 1909 §§ 941 and 1310. The Staff Notes of the Temporary State Commission on the Revision of the Penal Law and Criminal Code (proposed § 170.00) state merely that it "restates existing Penal Law § 941" and that "the specified loaning, leasing and encumbering activity, it should be noted, does not reach the stature of larceny because it does not necessarily entail an intent to `deprive' or `appropriate' [see, proposed § 160.00 (3), (4); § 160.05 (1)]."
The curious thing about the majority's decision on this count of the indictment is that it questions whether defendants encumbered Chemical Bank's property, and thus violated the misapplication statute, yet it finds defendants did commit the greater intrusion of taking the Bank's property. If the majority finds a "taking" of the property for purposes of the larceny charges (see, majority opn, at p 118), I do not
The majority, finding the transfers were "loans" within the meaning of Penal Law § 165.00 (1) for purposes of discussion, nevertheless finds the statute was not violated because there was no risk of pecuniary loss to Chemical as the statute requires. To fail to perceive any risk in these multiple transactions, however, is to blink the realities of modern life. There were in all five different transfers by wire and paper entries made during the 72 hours of each repurchase agreement transaction. The potential risk can be inferred from the sheer intricacy of the transactions, and the number of employees at both Sentry and Hudson Valley upon whose accuracy and honesty those transactions depended (to say nothing of the possible risk of computer errors or crimes). Moreover, the claim that risk was nonexistent because Chemical Bank's funds were secured by the A-rated bonds ignores the People's evidence which established that the bonds were issued to Sentry as security for only a portion of the time that Chemical Bank's currency was in Hudson Valley National Bank's account at the Federal Reserve. The funds were held in Sentry's escrow account during the rest of the time.
The Grand Jury was entitled to conclude from the evidence presented concerning the repurchase agreement scheme in particular, and Sentry's gross mismanagement of funds entrusted to its care, in general, that the repurchase agreement transactions created a risk of loss to Chemical Bank within the meaning of the misapplication statute.
Finally, I would affirm the Appellate Division's order insofar as it reinstated the count charging grand larceny of insurance proceeds. There was sufficient evidence before the Grand Jury to permit it to find that the insurance proceeds belonged to the injured parties and that, contrary to their rights, defendants misappropriated some of the funds to their own use.
The larceny statute provides that, when property is withheld by one person from another person, an "owner" thereof is any person who can establish a right to possession of it superior to that of the withholder (Penal Law § 155.00 ). It has been settled law for at least 100 years that a bailee for hire who receives casualty insurance payments for the loss of bailed property holds those payments in trust for the bailor (see, Waring v Indemnity Fire Ins. Co., 45 N.Y. 606; Stillwell v Staples, 19 N.Y. 401, 406-407). We indicated in People v Yannett (49 N.Y.2d 296, 303) that a prosecution will lie against a person who has converted funds for his own use that were given to him specifically in trust for another (see, also, People v Shears, 158 App Div 577, 582, affd no opn 209 N.Y. 610, supra; People v Meadows, 199 N.Y. 1, 7, supra).
In this case, there was evidence that Sentry was contractually obligated to reimburse its clients for their losses, as well as documentary proof that Sentry's insurer had made the payment in accordance with the proof of loss submitted by those clients. This evidence was sufficient to establish prima facie that the insurance proceeds were paid to Sentry in trust for the bailor-clients who had sustained losses in the robbery, and that defendant intentionally withheld them from the bailor claimants (see, People v Newman, 85 Misc.2d 761, affg 80 Misc.2d 975).
In conclusion, it is worth noting the concern other branches of our State government have expressed over the enormous increase in large scale white-collar crimes. Thus, in 1986 the State Executive Department recommended comprehensive efforts to "deter the extraordinary increase in sophisticated, economic crime" by proposing the amendment of five different articles of the Penal Law (see, 1986 McKinney's Session Law News, at A-836-837). The Legislature acted upon these recommendations by enacting several new statutes, including a statute increasing larceny penalties, which expanded, rather than contracted, the methods of fighting white-collar crimes (see, L 1986, ch 515; see also, L 1986, ch 514 [computer offenses]; and L 1986, ch 516 [Organized Crime Control Act]). Apparently the Governor's staff and the Legislature found the existing larceny statutes adequate to deter and punish peculations, such as those with which defendants are charged, since substantive changes in the provisions of the larceny statutes were not recommended or enacted. In contrast to this concern over the problem, the majority has trivialized the seriousness of defendants' conduct and interpreted the statutes narrowly, virtually excising important and operative language from them.
Accordingly, I dissent from so much of the majority's decision as (1) affirms the order dismissing indictments Nos. 4379/83 and 370/84 against the Sentry Corporation and Jennings and would reverse and reinstate those indictments, (2) as affirms the order dismissing the larceny counts against Jennings and Fiumefreddo in indictment No. 369/84 and would reverse the order, reinstating those counts and (3) which reverses and dismisses indictment No. 638/83 which charges defendant Jennings with two counts of grand larceny involving the insurance proceeds and would affirm the order reinstating that indictment.
Order modified and case remitted to Supreme Court, Bronx County, for further proceedings on indictments Nos. 640/83 and 369/84 in accordance with the opinion herein and, as so modified, affirmed.