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[90-1 USTC ¶50,204] United States of America, Plaintiff-Appellee v. Louis Defazio, ¹ Defendant-Appellant

(CA-7), U.S. Court of Appeals, 7th Circuit, 89-1953, 4/9/90, 899 F2d 626, 899 F2d 626. Affirming an unreported District Court decision

[Code Sec. 7402 ]

District Court: Review of decisions by Court of Appeals.--The district court did not compromise a taxpayer's Sixth Amendment right to counsel when it disqualified his chosen attorney from representing him against various charges of tax code violations and bankruptcy fraud charges. Since his chosen attorney also acted as his counsel in filing his Chapter 7 bankruptcy petitions and was present during subsequent bankruptcy examinations during which the taxpayer allegedly lied about his finances, the trial judge properly concluded that there was a strong possibility the attorney would become a defense witness should the taxpayer defend any of the charges based upon the advice given him by his attorney during the bankruptcy proceedings. Moreover, if an advice of counsel defense had been raised, the content of the attorney's testimony was not available through sources other than himself, and the parties could not have stipulated to what the attorney knew about the taxpayer's state of mind or what he advised the taxpayer, since such information would be known only by the taxpayer and his attorney.

[Code Sec. 7203 ]

Evidence: Admissibility.--Absent a good faith belief by a taxpayer in the right to legally carry forward losses, the testimony of an accountant and hypothetical returns prepared by him were properly excluded from the taxpayer's trial on various charges of tax code violations. Moreover, the taxpayer's demonstrative returns were based in large part on figures produced by an accounting firm that worked on his records in years after he was indicted, and, in part, on the accountant's computations. There was nothing to show that, at the time his returns were due, the taxpayer had in mind those figures or one similar to them when deciding what returns he would file, and the taxpayer did not believe he could omit depreciation in one year and claim it in a later one. In addition, there was no abuse of discretion in excluding excerpts of the taxpayer's testimony given in bankruptcy examinations to prove the taxpayer's prevailing state of mind during the proceedings. Despite the taxpayer's contention that these excerpts explained his side of a running dispute with a creditor, that dispute did not excuse his lying during the bankruptcy proceedings.

[Code Sec. 7203 ]

Attorneys: Privileged communications.--The content of testimony, contained in a memorandum that summarized a taxpayer's attorney's meeting with the IRS and during which the attorney learned firsthand of the IRS's recommendation of prosecution, was nonprivileged because it did not reveal, either directly or implicitly, legal advice given by the attorney or any client confidences. Despite the taxpayer's attempt to focus on the part of the memorandum recounting the IRS agent's invitation to present defenses, this single reference at his trial on tax evasion charges could not have had any influence on the jury's understanding of the government's burden of proving guilt beyond a reasonable doubt. Moreover, it was agreed that in any further reading of the memo, the reference to defenses would be omitted.

[Code Sec. 7203 ]

Juries: Instructions to juries: Criminal penalties: Lesser offense rule.--The giving of an "ostrich" instruction to the jury was not inappropriate given the apparently disorganized records of a taxpayer and that he could not ignore what his records would disclose if they were organized. Furthermore, despite the taxpayer's argument that the instruction improperly imposed a negligence standard on a specific-intent crime, there were other instructions that adequately protected the taxpayer from being convicted for negligently failing to realize his income tax responsibilities. Moreover, this instruction had already been approved in a prosecution involving a crime that requires guilty knowledge. In addition, the taxpayer's claim that the offense of failure to file a tax return is included within the broader offense of tax evasion so as to render improper the district court's judgment of conviction and impose cumulative penalties on both offenses for the same tax years was foreclosed by other court rulings in the Seventh Circuit.

Thomas M. Durkin, Assistant United States Attorney, Chicago , Ill. 60604 , for plaintiff-appellee. William Hedrick, 9239 Gross Point Rd. , Skokie , Ill. 60077 .

Before CUDAHY and POSNER, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

FAIRCHILD, Senior Circuit Judge:

The defendant appeals from his conviction under a multi-count indictment for filing a false income tax return, failing to file tax returns, attempting to evade income taxes, and bankruptcy fraud. The chief question is whether the district court compromised the defendant's sixth amendment right to counsel when it disqualified his chosen lawyer from representing him. The defendant also challenges (1) the exclusion of evidence allegedly bearing on his state of mind, (2) the admission of a communication from his attorney to him, (3) the giving of an "ostrich" instruction to the jury, and (4) his conviction of both tax evasion and failure to file a tax return for the same tax years.

I.

Louis Defazio is a self-employed builder and developer of real estate. The Internal Revenue Service began an audit of Mr. Defazio's income tax liabilities in 1984. Mr. Defazio consulted an accountant, Carol Anderson, for advice about the audit, and Ms. Anderson accompanied Mr. Defazio to two meetings with an IRS agent to discuss Mr. Defazio's businesses and finances. The IRS audit continued through 1985. In the spring of 1986, the IRS referred Mr. Defazio's case to the United States Attorney's office for criminal prosecution. On June 6 of that year, Mr. Defazio filed a petition in bankruptcy under Chapter 11, and in July and August gave sworn testimony in three examinations in his bankruptcy case. The Chapter 11 petition was dismissed on October 7 on the motion of a creditor. In April of 1987, Mr. Defazio filed a second bankruptcy petition, this time under Chapter 7. Mr. Defazio gave statements under oath in examinations in this case, also.

A grand jury indicted Mr. Defazio on September 16, 1987. A superseding indictment of eleven counts was filed August 24, 1988. Tax code violations were charged for the tax years 1981 through 1984, along with bankruptcy fraud charges based on Mr. Defazio's testimony at the examinations during two bankruptcy cases. More specifically:

As to tax year 1981, Count One charged Mr. Defazio with filing a return which he did not believe to be true and correct as to every material matter. 26 U.S.C. §7206(1) .

As to tax year 1982, Count Two charged an attempt to evade and defeat income tax by filing a false return and by other false statements and acts of concealment of assets. 26 U.S.C. §7201 .

As to tax year 1983, Count Three charged an attempt to evade and defeat income tax by failing to file a return and by false statements and acts of concealment. Count Four charged willful failure to file a tax return. 26 U.S.C.§7203.

And for tax year 1984, Count Five similarly charged an attempt to evade and defeat income tax. Count Six charged willful failure to file.

Counts Seven, Eight, and Nine charged false declarations under oath in the 1986 bankruptcy case. Counts Ten and Eleven made similar charges regarding the 1987 case. 18 U.S.C. §152 .

The proof at trial showed the following:

For tax year 1981, Mr. Defazio's joint return had shown an adjusted gross income and taxable income of negative $24,085, and a tax of $0. The government proved he actually had an adjusted gross income of negative $20,247, taxable income (after deductions and exemptions which Mr. Defazio had not taken) of negative $38,628, and a tax of $0. (This is the reason why the government did not charge Mr. Defazio with attempting to evade taxes for that year.) What was significant, though, was that Mr. Defazio's tax return had omitted interest income of $2,546, and gross income from four sources totalling $65,517. Income from these same sources was omitted from Mr. Defazio's 1982 return as well, and some of the false statements Mr. Defazio made in the bankruptcy cases tended to conceal his interest in these sources.

For tax year 1982, Mr. Defazio's joint return had shown an adjusted gross income of $1,050, taxable income of negative $949 and a tax of $0. The government proved he actually had an adjusted gross income of $94,229, taxable income of $75,369, and a tax of $25,236. Interest received but omitted was $29,248. The 1982 gross income from the other sources omitted from the 1981 and 1982 returns was $95,181.

As to 1983, Mr. Defazio did not file a return, although he did obtain an extension of time to file, and in applying for the extension had estimated his tax at $15,000 and paid that amount. The government proved an adjusted gross income (assuming a joint return) of $121,476, taxable income of $95,067, and a tax liability of $63,152 (of which Mr. Defazio had paid $15,000). Unreported interest was $18,952. The gross income from the other sources omitted from the earlier returns totalled $179,052.

As for 1984, Mr. Defazio filed no return. The government proved an adjusted gross income (assuming a joint return) of $61,796, taxable income of $58,877, and a tax of $14,741. Interest received was $15,118. The gross income from other sources omitted from the earlier returns totalled $28,086.

As to the bankruptcy fraud charges, the evidence showed that Mr. Defazio gave evasive, misleading, and untrue answers to questions concerning his ownership of assets at examinations during his two bankruptcy proceedings.

The jury found Mr. Defazio guilty on all counts, and the district court entered judgment according to the verdict. He was sentenced to concurrent three year terms of imprisonment on Counts One, Two, and Three, followed by five years of probation on Counts Four through Eleven, probation being conditioned on his honoring all future tax obligations, filing and paying all back taxes due, paying the costs of prosecution ($7,548.24) and paying a $10,000 fine on each of Counts Two and Three.

II.

The Sixth Amendment guarantees a criminal defendant the right to counsel and, within limits, the right to counsel of the defendant's own choosing. Wheat v. United States , 486 U.S. 153, 158-59 (1988). Disqualification of chosen counsel can have severe consequences, especially when the representation has already begun. The defendant starts with a presumption favoring his or her right to chosen counsel. The government can defeat this presumption by showing that representation by the chosen counsel poses either an actual conflict of interest, or a serious potential for such a conflict. Id. at 164. Although judges should hesitate before granting disqualification, "[t]he evaluation of the facts and circumstances of each case . . . must be left primarily to the informed judgment of the trial court." Id. Therefore, we review a district court's decision to disqualify defense counsel only for abuse of discretion. United States v. Micke [88-2 USTC ¶9553 ], 859 F.2d 473, 481 (7th Cir. 1988). Underlying factual determinations relied on by the district court to support its decision to disqualify are reviewed under the clearly erroneous standard. United States v. O'Malley, 786 F.2d 786, 792 (7th Cir. 1986).

At Mr. Defazio's arraignment on the initial indictment, on September 23, 1987, Nicholas Spina appeared on behalf of the defendant. Two other attorneys previously retained by the defendant were also there, and asked permission to withdraw. The prosecutor informed the court that Mr. Spina had represented Mr. Defazio in bankruptcy and was present at the time Mr. Defazio was examined. Responding to questions from the court, she said she did not believe that Mr. Spina would be needed as a witness, apparently because Mr. Defazio's testimony had been transcribed and could readily be proved. She made no objection to Mr. Spina's appearance "if there is no problem" and indicated that she then knew of no problem. The court permitted Mr. Spina to proceed as counsel for Mr. Defazio.

Ten months later, the government filed a motion to disqualify Mr. Spina. In its motion, the government asserted that in 1985 Mr. Defazio sought counsel from Mr. Spina on how to avoid a foreclosure sale at what Mr. Defazio considered an unfair price. Mr. Spina advised him to see an attorney named Barry Yacker, a bankruptcy specialist, who then represented Mr. Defazio in his 1986 Chapter 11 case. The government asserted that Mr. Yacker had obtained Defazio's signature in blank on the Chapter 11 petitions, filled them in and filed them without reviewing their contents with Mr. Defazio. ² The government claimed that substantial assets were not disclosed in the petition, and that its evidence would show that during every examination under oath in that proceeding, Mr. Defazio lied. The government's motion noted that the Chapter 11 proceeding was dismissed on a judgment creditor's motion, and continued as follows:

the evidence will show that on May 15, 1987, with now-defense counsel Nicholas Spina acting as his attorney, Defazio filed for personal bankruptcy under Chapter 7 of Title 11. On these second petitions, presumably prepared by Nicholas Spina on the basis of information provided by Defazio, Defazio essentially denied having any assets, stating he lived on handouts from his wife and children. The government's evidence will show these representations were false. At the succeeding examinations under oath by [creditors], Defazio was represented by Spina. The evidence will show that he again lied in answers to questions about vehicles and boats, real estate, stock transfers, bank accounts and sources of income. . . .

. . . it is apparent that Attorney Nicholas Spina participated in essential contested events and is likely to be a material witness in this case. If Defazio invokes the defense of advice of counsel, as he has done with respect to the Chapter 11 filing, then Spina is either a witness for Defazio or a witness for the government against Defazio.

The defendant's response, prepared by Mr. Spina, was somewhat equivocal. It acknowledged that Mr. Spina had referred the defendant to Mr. Yacker, and had later represented the defendant in his Chapter 7 case. The response asserted, though, apparently as a reason against disqualification, that Mr. Spina "is also in a unique position to comment upon the actual proceeding, the actual questions and answers elicited during the proceedings . . . ."

The response made no estimate of the probability of Mr. Spina being a witness. It did argue that "[e]ven though Attorney Spina has had conversations with the government concerning the potentially acting [sic] as a witness or not, the mere fact that he may be called as a witness should not deter or be utilized as a means by which to disqualify him as Defendant's counsel." The response then noted the extensive preparation Mr. Spina had performed, his awareness of the evidence likely to be offered, and the resulting advantage to his client. It went on to concede that no attorney "should act as a witness against his own client." Concluding, the response reasserted that the defendant preferred to have Mr. Spina represent him, but conceded that the "Court is in a better position to weigh the interests of all parties concerned and rule accordingly."

Judge Kocoras granted the motion to disqualify without hearing evidence or oral argument, giving his reasons orally at a status conference. He noted the government's claim that the papers filed in the Chapter 7 case were false and Mr. Spina's assertion that he prepared the schedule based on information Mr. Defazio supplied. Judge Kocoras inferred a strong possibility that the government might want to call Mr. Spina to show that the information as filed came from the defendant. The judge interpreted the assertion that Mr. Spina "is in a unique position to comment upon the actual questions and answers elicited" as an indication that Mr. Spina was a probable witness and perhaps an essential one. Judge Kocoras suggested that if Mr. Spina tried the case, the jury would wonder why, if he was a participant in the bankruptcy, he wasn't telling the jury about it directly, rather than through witnesses.

If the defendant was arguing before the district court that a party's attorney could properly be a witness in favor of his client on a disputed matter, he was mistaken, absent extreme circumstances. See Model Code of Professional Responsibility DR 5-102(A) & (B); DR 5-101(B)(4); Model Rules of Professional Conduct Rule 3.7(a). We needn't decide if such circumstances existed, since the defendant does not argue on appeal that Mr. Spina could have both acted as his counsel at trial and testified. He argues instead that any unsworn witness problem could have been solved without disqualification, that Judge Kocoras was mistaken in his assessment of the likelihood that Mr. Spina would become a material witness, that the judge should have considered measures less drastic than disqualification, and that at the very least, he should have held a hearing before disqualifying the defendant's chosen attorney.

The defendant's response conceded in general the existence of an "unsworn witness" problem, saying that "an attorney's failure to testify regarding matters of which the jury was aware he had intimate knowledge of could create an improper inference in the juror's minds." We are not aware of any facts in this case which would have made it necessary at trial (in the absence of an advice of counsel defense) for the jury to be told that Mr. Spina acted as Mr. Defazio's counsel in his Chapter 7 proceeding. We agree that if the problem were limited to the jury's knowledge that Mr. Spina had acted as Mr. Spina's counsel in filing his Chapter 7 papers, and was present as counsel at the subsequent examinations, redaction would have solved it. United States v. Diozzi, 807 F.2d 10, 14 n.8 (1st Cir. 1986). See United States v. Levine, 794 F.2d 1203, 1206-07 (7th Cir. 1986).

More compelling, and harder to address without disqualification, was the problem posed by the possibility of Mr. Spina becoming a sworn witness, testifying either to what advice he gave Mr. Spina, or what he knew about Mr. Defazio's state of mind during the Chapter 7 examinations. The parties agree that the likelihood of Mr. Spina becoming a material witness turned on whether Mr. Defazio defended any of the charges based upon the advice given him by Mr. Spina during the Chapter 7 representation. (Indeed, it seems the only way Mr. Spina could have testified concerning privileged communications would be if Mr. Defazio waived his attorney-client privilege by raising an advice of counsel defense.)

Such a defense might pit Mr. Spina's word against his client's. Or, it might discourage spirited advocacy, since an attorney has a personal and professional interest in not having a client claim the attorney advised lying under oath. Also, the justice system has an interest in not having a defense attorney be both advocate and witness regarding material issues. See, e.g., Model Rules of Professional Conduct, Rule 3.7 Comment. The district court has discretion to refuse a defendant's proposed waiver of conflict of interest, if the waiver will not protect other interests threatened by the defendant's lawyer testifying. O'Malley, 786 F.2d at 790-92. See Wheat, 486 U.S. at 160.

At the time Judge Kocoras disqualified Mr. Spina, how likely was it that Mr. Defazio would raise an advice of counsel defense? Of course, as it turned out, Mr. Defazio did not raise the defense at trial, and Mr. Spina did not testify. ³ But this is unimportant, since we do not review the district court's decision with the advantage of hindsight. See Wheat, 486 U.S. at 162-63. The defendant did have Mr. Spina under subpoena during trial, though, which helps corroborate the trial judge's conclusion that his becoming a defense witness was a strong possibility.

There is no question that Mr. Defazio might have asserted at least a partial defense based upon the content of Mr. Spina's Chapter 7 guidance. As the defendant conceded, Mr. Spina was consulted "relative to numerous and various judgments and other financial matters engendered by the dismissal of [the defendant's] Chapter 11 proceeding," he prepared Mr. Defazio's Chapter 7 bankruptcy petitions, and he prepared certain schedules "based upon information supplied by this defendant." Mr. Spina was present as Mr. Defazio's lawyer at the Chapter 7 examinations during which Mr. Defazio allegedly lied about his finances.

It is reasonable to infer, given Mr. Spina's prior representation of the defendant, that he was familiar with the subjects of Mr. Defazio's testimony at his Chapter 7 examinations (and perhaps had reviewed the content of his testimony in the Chapter 11 case), and may have prepared him for the Chapter 7 examinations. And, while the Chapter 7 filings prepared by Mr. Spina were not the subject of any charge against Mr. Defazio, the government did claim they contained false statements, and they might well have been relevant and admissible at trial to show, for example, their effect upon Mr. Defazio's oral testimony, or whether he intended to mislead his examiners.

Only Mr. Spina and the defendant knew whether Mr. Spina's prior advice could support an advice of counsel defense, and whether the defendant planned to raise it. The only guidance the defendant gave Judge Kocoras in deciding the disqualification issue was the defendant's response to the government's motion to disqualify. This surely gave Judge Kocoras little comfort that Mr. Spina would not be taking the stand at trial. Not only did the response suggest that it was permissible for Mr. Spina to testify while still representing Mr. Defazio, it asserted that Mr. Spina should be allowed to represent the defendant because he was in a "unique position to comment upon the actual questions and answers elicited" in the Chapter 7 proceedings. Perhaps this statement was a clumsy attempt to argue that Mr. Spina's prior work with Mr. Defazio made him an especially valuable attorney (a point made separately elsewhere in the response), but we cannot fault Judge Kocoras for reading it differently.

Mr. Defazio relies heavily on United States v. Diozzi, 807 F.2d 10 (1st Cir. 1986), but the facts of that case are sufficiently different to warrant a different outcome. There, six days before the defendants' scheduled trial on income tax evasion, the government moved to disqualify both defense attorneys, claiming it intended to call them as material witnesses. The two lawyers had serially represented the defendants during their IRS investigation, and had each hired accountants to prepare memoranda of the defendants' finances, reviewed them with the defendants, and filed them with the IRS and Justice Department. The government, arguing for disqualification, claimed that it needed the lawyers' testimony as the "best evidence" to prove the contents of the defendants' statements, made through counsel via these financial memoranda. The lawyers were disqualified, testified at trial, and the defendants were convicted. The First Circuit reversed, because there was no pressing need for the lawyers' testimony to prove the content of the defendants' statements to the IRS and Justice Department. The defense offered stipulations which the court felt were equally valuable to the government, so it was unnecessary and improper to disqualify the attorneys simply to have live witnesses. Id. at 13-14. In this case, by contrast, if an advice of counsel defense was raised, the content of Mr. Spina's testimony was not available through sources other than himself--the parties could hardly have stipulated to what Mr. Spina knew about Mr. Defazio's state of mind, or what advice he gave the defendant, since that knowledge was only in the ken of Mr. Spina and the defendant.

Nor do we think it was reversible error for Judge Kocoras not to hold an evidentiary hearing to decide the disqualification issue. There were no material issues of historic fact to be determined, only the question whether the defendant would raise an advice of counsel defense--which easily could have been addressed by memorandum. Cf. O'Malley, 786 F.2d at 793 (hearing on attorney disqualification not constitutionally necessary, but may be advisable). We do think, however, it would have been better practice for the court to have conducted at least a colloquy with counsel to clarify the positions of the parties before reaching a decision. Such a discussion might have developed any number of predicates for making for a more informed decision, such as the probability of an advice of counsel defense or other need for Mr. Spina's testimony, or the effectiveness of redacting Mr. Spina's name from relevant exhibits, a limited disqualification, ⁴ or other less drastic alternatives to address the conflict problem. However, as the defendant did not suggest any such alternatives, Judge Kocoras did not err by not considering them sua sponte. Diozzi, 807 F.2d at 14 n.8. The district court did not abuse its discretion in disqualifing Mr. Defazio's chosen counsel.

III.

The defendant next complains of the exclusion of the testimony of an accountant, Frank Panno, and hypothetical income tax returns prepared by him for tax years 1981 through 1984.

Defense counsel claimed at trial that there was evidence in the record that Mr. Defazio believed that the law permitted him to carry losses forward. Although all parties now agree that he was not legally in a position to do that, defense counsel sought to show, through Mr. Panno and his demonstrative tax returns, what the effect of the carrying forward of Mr. Defazio's 1981 overall loss (and also, apparently, depreciation not claimed before) would have had on his tax liability, if the law did permit the carrying forward. The defendant contended that such proof would bear upon the question whether he was willful in failing to file, or in attempting to evade the tax.

Judge Kocoras excluded Mr. Panno's testimony and the demonstrative returns, concluding that there was no evidence of Mr. Defazio's good faith belief in the right to carry forward losses. Defense counsel then made an offer of proof which included the demonstrative returns and some work papers, but not Mr. Panno's testimony. The demonstrative returns show a tax liability for 1981 of $0 (as the government also proved) and an overall loss for that year of $43,235. The 1982 return shows this 1981 loss carried forward, resulting in a tax of $2,355 for that year (compared to the tax liability of $25,236 proved by the government). The 1983 return shows a tax liability of $47,157, and the one for 1984 no tax due (compared to the government's proof of a joint $14,741 tax liability), and an overall loss of $75,833.

The evidence supporting Mr. Defazio's belief in his ability to legally carry forward losses is equivocal, at best. When in 1984 he became aware that his 1981 return was being audited, he consulted an accountant, Ms. Anderson. According to her testimony at trial, she advised Mr. Defazio to file amended returns for 1981 and 1982, and helped him apply for an extension for 1983. She worked with him for about a year, was unable to persuade him to bring in adequate records, and ultimately advised him to take his problems to an attorney. She prepared no returns for him.

She testified to an April 4, 1984 conversation with Mr. Defazio concerning his planned 1983 return. Mr. Defazio told her he had sold bank stock for $500,000, but said he had losses to offset the gains he realized. He wrote out a rough memorandum which is in the record. It indicated he had purchased stock in Apron String Restaurant I for $105,000 in 1976 and in Apron String Restaurant II for $80,000 in 1978 to 1981. He had told Ms. Anderson the stock was "defunct" and the loss had never been claimed. The memorandum noted a loss of $185,000. It then noted the difference between the sale price and purchase price of bank stock and computed a long term capital gain of $111,850.

At trial Mr. Anderson was shown Mr. Defazio's 1978 return on which a loss of $187,738.58 had been taken on the Apron Strings Restaurant. Her testimony made it clear that she had understood Mr. Defazio as telling her about a loss he suffered within 1983. The defense would analyze the evidence as showing that Mr. Defazio had experienced a loss in 1978, had forgotten that he had taken the tax benefit of it in 1978, and that his assertion to Mr. Anderson that he could offset the loss against gain in 1983 must mean he believed that a loss realized but not taken in one year can be taken in a later year. On the other hand, if he had really forgotten that he had determined the stock to be worthless in 1978, his assertion that it was worthless in 1983 would not tend to prove a belief that a loss experienced in one year could be claimed in a later year. We think Judge Kocoras' rejection of the Panno testimony and demonstrative returns can be sustained on the reason he gave.

In any event there is another reason why this evidence was not shown to be admissible. The demonstrative returns were based in large part on figures produced by an accounting firm which worked on Mr. Defazio's records in 1987 and 1988, after he was indicted, and in part on Mr. Panno's computations. There is nothing to show that at the time the 1981-1984 returns were due, years before, Mr. Defazio had in mind those figures or ones similar to them when deciding what, if any, returns he would file. And there was certainly no evidence at all that Mr. Defazio believed he could omit depreciation in one year and claim it in a later one.

Moreover, if there were any error, it was harmless. The record shows that the proof of deception and concealment is overwhelming, and the presence of the demonstrative returns did not have a substantial influence on the jury's view of Mr. Defazio's guilt. See, e.g., United States v. Hill, No. 89-1724, Slip Op. at 7 (7th Cir. March 19, 1990).

The defendant also objects to the exclusion of portions of his testimony given in examinations in the 1986 Chapter 11 proceeding. The government offered excerpts from these proceedings to prove the substance of Mr. Defazio's allegedly false statements, and the court admitted them. The defense offered other excerpts, not in explanation or qualification of the content of the government's submissions, but as proof of the defendant's prevailing state of mind during the proceedings. In these excerpts, Mr. Defazio refers to and explains his side of a running dispute he had with a creditor, Summit First Federal.

Summit had a mortgage on a building on which Mr. Defazio was a guarantor. Summit had foreclosed, and the property had been sold for a price Mr. Defazio contended was grossly unfair. The sale had been confirmed and a substantial deficiency judgment entered against Mr. Defazio. In the proffered excerpts, Mr. Defazio testified at length about various appraisals of the property, and of his view of the unfairness of the confirmation of the sale and resulting deficiency. He said "I figured my only recourse and salvation is to come and file a Chapter 11 in order to protect myself." He also said "I've got enough equity in these properties to take care of everybody concerned, including Summit First Federal."

In this court, Mr. Defazio argues that the testimony "undercut the contention that he spoke with a fraudulent intent to conceal. . . . Hence it could have been argued that Defendant was not purposely engaging in a concealment to defeat the bankruptcy laws, but rather that he was being combative in his answers as a result of his continuing struggle with Summit First Federal."

Yet, Mr. Defazio's dispute with Summit First Federal does not excuse lying during his bankruptcy examinations; the merits of his fight with a creditor are irrelevant to whether his false declarations were fraudulent. Even if Mr. Defazio's "combative" attitude at the bankruptcy proceedings had some marginal relevance to his intent to defraud, our review of the offered testimony leads us to agree with the district court that the probative value of these statements was far outweighed by their potential to confuse the jury with the facts of a collateral dispute. Fed. Rule Evid. 403. There was no abuse of discretion.

IV.

Some of the tax evasion charges against Mr. Defazio were based in part on his sudden transfer, for nominal consideration, of various personally held assets (such as a house in Florida ) into a newly-created corporation called Defazio, Inc. To prove that these transfers were part of Mr. Defazio's willful attempt to evade income taxes, the government called Attorney Silets, who had represented Mr. Defazio in connection with the IRS's audit. The purpose was to show that the transfers of assets followed closely upon Mr. Defazio's learning he would likely be facing criminal tax evasion charges. At trial, Mr. Silets identified and read to the jury a memorandum his partner had sent him. The memo said that an IRS agent had called for Mr. Silets "to tell you that they [the IRS] had completed their investigation and are ready to refer the case [for prosecution] and that if you have any defenses you would like to present, he would be glad to listen to them." Mr. Silets testified that he initially met with the IRS agent without Mr. Defazio, and learned firsthand of the IRS's recommendation of prosecution. (The record is silent as to what he presented.) He testified that after the meeting, he tried unsuccessfully to call Mr. Defazio, sent him a letter informing him of the meeting with the IRS, and later met with him in person. At that time, he gave Mr. Defazio a memorandum summarizing his meeting with the IRS. The defendant argues that the substance of this testimony was protected by his attorney-client privilege, and should not have been admitted.

The attorney-client privilege normally shields only confidential communications from client to attorney. Communications from attorney to client are privileged only if they constitute legal advice, or tend directly or indirectly to reveal the substance of a client confidence. In re Sealed Case, 737 F.2d 94, 99 (D.C. Cir. 1984); Matter of Fischel, 557 F.2d 209, 211 (9th Cir. 1977); Schenet v. Anderson , 678 F.Supp. 1280, 1281-82 (E.D. Mich. 1988).

Mr. Silets testified only to what the IRS agent said to him, and that he later relayed those statements to Mr. Defazio. The content of this testimony is unprivileged because it did not reveal, either directly or implicitly, legal advice given Mr. Defazio or any client confidences. United States v. Gray, 876 F.2d 1411, 1415-16 (9th Cir. 1989) (Attorney's notification to client of sentencing hearing date was not privileged); United States v. Clemons, 676 F.2d 124, 125 (5th Cir. Unit B 1982) (Attorney's message to client regarding trial date not privileged). Admitting Mr. Silets' testimony did not violate the defendant's attorney-client privilege.

The defendant goes further, though, focusing upon the part of the memorandum recounting the IRS agent's invitation to present defenses. He argues that it conveyed to the jury the impression, contrary to the burden placed on the government to prove guilt, that it was incumbent upon him to present defenses to the government's accusations of wrongdoing.

When the memorandum was read at trial, defendant's trial counsel objected to the portion relating to the presentation of defenses. At a sidebar, Judge Kocoras said he also had some question about that sentence in the memorandum, and that he could have it stricken, but felt that would just "highlight" the reference. The government suggested redaction of the memorandum were it sent to the jury room. It was apparently agreed that in any further reading, the reference to defenses would be omitted. Defense counsel did not make a motion to strike, and there was no further reference before the jury to the invitation to present defenses. The impact of the brief statement was therefore minimized. Furthermore, the jury was instructed by the court that the defendant is presumed innocent, that the government has the burden of proving guilt beyond a reasonable doubt, and that "the defendant is not required to prove his innocence or produce evidence." We are unpersuaded that a single reference during trial to the defendant's opportunity to present defenses to an IRS agent could have had any influence on the jury's understanding of the government's burden of proof.

V.

When instructing the jury, the district court first defined the term "knowingly," saying that "it means that the defendant realized what he was doing and was aware of the nature of his conduct and did not act through ignorance, mistake or accident. Knowledge may be proven by defendant's conduct and by all the facts and circumstances surrounding the case." He then said

You may infer knowledge from a combination of suspicion and indifference to the truth. If you find that a person had a strong suspicion that things were not what they seemed or that someone had withheld some important facts, yet shut his eyes for fear of what he would learn, you may conclude that he acted knowingly, as I have used the word.

This "ostrich" instruction came verbatim from United States v. Ramsey, 785 F.2d 184, 190-91 (7th Cir.), cert. denied, 476 U.S. 1186 (1986).

Ramsey approves the use of this instruction in cases where it is provident not to leave the matter to argument. Id. at 191. In deciding to give the instruction, Judge Kocoras referred to Mr. Defazio's evidently disorganized records, and indicated his view that Mr. Defazio could not close his eyes to what his records would disclose if they were organized. From our own examination of the testimony, we gather that Mr. Defazio possessed the relevant original records of his transactions. He resisted bringing them together, or giving them to Ms. Anderson, to determine his tax obligations. The jury could well infer that he feared what they would show. The case relied on by Mr. Defazio, United States v. Beckett, 724 F.2d 855 (9th Cir. 1984), is easily distinguished: unlike this case, there was no evidence in Beckett that the defendant was deliberately remaining ignorant in the face of his own suspicions. The evidence pointed only to innocent ignorance or actual knowledge of the criminal activity. Id. at 856. We find no abuse of discretion in deciding this was an appropriate case for the ostrich instruction.

Ramsey forecloses the defendant's other two arguments regarding this instruction. While the ostrich instruction is not a favorite of the law, its use is not limited to cases where a defendant is associated with a group of others involved in criminal activity. "If a person with a lurking suspicion goes on as before and avoids further knowledge, this may support an inference that he has deduced the truth and is simply trying to avoid giving the appearance (and incurring the consequences) of knowledge." Ramsey, 785 F.2d at 189. Nor do we accept the defendant's argument that the instruction improperly imposed a negligence standard on a specific intent crime. We have already approved this instruction in a prosecution involving a crime which requires guilty knowledge. See Ramsey, 785 F.2d at 190. Moreover, other instructions adequately protected Mr. Defazio from being convicted for negligently failing to realize his income tax responsibilities: the jury was told that a person harboring a reasonable, good faith belief that no taxes were owed could not be found guilty of intent to evade taxes, ⁵ and was provided with several offense-specific definitions of willfulness, each of which pointedly distinguished between knowledge on one hand, and accident, inadvertence, or negligence on the other.

VI.

Finally, Mr. Defazio claims that the offense of failure to file a tax return (26 U.S.C. §7203 ) is included within the broader offense of tax evasion (26 U.S.C. §7201 ), so it was improper for the district court to enter judgment of conviction and impose cumulative penalties on both offenses for the same tax years. This argument was foreclosed in this circuit by United States v. Foster [86-1 USTC ¶9327 ], 789 F.2d 457, 460 (7th Cir. 1985), cert. denied, 479 U.S. 883 (1986). Accord , United States v. Davenport [87-2 USTC ¶9422 ], 824 F.2d 1511, 1519 (7th Cir. 1987); United States v. Buckner [87-2 USTC ¶9591 ], 830 F.2d 102, 104 (7th Cir. 1987). The Supreme Court's recent opinion in Schmuck v. United States , 109 S.Ct. 1443, 1450 (1989) confirms the propriety of comparing the elements of each crime, as we did in Foster and Davenport , to define lesser included offenses.

VII.

The judgment appealed from is AFFIRMED.

¹ The defendant's name appears in the record both as "DeFazio" and "Defazio." We use "Defazio" because the record contains several of his signatures in that form.

² Apparently these facts led the government to drop two counts of the original indictment, charging the filing in 1986 of a false bankruptcy schedule and a false statement of financial affairs. The superseding indictment was filed one month after the motion to disqualify Mr. Spina.

³ Mr. Defazio called only one witness (although he attempted to call the accountant, Mr. Panno). His defense, such as it was, consisted of contesting whether the government had proved that he willfully failed to file returns and attempted to evade taxes, and that he had the intent to defraud during the bankruptcy examinations.

⁴ See United States v. Cunningham, 672 F.2d 1064,1075 (2d Cir. 1982).

⁵ We note, in passing, that the Supreme Court has recently decided to review this court's decision in United States v. Cheek [89-2 USTC ¶9509 ], 882 F.2d 1263, 1267 (7th Cir. 1989), cert. granted, 58 U.S.L.W. 3526 (Feb. 20, 1990), that a good faith, but objectively unreasonable, misunderstanding of the tax law is no defense to charges of tax evasion.

 

 

[89-1 USTC ¶9339] Rob ert G. Olson, Appellant v. United States of America , Appellee

(CA-8), U.S. Court of Appeals, 8th Circuit, 88-5526, 4/18/89, 872 F2d 820, Dismissing the appeal from an unreported District Court decision

[Code Secs. 7203 and 7602 ]

Attorney-client privilege: Work product privilege: Contempt proceedings.--An appeal by the taxpayer's attorney of an order to show cause why he should not be held in contempt for refusal to provide testimony in accordance with an enforcement order was dismissed for lack of jurisdiction. The attorney claimed the material was protected by the attorney-client privilege and work-product privilege. It was necessary for the claimant to complete the contempt proceedings and suffer some sanction for failure to comply with the district court's order before being permitted to appeal the matter. Further, even if jurisdiction did lie, the district court had previously found that the material in question was not privileged. The attorney had acted as a scrivener, not an attorney, in preparing income and expense summary sheets as well as draft returns, so there was no attorney-client privilege. Also, summary sheets were created in preparation for an IRS examination rather than for litigation and consequently did not qualify as work product. The decision of the district court was not appealed and the attorney was, therefore, barred by res judicata from relitigating those issues. Additionally, subsequent disclosure of the material pursuant to a summons must be deemed a waiver of any claim of privilege. Further, the attorney's constitutional objection to compelled testimony was rendered moot by submission of the materials to the IRS.

Larry M. VonWald, Lynn, Jackson, Schultz & Lebrun, P.C., First Federal Plaza, Rapid City, S.D. 57709, for appellant. Deborah Swann, Department of Justice, Washington , D.C. 20530 , for appellee.

Before LAY, Chief Judge, HEANEY, Senior Circuit Judge, and GIBSON, Circuit Judge.

LAY, Chief Judge:

Rob ert G. Olson retained attorney Lee A. Magnuson to represent him during an Internal Revenue Service (IRS) investigation relating to Olson's tax liability for the years 1982, 1983, and 1984. In this capacity, Magnuson supervised the compilation of Olson's financial records and the preparation of income and expense summary sheets. From these materials he prepared the draft returns which were submitted to the IRS examiners. On April 2, 1987, the IRS issued a summons pursuant to 26 U.S.C. §7609 directing Magnuson to appear and give testimony, and to produce a number of documents including the income and expense summary sheets. On April 22, 1987, Olson filed a motion in district court ¹ to quash the summons. Olson and Magnuson ² argued that the income and expense summary sheets were protected by the attorney-client and work product privileges and the fifth amendment right against self-incrimination.

On August 20, 1987, the district court entered an order generally stating that the materials and testimony in question were not privileged. The court went on to find that even if a privilege could have applied, Olson had waived the right to claim the attorney-client or work product privileges by virtue of disclosures made through the draft returns. Finally, Olson's assertion of hs fifth amendment right was inappropriate in this circumstance because personal compulsion did not exist. The court therefore denied the motion to quash and ordered enforcement of the summons.

The enforcement order was not appealed. The documents which had been requested were delivered to the IRS and Magnuson subsequently appeared in obedience to the summons. At that time, Magnuson asserted claims on Olson's behalf of attorney-client and work product privileges in refusing to answer specific questions that were posed to him. On August 12, 1988, the district court ordered Magnuson to show cause why he should not be held in contempt for failure to comply with its August 20, 1987, order. In an order entered on October 25, 1988, the district court stated that it would "not determine the applicability of attorney-client privilege or work product doctrine on a question-by-question basis" because these privileges were not applicable to the materials and testimony sought by the summons. Magnuson was ordered to comply with the court's August 20, 1987, enforcement order. Magnuson requested a stay pending appeal of the court's order of October 25, 1988. The district court denied the motion but nonetheless granted a temporary stay pending timely appeal and disposition by this court.

The issue before this court is whether Magnuson may appeal the district court's October 25, 1988, order to show cause why he should not be held in contempt for refusal to provide testimony in accordance with the district court's August 20, 1987, enforcement order. We think it is clear that our court lacks jurisdiction to proceed. Under these circumstances, it is necessary for a claimant to complete the contempt proceedings and suffer some sanction for failure to comply with the district court's order before being permitted to appeal the matter. United States v. Ryan [71-1 USTC ¶9404 A], 402 U.S. 530, 532-33 (1971); Cobbledick v. United States , 309 U.S. 323, 326-27 (1940).

However, assuming that jurisdiction did lie to hear this appeal, Magnuson's cause must fail for two reasons. First of all, Magnuson has raised the same claims of privilege in his motion to quash the enforcement order that he raised in resistance to the original issuance of the enforcement order. The district court again found that such privileges did not apply to the material as a whole. In that order the court expressly articulated the underlying reasons for its August 20, 1987, order which had found that the materials and testimony requested in the summons were not privileged. The court found that, because Magnuson acted as a scrivener rather than an attorney in generating the draft returns, the summary sheets could not be protected by the attorney-client privilege. Furthermore, the summary sheets were created in preparation for an IRS examination rather than litigation and consequently did not qualify as work product.

The issues which the district court decided on August 20, 1987, are the same issues Magnuson now raises. A claimant who fails to appeal the enforcement order will be barred by res judicata from relitigating in any subsequent contempt proceedings those issues which are finally determined by the enforcement order. United States v. Ofe, 572 F.2d 656, 657 (8th Cir. 1978); United States v. Wodtke, 543 F.2d 43, 44 (8th Cir. 1976). Magnuson did not appeal the original enforcement order. To the extent that he has new claims of privilege relating to individual questions, these would be appealable if and when the district court finds him in contempt and imposes a sanction. We note, however, that our review of the record has failed to detect any such previously unraised claims.

Generally, it may be said a "privilege is not a defense to enforcement of a summons to testify; such claims are tested by refusing to answer specific questions after enforcement and defending the subsequent contempt proceedings." United States v. Davis [81-1 USTC ¶9193 ], 636 F.2d 1028, 1039 (5th Cir. 1981). ³ While our circuit has not articulated its position as clearly as the Fifth Circuit, in Daly v. United States [68-1 USTC ¶9323 ], 393 F.2d 873 (8th Cir. 1968), this court did indicate that contempt proceedings should include a question-by-question review of claimant's objections where the enforcement order dealt solely with a blanket claim of fifth amendment privilege. Id. at 877-78. However, in the present case Magnuson appears to raise the same claims of privilege which he had previously raised in resistance to the enforcement order and which had been rejected as to the material as a whole. Consequently, the instant case can be distinguished from the privilege cases previously discussed in that it involves the type of privileges which can be ruled on as a whole rather than being treated on an item-by-item basis. United States v. Asay [80-1 USTC ¶9242 ], 614 F.2d 655, 659-660 (9th Cir. 1980).

There is currently a split in the circuits as to whether common law privileges such as attorney-client exist in IRS third-party summons situations. Kenderdine, The Internal Revenue Service Summons to Produce Documents: Powers, Procedures, and Taxpayer Defenses, 64 Minn. L. Rev. 73, 100-101 (1979). Whereas the Second Circuit follows an item-by-item review, Colton v. United States [62-2 USTC ¶9658 ], 306 F.2d 633, 639 (2d Cir. 1962), our circuit has held that this privilege may be summarily ruled on and consequently a final determination on this issue can be made through the enforcement order. Canaday v. United States [66-1 USTC ¶9192 ], 354 F.2d 849, 857 (8th Cir. 1966). See also United States v. Willis [83-1 USTC ¶9398 ], 565 F.Supp. 1186, 1189-1190 (S.D. Iowa 1983). The same reasoning must apply to the work product privilege since this circuit has also held that such a privilege simply does not apply when an attorney is preparing tax returns. United States v. Cote [72-1 USTC ¶9268 ], 456 F.2d 142, 144-45 & n.3 (8th Cir. 1972). See also Willis, 565 F.Supp. at 1191. ⁴ Thus, the failure to appeal the district court's August 20, 1987, enforcement order constitutes a waiver of the right to claim the attorney-client and work product privileges which Magnuson now attempts to raise for the second time.

Even if Magnuson's failure to appeal the district court's ruling would not bar reconsideration of the issue, a second reason to dismiss this appeal is because the subsequent disclosure of the summary sheets pursuant to the summons must be deemed a waiver. The proper course of action in a summons situation is to appear and deliver only those materials which claimant does not assert are privileged. In this case, Magnuson appeared and delivered the summary sheets. He then, however, refused to answer questions about these summary sheets. It seems clear that refusal to answer is unacceptable because delivery of the summary sheets constitutes a waiver of any privilege which may pertain to those materials. In re Grand Jury Proceedings Subpoena (Wine), 841 F.2d 230, 234 (8th Cir. 1988). Indeed, a taxpayer's submission of materials in compliance with an IRS summons renders moot any constitutional objections to compelled submissions. United States v. Porter [83-2 USTC ¶9457 ], 711 F.2d 1397, 1399-1400 (7th Cir. 1983).

Accordingly, this appeal is dismissed for lack of jurisdiction.

¹ The Honorable Richard H. Battey, United States District Judge for the District of South Dakota.

² Magnuson was eventually permitted to intervene after the district court found that he was "an 'attorney' within the scope of 26 U.S.C. §7609(1)(A)(3) ."

³ In Davis , the Fifth Circuit observed that our circuit exercises particular restraint when addressing this issue and does "not pass on claims of privilege at all at the enforcement stage." Id. (citing Russell v. United States [76-1 USTC ¶9169 ], 524 F.2d 1152 (8th Cir. 1975)).

⁴ This is certainly not to say that the attorney-client and work product privileges can never apply to IRS summons situations. Upjohn Co. v. United States [81-1 USTC ¶9138 ], 449 U.S. 383 (1981). In Upjohn, the IRS sought to obtain information collected during an internal corporate investigation which related to "questionable payments" that had been made to foreign governments. Id. at 386-87. There is no comparison between such a situation and one in which the IRS seeks materials which had been generated in preparation for an audit. The Upjohn privileges are clearly limited to circumstances in which communications are made for the purpose of formulating legal advice. John Doe Corp. v. United States , 675 F.2d 482, 488 (2d Cir. 1982).

 

 

[86-1 USTC ¶9402] United States of America , Plaintiff-Appellee v. Donald Herbert Windfelder, Defendant-Appellant

(CA-7), U.S. Court of Appeals, 7th Circuit, 85-1780, 5/7/86, 790 F2d 576, Affirming unreported District Court decision

[Code Secs. 7201 and 7206 ]

Crimes: Tax evasion: Fraud and false statements: Admission of evidence: Jury instructions: Convictions upheld.--Convictions for income tax evasion and willfully failing to supply information and pay tax were upheld against an individual who had gradually transferred the wealth of his elderly aunt to himself and had made false representations to a law firm, which he had retained to handle the preparation of the aunt's federal estate tax return. The testimony of attorneys of the law firm and materials subpoenaed from the firm, which had discontinued their representation of the estate, were correctly admitted into evidence by the district court. The information given to the attorneys by the defendant was transferred to them for the purpose of preparing a tax return, and thus, was not within the scope of the attorney-client privilege. Also, opinion testimony of three IRS experts, consisting of an analysis of the transfers of the aunt's assets to the defendant and opinions that the transfers had not been authorized by the aunt, was not improper. Although the statement of one witness as to the defendant's knowledge or willfulness was improperly admitted, the error was harmless in view of the overwhelming evidence of guilt presented by the government. Finally, the jury instructions did not impermissibly place the burden of proof on the defendant regarding his supposed role as a fiduciary of the estate and did not compel the jury to find that the defendant had embezzled the aunt's assets. In view of the entire record, the instructions were not "plain error."

Joseph P. Stadtmueller, United States Attorney, Melvin K. Washington, Assistant United States Attorney, Milwaukee, Wis. 53202, for plaintiff-appellee. William M. Coffey, Coffey, Coffey & Geraghty, 1100 W. Wells Street , Milwaukee , Wis. 53233 , for defendant-appellant.

Before CUMMINGS, Chief Judge, and BAUER and POSNER, Circuit Judges.

BAUER, Circuit Judge

Defendant Donald Herbert Windfelder was convicted of understating his income in his 1978 federal income tax return, in violation of 26 U.S.C. §7201 , and of understating the estate of his deceased aunt, Lauretta Windfelder, in preparing her estate tax return, in violation of 26 U.S.C. §7206(1) . Defendant was sentenced to eighteen months imprisonment on the first charge to be followed by five years probation for the second charge. He was also ordered to make restitution in the amount of $409,714.13 to the estate of his deceased aunt. Defendant appeals his conviction on three grounds. First, he contends that the trial court erroneously permitted the government to subpoena certain documents and witnesses protected by his attorney-client privilege. Second, he contends that the trial court erroneously admitted into evidence opinion testimony of several of the government's expert witnesses. Finally, he contends that the trial court's jury instructions regarding the definitions of "embezzlement" and "fiduciary relationship" violated his constitutional rights. We reject all of defendant's arguments and affirm the judgment of the district court.

I.

On April 21, 1978, Lauretta Windfelder was admitted to a nursing home in Milwaukee , Wisconsin , suffering from a variety of mental and physical debilities exacerbated, if not caused by, her age of 90 years. Some three weeks before, she had been discovered in dire condition in her home by a visting nurse and had been hospitalized. Lauretta Windfelder had raised her nephew, the defendant in this case, from 1934, when he moved in with her at the age of twelve, until defendant married in 1950. In 1978 the defendant was a vice-president at the Northwestern Mutual Life Insurance Company in Milwaukee , Wisconsin . On April 24, 1978, three days after Lauretta Windfelder's admission into the nursing home, defendant presented a Power of Attorney form purportedly signed by Lauretta Windfelder to two of his co-workers to sign as witnesses and to a third for notarization. None of the three workers saw Lauretta Windfelder sign the form.

At the end of 1977, Lauretta Windfelder's net worth was approximately $664,856.87. By the end of 1978, her net worth had fallen to $150,829.80. Lauretta Windfelder died on October 23, 1979, and by the time her federal estate tax return was filed her assets had further dwindled to approximately $58,332.47. The government presented extensive evidence at trial detailing the defendant's transfer of approximately $506,937.70 of Lauretta Windfelder's assets in 1978 and 1979 into various accounts opened by the defendant in his name or jointly with his wife. IRS experts testified at trial that $397,876.70 of these transfers were unauthorized.

Shortly after Lauretta Windfelder's death, the defendant retained the Milwaukee law firm of Godfrey & Kahn to assist him in probating Lauretta Windfelder's estate. Pursuant to Wisconsin law, the defendant was appointed personal representative of the estate. The defendant represented to attorney John Byers that the estate consisted solely of $3,300 in a local bank and approximately $40,000 in U.S. Treasury Notes. A paralegal with the law firm engaged in numerous telephone conversations with the defendant regarding the information that was to be contained in the estate tax return and other probate documents, but the defendant did not mention any transfer of assets from the estate other than a $69,000 gift in 1978 and another $69,000 gift in 1979, both to the defendant. The law firm then prepared a federal estate tax return for the estate based on the information given by the defendant, which he signed on July 22, 1980.

In March 1981, the IRS contacted the law firm, notifying the attorneys that it was reviewing Lauretta Windfelder's estate tax return and requesting copies of her income tax returns for the years immediately preceding her death. Byers relayed this information to the defendant and arranged for a conference to determine why the assets in the estate were so much less than those listed in Lauretta Windfelder's last income tax returns. The defendant engaged in several conferences with the law firm and supplied additional information regarding the estate. Several weeks later the IRS requested the law firm to supply it with a list of U.S. Treasury Bonds that had been redeemed at various times and that were reflected in Lauretta Windfelder's prior income tax returns. The law firm asked the defendant to supply it with the list for this purpose, and on May 21, 1981, he tendered to the law firm a copy of what purported to be bank records for accounts held by Lauretta Windfelder and himself, along with a summary of what the defendant represented as transfers to and from those accounts. Even with these documents, the law firm was unable to account for approximately $200,000 in assets listed in Lauretta Windfelder's prior income tax returns.

When the law firm advised the defendant of this discrepancy, he provided the law firm with additional records. On June 8, 1981, the defendant provided the law firm with even more records. Nonetheless, a discrepancy still existed, and the law firm concluded that the different sets of figures were irreconcilable. Shortly thereafter, the law firm notified the defendant that it would no longer represent him.

The defendant obtained new counsel and engaged in a new series of conferences and document production, but the defendant's figures still refused to align themselves with those of the IRS. On July 15, 1981 the defendant and his new counsel met with an IRS attorney and submitted a modified explanation, based on unincluded "underlying documents," purporting to account for the erstwhile assets of Lauretta Windfelder's estate. The unpersuasive nature of this explanation led to a conference in Washington , D.C. on March 12, 1984 between the defendant's counsel and an attorney for the Criminal Tax Section of the Department of Justice regarding the defendant's personal tax liability for 1978 and his participation in the filing of Lauretta Windfelder's estate tax return. The report by the attorney for the Department of Justice states that at this meeting defendant's counsel took the position that, because the defendant was not an expert estate tax preparer, he had trusted his attorneys to prepare the return correctly and had answered the questions put to him by these attorneys truthfully. The problem, the defendant's counsel asserted, was that these attorneys had not asked him "the right questions." After this explanation, the defendant was finally indicted.

II.

The defendant first argues that the district court erred in allowing the government to subpoena the attorneys and paralegal from the law firm of Godfrey & Kahn who worked on Lauretta Windfelder's estate tax return and the documents in their possession relating to the preparation of that tax return. Defendant asserts that under Wisconsin law he engaged the law firm to represent himself, as personal representatives of the estate, as well as to represent the estate, when he hired the firm to prepare the estate tax return. Thus, the defendant contends that the testimony of the witnesses from Godfrey & Kahn and the materials that were subpoenaed were privileged from disclosure under the attorney-client privilege.

Even accepting the defendant's argument that he personally stood in an attorney-client relationship with Godfrey & Kahn in regard to the preparation of Lauretta Windfelder's estate tax return, we do not believe that the information sought by the subpoenas was protected by the attorney-client privilege because that information was not confidential. In United States v. Lawless [83-1 USTC ¶13,527 ], 709 F.2d 485 (7th Cir. 1983), this court held that "information transmitted for the purpose of preparation of a tax return, though transmitted to an attorney, is not privileged information." 709 F.2d at 488. One of the reasons underlying this holding was that "[w]hen information will be transmitted to a third party (in this case on a tax return), such information is not confidential." Id. at 487. Lawless further held that "disclosure of tax information effectively waives the privilege 'not only to the transmitted data but also as to the details underlying that information.' " Id. at 488 (quoting United States v. Cote [72-1 USTC ¶9268 ], 456 F.2d 142, 145 (8th Cir. 1972)).

In this case the government also sought information transmitted after the estate tax return was filed, but the defendant has failed to meet his burden of showing that this information was confidential. See, e.g., Lawless, 709 F.2d at 487. To the contrary, the evidence shows that the defendant transmitted this information to Godfrey & Kahn with the intent that it would be used to explain to the IRS the gross disparity between the figures in Lauretta Windfelder's estate tax return and her last income tax returns. Godfrey & Kahn expressly informed the defendant that the IRS was requesting information to explain the discrepancies and that the law firm intended to comply with these requests. The defendant repeatedly supplied the law firm with the records and documents for this purpose. Further, defendant himself submitted a "modified explanation" of the estate tax return directly to the IRS on July 15, 1981. We therefore hold that the information submitted after the estate tax return was filed was also not privileged.

III.

At trial, the government called three expert witnesses to testify regarding Lauretta Windfelder's estate tax return and defendant's 1978 income tax return: IRS Special Agent William Gardiner, IRS Revenue Agent Richard Breitzman, and IRS Attorney Leo Miller. The defendant does not contest that each witness was properly qualified as an expert or that each witness properly testified as to the transfer of Lauretta Windfelder's assets to the various accounts held by the defendant. The defendant contends, however, that the trial court improperly admitted into evidence opinion testimony by the three experts regarding the intentions of both Lauretta Windfelder and the defendant.

Under Rule 702 of the Federal Rules of Evidence, expert testimony is admissible when "specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue." An expert's testimony may take the form of an opinion if it " 'serves to inform the [trier of fact] about affairs not within the full understanding of the average man.' " United States v. West, 670 F.2d 675, 682 (7th Cir. 1982) (quoting United States v. Webb, 625 F.2d 709, 711 (5th Cir. 1980)). An expert's opinion is not inadmissible simply because it addresses an ultimate issue to be decided by the trier of fact, FED. R. EVID. 704(a), but a recent amendment to Rule 704 added the following provision:

No expert witness testifying with respect to the mental state or condition of a defendant in a criminal case may state an opinion or inference as to whether the defendant did or did not have the mental state or condition constituting an element of the crime charged or of a defense thereto. Such ultimate issues are for the trier of fact alone.

FED. R. EVID. 704(b). Although this provision was added to Rule 704 to limit psychiatric testimony when a criminal defendant relies upon the defense of insanity, see S. Rep. No. 225, 98th Cong., 1st Sess. 230 (1983), ¹ Congress intended this provision to extend "beyond the insanity defense to any ultimate mental state of the defendant that is relevant to the legal conclusion sought to be proven . . . e.g., premeditation in a homicide case, or lack or predisposition in entrapment." Id. at 231. Finally, we note that the trial judge has wide discretion in ruling on the admissibility of expert testimony. West, 670 F.2d at 682.

The defendant objected to the following testimony by Agent Gardiner:

[A]fter Ms. Windfelder went in the nursing home, [defendant] took control of her affairs, transferred her wealth to him for his own personal use. There was no--any other evidence disclosed during the investigation or presented which would indicate that she had earmarked any additional monies of her wealth to Mr. Windfelder. TR. 828-29. The defendant objected again when Gardiner later reiterated this testimony. TR. 846. Defendant also objected to the following testimony by Attorney Miller:

There were transfers made to Donald Windfelder without consideration that are assets that should have been included in decedent's estate. As a consequence, the estate has a claim against these transfers in view of the fact that the decedent, Lauretta Windfelder, apparently did not make them herself or approve of them.

TR. 904. Finally, the defendant objects to Agent Breitzman's testimony that he believed certain monies received by the defendant should have been declared in his income tax return because

[t]here were no representations made to the effect that that amount was a gift until later in the investigation, after Mr. Gardiner had contacted certain individuals. The initial representation of that amount made at the meeting with Mr. Gardiner, Mr. Windfelder and [defendant's counsel], I believe, was that these amounts were payments out of the estate for the benefit of Lauretta Windfelder.

TR. 961. The defendant asserts that this testimony was inadmissible because it concerned the intentions of the defendant and Lauretta Windfelder, and the experts did not have expertise "in the area of human intention." The defendant also asserts that these opinions were not helpful to the jury in resolving the issue of whether the defendant misappropriated Lauretta Windfelder's assets because the jury could adequately decide this issue based on the documents alone. The defendant did not mention Rule 704(b) in his brief or at oral argument, and the record does not indicate that Rule 704(b) played any part in the defendant's objections at trial or the trial judge's rulings upon the evidence.

We first note that none of the testimony recounted above expressed an opinion or conclusion as to the defendant's willfulness or knowledge in preparing or filing the false tax returns, but related only to whether the transfers of assets in question were authorized by Lauretta Windfelder for her expenses, were gifts to the defendant, or were utilized by the defendant without authorization and the resulting tax consequences. Expert testimony by an IRS agent which expresses an opinion as to the proper tax consequences of a transaction is admissible evidence. See United States v. Gold, 743 F.2d 800, 817 (11th Cir. 1984), cert denied, 105 S.Ct. 1196 (1985). Similarly, we find that an IRS expert's analysis of the transaction itself, which necessarily precedes his or her evaluation of the tax consequences, is also admissible evidence.

To the extent that this testimony reflected the intent of Lauretta Windfelder, we do not believe that these witnesses needed to have been qualified as experts in psychiatry or philosophy before rendering the conclusions to which the defendant objects because these conclusions were limited to whether the documents in evidence indicated that Lauretta Windfelder had authorized the transfer of her assets to defendant or whether, in view of these documents, the defendant transferred her assets into his accounts on his own. See Kelsay v. Consolidated Rail Corp., 749 F.2d 437, 449 (7th Cir. 1984) (expert had reasonable factual basis for his conclusions). The experts utilized their expertise in accounting and tax matters in making these determinations, not their knowledge of the workings of the human mind. Moreover, these opinions are not precluded by Rule 704(b) because Lauretta Windfelder is not a defendant in this case and her intent is not an element of the crimes charged. We therefore find that the trial court did not abuse its discretion in admitting this testimony into evidence because the IRS experts had a sufficient foundation for their testimony. See Kelsay, 749 F.2d at 449.

Similarly, we disagree with defendant's position that this testimony was not helpful to the jury because we find that the IRS experts' conclusions were based on their evaluation of evidence (the tax returns and related financial documents) that was within the area of their special expertise. The defendant does not contest that the basis for the experts' opinions involved an area beyond the full understanding of the average person, and we therefore find that the district court did not abuse its discretion in ruling that their informed conclusions as to the meaning of that evidence may also have been helpful to the jury in interpreting that evidence. See United States v. McCoy, 539 F.2d 1050, 1062 (5th Cir. 1976) (expert drew conclusions as to meaning of conversation with defendant based on expert's knowledge of bookmaking business); MCCORMICK, EVIDENCE §13 (2d Ed. 1972) (expert may draw inferences from the facts).

The defendant also objected to testimony by Agent Gardiner that the defendant "intentionally understated his income" in his 1978 income tax return, TR. 843, and to the following testimony, also by Agent Gardiner:

[I]t was my opinion, at the time [the defendant] signed his tax return, he was well aware of what happened to [Lauretta Windfelder's] assets prior to her dying, and he continued to or attempted to purport something other than what really happened with these assets during the meeting with [IRS Agent] Beighton.

TR. 858-59. We disagree with the defendant's arguments that this testimony was inadmissible for the same reasons that we found the trial judge did not abuse his discretion in admitting the opinion testimony about Lauretta Windfelder's intent. See Torres v. County of Oakland , 758 F.2d 147, 150-51 (6th Cir. 1985) (questions calling for opinion testimony as to intent proper); United States v. Bishop, 534 F.2d 214, 221 (10th Cir. 1976) (prior to enactment of Rule 704(b), expert opinion testimony as to defendant's guilty knowledge or intent not per se inadmissible). ² Under Rule 704(b), however, it was error to admit the testimony that the defendant intentionally understated his income and that "he was well aware of what happened" to Lauretta Windfelder's assets. These statements impermissibly state an opinion as to the defendant's knowledge or willfulness, a mental state which constitutes an element of the crimes charged.

As stated above, the defendant did not raise a Rule 704(b) argument at trial and thus has waived this argument on appeal. United States v. Sentovich, 677 F.2d 834, 837 (7th Cir. 1982) (citations omitted). We therefore need only evaluate this error to determine whether it amounted to plain error, id., but even if the defendant's objection can be construed as raising an argument under Rule 704(b), we nevertheless find that the error in admitting this testimony does not require reversal even under the harmless error standard. We hold that this error was harmless because the other evidence supporting the government's contention that the defendant willfully evaded his income tax and falsified Lauretta Windfelder's estate tax return was overwhelming. See e.g., United States v. Koopmans, 757 F.2d 901, 905 (7th Cir. 1985); United States v. Metcalfe, 698 F.2d 877, 883 (7th Cir.), cert denied, 103 S.Ct. 1886 (1983). The defendant created a tangled web of documents, figures and explanations during the several years he sought to convince the IRS that the tax returns were in order from which we do not believe he could have extricated himself at trial even if these two statements had been stricken.

IV.

The defendant's final contention is that the trial court improperly instructed the jury with respect to the charge of income tax evasion. The trial court instructed the jurors that they could not find the defendant guilty unless they found beyond a reasonable doubt that the defendant had embezzled the assets that were transferred to his accounts. In its definition of "embezzled," the court stated that

[e]mbezzled means willfully to take or to convert to one's own use others' money or property, of which the wrongdoer acquired possession lawfully, by reason of some office of employment or position of trust. To convert money or property to one's own use means to apply or appropriate or use such money or property for the benefit or profit of the wrongdoer.

The court also instructed the jurors as to the meaning of a fiduciary relationship as it pertained to the power of attorney allegedly obtained by the defendant from Lauretta Windfelder. The court stated:

The fiduciary must show specific language in the power of attorney document in order to claim that any of his authorized powers may be exercised for the benefit of the fiduciary as well as the principal.

Now, an agent occupying a fiduciary relationship is guilty of wrongdoing when he engages in self-dealing by which he gains financial benefit out of a financial transaction with the corpus, that is, with the principal or the money, that he is supposed to oversee in his fiduciary capacity.

The defendant contends that the instruction on fiduciary relationships impermissibly shifted the burden of persuasion as to an element of the crime to the defendant by requiring him to show specific language in the power of attorney document authorizing his actions. The defendant also claims that the combination of these two instructions may have directed a verdict against him because the embezzlement instruction refers to a "wrongdoer"and the power of attorney instruction states that a fiduciary who engages in self-dealing "is guilty of wrongdoing." Thus, defendant claims that the jury, in finding that the defendant was a fiduciary who engaged in self-dealing, may have felt compelled to find that he had embezzled.

As the government points out, the defendant's counsel failed to make this objection with sufficient specificity before the instructions were read to the jury, as required by Rule 30 of the Federal Rules of Criminal Procedure. The defendant's counsel merely stated: "I object to the last three instructions on the power of attorney." TR. 1290. This objection plainly did not give the trial court an opportunity to address the grounds for the defendant's objection. See, e.g., United States v. Verkuilen [82-2 USTC ¶9618 ], 690 F.2d 648, 652-53 (7th Cir. 1982). The defendant claims that the court was advised of the specific grounds on the previous day, but the court informed the defendant's counsel that the previous day's discussion was of no import and that there was no objection on the record. TR. 1290. After this admonishment, counsel made only the general objection quoted above. We therefore review defendant's claim on appeal under the standard of "plain error." See Verkuilen, 690 F.2d at 652.

"In deciding whether a defect in a jury instruction constituted a 'plain error,' we must examine the entire record before us, and determine whether the instructional mistake had a probable impact on the jury's finding that the defendant was guilty." United States v. Jackson , 569 F.2d 1003, 1010 (7th Cir. 1978). In this case we do not believe that the defendant assumed any burden of proof regarding his supposed role as a fiduciary. Although this part of the power of attorney instruction begins "The fiduciary must show specific language. . .," this choice of wording does not alter the import of the instruction, which merely informed the jury that the power of attorney document must contain specific language authorizing the fiduciary to exercise that power for his own benefit, or he may not do so. Moreover, the record reveals that the government met its burden of proof in this regard by introducing the document into evidence and pointing out to the jury that the power of attorney supposedly held by the defendant contained no such language. The defendant was not required to show the presence of such language in the document at trial, buy any argument defendant made to the effect that he was empowered to make the transfer of Lauretta Windfelder's assets to himself was in the nature of an affirmative defense, and was not an assumption of the burden of proof. It is clear from the record that the government shouldered the burden of proof as to this element.

We also reject the defendant's claim that the combination of these two instructions directed a verdict against him as to the income tax charge. We do not believe that simply using the term "wrongdoer" in the embezzlement instruction signaled to the jury that it had to find that the defendant embezzled funds if it found that he had engaged in any other type of wrongdoing. The defendant's interpretation of the possible effect of this wording is strained and does not consider "all of the jury instructions together 'as a connected series without undue emphasis given to any one of them.' " Verkuilen, 690 F.2d at 653 (quoting United States v. Hamilton , 420 F.2d 1096, 1098 (7th Cir. 1970)).

Moreover, in view of the entire record, we do not find that these instructions were "plain error". First, the jury was instructed that the defendant was presumed innocent throughout the trial and that the government carried the burden of proof as to each element of the crime charged. See Verkuilen, 690 F.2d at 653. Further, the defendant does not claim that either of the contested instructions misstates the area of law it addresses, id., or that the law upon which the jury was instructed was not relevant to the facts of the case. Finally, in view of the overwhelming evidence presented of the defendant's guilt, we are not persuaded that the jury's understanding of the evidence or the issues was clouded by the instructions or that these instructions had any probable impact on the jury's finding of guilt.

For the reasons stated above, the conviction of Donald Herbert Windfelder is

AFFIRMED.

¹ The Senate report stated: "The purpose of this amendment is to eliminate the confusing spectacle of competing expert witnesses testifying to directly contradictory conclusions as to the ultimate issue to be found by the trier of fact." Id.

² The defendant relies on Bishop as support for his position, citing the court's holding that "the requisite elements of knowledge and intent [were] clearly beyond the pale of [the witness's] expertise" and also impermissibly invaded the province of the jury. 534 F.2d at 221. The defendant's argument ignores the reason underlying the court's holding: that the testimony was excluded because the expert "could not in anywise testify to facts lending any credence to [defendant's] guilty knowledge or intent." Id. (emphasis in original). Further, Rule 704(a) provides that testimony as to an ultimate issue to be decided by the jury is not excludable for that reason alone.

 

 

[96-2 USTC ¶50,633] United States of America , Appellee v. John Voigt, Appellant

(CA-3), U.S. Court of Appeals, 3rd Circuit, 95-5092, 7/9/96, 89 F3d 1050. Affirming, vacating and remanding an unreported District Court decision

[Code Sec. 7201 ]

Crimes: Tax evasion: Attorney-client privilege: Outrageous government conduct.--The Fifth Amendment due process rights of an individual who was convicted of conspiracy to commit wire fraud, money laundering, tax evasion, and criminal forfeiture allegations, which arose from his role in an advance fee scheme through the operation of several trusts, were not violated. The government's use of an acquitted co-defendant, who the individual alleged was his attorney and the attorney for one of the trusts, as a confidential informant against the individual did not constitute outrageous government conduct. The trial court should have conducted a hearing prior to trial to determine if the government's activities amounted to outrageous government conduct, but the failure to do so was harmless. The record was devoid of any evidence that the government was or should have been aware of a personal attorney-client relationship between the attorney and the individual, that the government deliberately intruded into the attorney-client relationship, and that the individual suffered significant prejudice.

[Code Sec. 7201 ]

Crimes: Tax evasion: Right to counsel.--An individual who was convicted of conspiracy to commit wire fraud, money laundering, tax evasion, and criminal forfeiture allegations, which arose from his role in an advance fee scheme through the operation of several trusts, was not arbitrarily denied his right of choice of counsel when the trial court disqualified an attorney who represented the trust and its members, which included co-defendants and the attorney who testified for the government. The record was more than sufficient to enable the trial court to make a reasoned and well-informed decision. Even though two of the co-defendants proffered waivers of the attorney-client privilege, the trial court properly considered the possibility that the attorney's prior representation of the trust and its members during the grand jury investigation could affect the co-defendants' ability to receive a fair trial. Moreover, one of the co-defendants refused to waive the attorney-client privilege.

[Code Sec. 7201 ]

Crimes: Tax evasion: Intent: Affirmative acts.--An individual's conviction of tax evasion was legally sufficient because the government produced evidence of affirmative acts of tax evasion. His refusal to pay for a piece of jewelry in cash to avoid a currency transaction report, his use of bizarre confidentiality agreements, and his maintenance of overseas bank accounts, taken together, provided the jury with sufficient evidence from which to infer that the acts were designed to evade the payment of admitted tax deficiencies. Even if the affirmative acts presented by the government were insufficient to show the individual's intent to evade payment, the jury was entitled to consider his submission of a materially misleading Form 433-A as relevant evidence on the question of whether his later actions were intended to be evasive. The materially misleading form was not an affirmative evasive act on its own because it was submitted to the government in a period outside the scope of the indictment.

[Code Sec. 7201 ]

Crimes: Tax evasion: Severance.--The trial court did not abuse its discretion in denying motions for severance by an individual who was convicted of conspiracy to commit wire fraud, money laundering, tax evasion, and criminal forfeiture allegations, which arose from his role in an advance fee scheme through the operation of several trusts. Although his co-defendants' defenses pointed the finger of blame at the individual, which increased the likelihood that he would be convicted, this type of injury alone did not mandate severance. It was not impossible for the jury to have either disbelieved all the defenses, given the government's affirmative proof, or believed all of them, on the basis that the government had not adduced sufficient evidence of intent. Thus, all the defenses in the case were not mutually antagonistic.

Kevin McNulty, Allan Tananbaum, Faith Hochberg, United States Attorneys Office, Newark, N.J. 07102, for appellee. Lawrence S. Lustberg, Crummy, Del Deo, Dolan, Griffinger & Vecchione, One Riverfront Plaza, Newark, N.J. 07102-5497, for appellant

Before: COWEN and SAROKIN, Circuit Judges, and POLLACK, District Judge. ^*

OPINION OF THE COURT

COWEN, Circuit Judge:

John Voigt appeals from a judgment of conviction and sentence entered by the District Court for the District of New Jersey. The conviction arises from Voigt's role as the mastermind of a pernicious "advance fee" scheme whereby Voigt, operating under the auspices of the Euro-American Money Fund Trust, would obtain substantial fees in advance from, respectively, unsuspecting loan applicants and potential investors for various loans and investments that never materialized. Over a three-year period the Trust took in a total of 18.5 million dollars.

Of Voigt's eight assignments of error, two significant constitutional questions are presented for our review. The first is whether the government's use of acquitted codefendant Mercedes Travis, who Voigt alleges was counsel to the Trust and to him personally, as a confidential informant against him constitutes "outrageous government conduct" in violation of the Fifth Amendment's Due Process Clause. The second is whether the district court violated Voigt's Sixth Amendment right to counsel of choice when, citing potential conflicts, it disqualified a third attorney Voigt sought to add to his defense team without holding a formal evidentiary hearing. We also confront several questions of first impression in this Circuit pertaining to the money laundering statute, 18 U.S.C. §1956(a)(1), and its forfeiture counterpart. Id. §982 . We must decide whether those statutes require formal "tracing" where laundered funds have been commingled in a bank account with untainted funds. We also must determine what is the proper burden of persuasion for forfeiture proceedings under 18 U.S.C. §982 , a question we have addressed previously in two other contexts. See United States v. Pelullo, 14 F.3d 881 (3d Cir. 1994) (RICO; reasonable doubt); see also United States v. Sandini, 816 F.2d 869 (3d Cir. 1987) (CCE; preponderance). Finally, Voigt contests the legal sufficiency of his convictions for tax evasion under 26 U.S.C. §7201 , and challenges the orders of the district court requiring him to make restitution in the amount of $7,040,000 and refusing to grant his motions for severance.

For the reasons we set forth below, we will affirm Voigt's conspiracy, money laundering and tax evasion convictions, along with the order of restitution, in all respects. We will vacate the judgment insofar as it incorporates an erroneous order of forfeiture and remand for further proceedings consistent with this opinion.

I.

THE FACTS ¹

John Voigt was the mastermind of a scheme to defraud loan applicants and potential investors by inducing them to pay substantial "advance fees" for nonexistent loans and investments. To implement this scheme, Voigt created two fraudulent entities: Euro-American Money Fund Trust, and Meta Trading and Financial International [hereinafter collectively referred to as "the Trust"]. Voigt fabricated a fictitious genealogy for the Trust, claiming that it was a long-established European financial institution affiliated with the Catholic Church and the Knights of Malta and that it had access to billions of dollars. Voigt also falsely claimed that the Trust's headquarters was located in Paris , France , and that he was the U.S. Director. To facilitate the scheme Voigt used various aliases and required loan applicants to fill out bizarre confidentiality agreements that purported to bar customers from disclosing information about the Trust in this life and the afterlife.

The scheme operated from early 1990 until mid-1993. Brokers for the Trust recounted the false genealogy Voigt had concocted to unsuspecting victims. At first, the Trust marketed only "loans." These multi-million dollar loans were supposedly self-liquidating, which meant that, in return for a fee that ranged into the hundreds of thousands of dollars, customers would receive a loan that they did not have to repay. As soon as the fees were received they were distributed among the coconspirators. Eventually, the Trust began to market "Master Collateral Commitments" ("MCCs"), bogus financial instruments that were touted as special promissory notes issued by banks and available only through the Trust. They were marketed to unsuspecting investors for 3.5-4.5 million dollars with the representation that they eventually would yield hundreds of millions of dollars. All told, Voigt's three-year gain from marketing self-liquidating loans and MCCs was approximately seven and one-half million dollars.

On December 13, 1993, Voigt and four alleged coconspirators--Skip Alevy, Mercedes Travis, Ralph Anderskow, and Donald Anchors--were charged in a twenty-eight-count superseding indictment. The indictment charged Voigt personally with one count of conspiracy to commit wire fraud, fifteen counts of wire fraud, four counts of money laundering, two counts of tax evasion, and criminal forfeiture allegations arising out of the money laundering counts. After a three-month trial, a jury convicted Voigt of all counts except one count of wire fraud. ² After a nonjury proceeding at which the district court ordered forfeiture of certain automobiles and pieces of jewelry, the court sentenced Voigt to a term of imprisonment of 188 months and ordered him to make $7,040,000 in restitution. This appeal followed. ³

Voigt challenges the judgment against him on eight grounds. He argues that: (1) the government's use of his alleged attorney, Mercedes Travis, as an informant violated his Fifth Amendment due process rights and his Sixth Amendment right to effective assistance of counsel; (2) the district court erred in disqualifying one of his attorneys due to a potential conflict of interest without first making sufficient findings of fact, in violation of his Sixth Amendment right to counsel of choice; (3) there was insufficient evidence to support his conviction on money-laundering counts twenty-five and twenty-six; (4) the forfeiture order should be vacated because the district court failed to require the government to prove beyond a reasonable doubt that the forfeited items were "traceable to" laundered money; (5) his convictions on the tax evasion counts should be vacated because the government failed to prove an affirmative act of evasion as required by statute; (6) the district court erred in imposing an order of restitution without making findings of fact regarding his ability to pay; (7) the district court should have granted his motion for a severance because his co-defendants asserted defenses antagonistic to his own; and (8) the district court erred in increasing his Guidelines offense level by two points for obstruction of justice.

II.

JURISDICTION

The district court had original jurisdiction over this criminal action pursuant to 18 U.S.C. §3231 . We exercise appellate jurisdiction to review a final judgment of conviction under 28 U.S.C. §1291 .

III.

OUTRAGEOUS GOVERNMENT CONDUCT

Voigt argues that the government infringed his Fifth Amendment right to due process by recruiting his attorney as a government informant "in deliberate and flagrant disregard for the attorney-client relationship." Voigt's Br. at 10. The premise of this claim is that codefendant Mercedes Travis, with whom the government had extensive investigative contacts, was his personal attorney during the time of the investigation. The precise nature of Travis' relationship with Voigt and with the government, however, is in dispute.

A.

The relevant facts are as follows. Mercedes Travis began working for the Trust in August, 1990. Voigt contends that she was engaged as an attorney at that time, and points to an engagement letter that supports his claim. The government, however, maintains that it justly and reasonably believed that Travis was not and had never been an attorney for the Trust. In any event, by Travis' own account, she became concerned about the legitimacy of the Trust and feared that she herself was being defrauded. As a result, she left her post in Europe and approached the FBI with her concerns. In June and July, 1991, she met with Special Agent Alvin Powell and voluntarily provided him with a package of relevant documents. Those documents indicated that the Trust was engaged in a fraud.

Over the course of a three-day interview at a New Jersey motel in mid-July of 1991, Travis detailed the fraud for Powell. Noting that Travis was an attorney, and having seen a letter on Trust letterhead purporting to appoint Travis as attorney for the Trust, Powell asked Travis whether she had acted in a legal capacity for the Trust. Travis indicated on several occasions that she had not acted as a legal representative for the Trust but, rather, that she had been primarily responsible for initiating and maintaining contacts with banks. Travis also insisted that the letter purporting to appoint her as an attorney for the Trust was false.

Travis indicated that she went to work for the Trust in 1990, first in the U.S. and later in Europe , believing it to be a bona fide financial institution. Over time, however, she discovered that, notwithstanding Voigt's contention that the Trust possessed $75 billion in assets, the Trust was simply a shell corporation with few assets. Travis then related that the Trust was engaged in an advance-fee scheme for loans in which fees were paid but no loan was ever funded. Based on Travis' allegations, and on Powell's belief that she had not represented the Trust or its members in a legal capacity, Powell enlisted the assistance of Travis. Powell devised a pretext whereby Travis would reingratiate herself with the Trust by falsely informing Voigt that she had negotiated an MCC. Powell hoped that this would lead Voigt to divulge further information about the Trust's activities. Powell eventually had Travis officially designated as a "cooperating witness" on the FBI's records.

Having enlisted Travis as an informant, Powell asked her to sign a document allowing the consensual recording of her conversations with Trust members, including Voigt. In that document, however, Powell carefully noted that the purpose of the recordings was to corroborate her statements, based on the understanding that she had not acted, and would not act, as an attorney for the Trust or any of its members. In September of 1991, Travis made three supervised calls from the FBI office in New Jersey , although apparently none involved Voigt or his coconspirators.

In October of 1991, Travis informed Powell that she had been invited to Europe by someone associated with the Trust. Powell asked her to maintain contact with him, and she called once during her trip to inform Powell that she had met with Voigt, but that they had discussed only personal matters. When Travis returned from Europe, Powell met her in an Atlantic City hotel, where she provided him with several cassette recordings of conversations, documents obtained during the trip, and information acquired by talking with Voigt. Travis was still convinced that the Trust was engaged in a fraud. According to Powell's version of the meeting, Travis indicated that she had not performed legal work for the Trust or Voigt during her trip to Europe .

In February of 1992, Travis informed Powell that she had prepared a tax opinion for Voigt. She claimed it was a "one-shot deal," and that it concerned Voigt and not the Trust, but she did not share the substance of the opinion with Powell. Powell had no prior knowledge that Travis would be providing legal advice to Voigt. In March of 1992, Travis advised Powell that she had persuaded Voigt to let her become the Trust's attorney, but that her role would be to facilitate communications between the Trust and other entities. Powell became concerned about this latest development because of potential attorney-client privilege problems and because Travis herself might become an active participant in what she had insisted was a fraud. He therefore instructed Travis to meet with Assistant United States Attorney ("AUSA") Paul Zoubek, who was supervising the investigation. Travis replied that she would inform Powell if her status changed from facilitating loans and investments to providing legal advice. Travis next called Powell on March 10 to inform him that she indeed had been appointed as attorney for the Trust. Powell again warned her about acting in a legal capacity and warned her not to engage in any illegal activity. He also gave her a firm date for their meeting with AUSA Zoubek. In another telephone call two days later, Powell again instructed Travis not to act as an attorney, and she reassured Powell that the information she was providing raised no issue of privilege.

On March 25, 1992, Travis and Powell met with AUSA Zoubek at the U.S. Attorney's Office in Newark . After listening to Travis recount her version of the events, AUSA Zoubek pointed out the stark inconsistency between her original allegation that the Trust was a fraud and her recent decision to rejoin the Trust as its attorney. Travis indicated that she wanted to determine for herself whether in fact the Trust was legitimate and would inform the government of her findings within two weeks. AUSA Zoubek nevertheless told her that she would be on her own, and that any time spent in Europe working for the Trust would not be as a government informant due to potential privilege problems. According to Zoubek, as verified by Powell's notes of the meeting, the only way that information otherwise privileged could be provided to the government would be if the crime-fraud exception were deemed to be applicable. Travis indicated that she understood. At the same time, however, Powell instructed Travis to report to him as to whether the Trust had sufficient funds to cover its existing loan commitments.

From the time of their last meeting on March 25, 1992, until May 1, 1992, Powell did not hear from Travis, but received information indicating that she was participating in the same type of fraudulent conduct that originally had motivated her to come forward to the FBI. On May 1, 1992, Travis made two separate calls to Powell from Europe . Her first call, which Powell maintained was unsolicited, was from a pay phone because, according to Travis, she was afraid her calls were being monitored. Travis again told Powell that the Trust had no funds to lend, and that she would make her "official" call later that day. In her second call, Travis indicated that she was representing Voigt in connection with two grand jury subpoenas for records of the Trust that Powell had served on Voigt. At trial, however, Travis testified that at that point she was representing only the Trust, and that attorney James Binns was representing the Trust and its directors for purposes of the criminal investigation. Powell advised Travis that she and Voigt should appear at the FBI office to discuss the matter. It was not until sometime after this May 1 call from Travis that Powell had Travis officially taken off the books as a confidential informant.

Travis did not contact the government again until September of 1992, when Travis called AUSA Rob ert Ernst (who had taken over the investigation) to discuss grand jury subpoenas that had been served on the Trust in August. Travis informed Ernst that she was representing the Trust in connection with the subpoenas. Before any further discussion occurred, Ernst informed Travis that she was a target of the investigation and, given her earlier contacts with the government, that she had a conflict of interest and should withdraw as counsel for the Trust. AUSA Ernst documented this admonition in a letter sent to Travis eight days later.

On November 6, 1992, Travis again made an unsolicited call to Powell, warning him that an unsuspecting potential customer was about to transfer $21 million to the Trust and asking him to stop the transaction. In response to a question by Powell, Travis indicated that she was not represented by counsel. After reiterating that Travis was a target, Powell asked Travis whether she would appear voluntarily before a federal grand jury. Travis agreed to testify. After Travis had arrived in Newark , but prior to her grand jury testimony, she met with Powell and AUSA Ernst. Ernst repeated that Travis was a target, and informed her of her rights. Ernst warned Travis not to disclose any confidences between her and any person affiliated with the Trust because of potential attorney-client privilege issues, and stated that he would not ask any questions that would risk eliciting potentially privileged information. In fact, when Travis indicated that she had brought Trust documents with her to turn over to the government, Ernst refused to examine them. Notwithstanding Travis' insistence that the documents were not privileged because the Trust did not actually exist, Ernst turned them over to an AUSA who was not part of the investigation into the Trust to make an independent privilege determination.

Before the grand jury, Travis again was informed of her rights and that she was a target of the investigation. She was again admonished not to disclose privileged information, and when it appeared that she was about to do so, Ernst instructed her not to answer. On January 12, 1993, Ernst wrote to Travis informing her once more that she was a target of the grand jury's investigation and invited her to provide additional testimony or evidence in her own behalf, which she did on January 15, 1993.

B.

Contending that the government's reliance on Travis to build a case against him constitutes "outrageous government conduct" in violation of the Fifth Amendment's Due Process Clause, Voigt moved pretrial to dismiss the indictment. The district court declined to hold an independent evidentiary hearing because it determined that Voigt had failed to make a prima facie showing of outrageousness and the trial would address the issues raised by his motion. The district court ultimately denied Voigt's renewed posttrial motion to dismiss the indictment:

[A]s far as outrageous conduct by the Government, I certainly can't find that here. I have had the benefit of seeing Agent Powell testify, I have seen Mercedes Travis testify and the cross examination of both of them, and I can't find that that was the case.

To the extent there is any conflict between the testimony of Powell and Travis, I credit the testimony of Powell ... because Powell convinced me that the Government was acting reasonably based upon what Travis had told them when they went forward, even though she was an attorney, that she was not acting as an attorney. I can't find any outrageous conduct whatsoever here and, of course, we know later, Travis was not a Government agent, [and] was really acting on her own at the time. I can't see any outrageous conduct whatsoever and I have had the benefit of the full trial hearing on this.

App. at 1122-23.

Our standard of review is mixed. When the district court decides a constitutional claim based on a developed factual record, we exercise plenary review of the district court's legal conclusion. United States v. Driscoll, 852 F.2d 84, 85 (3d Cir. 1988). We defer to the factual findings supporting that conclusion unless they are clearly erroneous. United States v. Bonanno, 852 F.2d 434, 437 (9th Cir.), cert. denied, 488 U.S. 1016, 109 S. Ct. 812 (1989). ⁴

1.

In 1952 the Supreme Court recognized that outrageous misconduct by law enforcement officers in detecting and obtaining incriminating evidence could rise to the level of a due process violation. Rochin v. California , 342 U.S. 165, 72 S. Ct. 205 (1952) (vacating conviction and dismissing indictment where police had pumped stomach of suspected drug pusher to obtain incriminating evidence). Since Rochin was decided the Court has discussed the viability of an outrageous government conduct claim only in the context of government instigation of and overinvolvement in the very criminal activity it seeks to punish. See United States v. Russell, 411 U.S. 423, 93 S. Ct. 1637 (1973); see also Hampton v. United States , 425 U.S. 484, 96 S. Ct. 1646 (1976) (five Justices reaffirm viability of due process claim for government overinvolvement in crime). In United States v. Payner [80-2 USTC ¶9511 ], 447 U.S. 727, 100 S. Ct. 2439 (1980), however, the Court discussed, in dictum, whether an illegal search of a third party's briefcase might constitute outrageous government conduct. Id. at 737 n.9, 100 S. Ct. at 2447 n.9. Thus, we have no reason to doubt that the Court continues to recognize a due process claim premised upon outrageous law enforcement investigative techniques.

The showing required to establish a due process violation, though often recited, is by no means pellucid. Writing for the Court in Rochin, Justice Frankfurter said that "the proceedings by which this conviction was obtained do more than offend some fastidious squeamishness or sentimentalism about combatting crime too energetically. This is conduct that shocks the conscience." Rochin, 342 U.S. at 172, 72 S. Ct. at 209. In Russell, the Court elaborated on the standard it had enunciated in Rochin:

While we may some day be presented with a situation in which the conduct of law enforcement agents is so outrageous that due process principles would absolutely bar the government from invoking judicial processes to obtain a conviction, the instant case is distinctly not of that breed. ... The law enforcement conduct here stops far short of violating that "fundamental fairness, shocking to the universal sense of justice," mandated by the Due Process Clause of the Fifth Amendment.

Russell, 411 U.S. at 431-32, 93 S. Ct. at 1643 (citation omitted). And in Hampton , the Court's most recent opportunity to visit the outrageous government conduct issue, Justice Powell, concurring in the judgment, noted that "[p]olice overinvolvement in crime would have to reach a demonstrable level of outrageousness before it could bar conviction." Hampton, 425 U.S. at 495 n.7, 96 S. Ct. 1653 n.7 (Powell, J., concurring in the judgment). ⁵

We have also noted that the judiciary is extremely hesitant to find law enforcement conduct so offensive that it violates the Due Process Clause. In United States v. Janotti, 673 F.2d 578 (3d Cir.) (in banc), cert. denied, 457 U.S. 1106, 102 S. Ct. 2906 (1982), we observed that "the majority of the Court has manifestly reserved for the constitutional defense only the most intolerable government conduct." Id. at 608 (emphasis added). Relying on well-settled separation-of-powers principles, we cautioned that

[w]e must necessarily exercise scrupulous restraint before we denounce law enforcement conduct as constitutionally unacceptable.... Unless the behavior of the F.B.I. agents rose to the level of outrageousness which would bar conviction, the conduct of agents of the executive branch who must protect the public from crime is more appropriately considered through the political process where divergent views can be expressed in the ballot box.

Id. at 607, 609.

Subsequent decisions have heeded Janotti's call for judicial restraint. As a result, the doctrine of outrageous government misconduct, although often invoked by defendants, is rarely applied by courts. See United States v. Santana, 6 F.3d 1, 4 (1st Cir. 1993) ("The banner of outrageous misconduct is often raised but seldom saluted."). Although litigants continue to assert the doctrine as a defense against conviction, "courts have rejected its application with almost monotonous regularity." Id. at 4 (collecting cases). Indeed, the doctrine has only once been applied by a federal appellate court since the Supreme Court's Hampton decision in 1976: in this court's decision in United States v. Twigg, 588 F.2d 373 (3d Cir. 1978). Since Twigg, however, "this court and other appellate courts have ... exercised extreme caution in finding due process violations in undercover settings." United States v. Gambino, 788 F.2d 938, 945 n.6 (3d Cir.), cert. denied, 479 U.S. 825, 107 S. Ct. 98 (1986). See United States v. DeRewal, 10 F.3d 100, 105 n.3 (3d Cir. 1993), cert. denied, 114 S. Ct. 1544 (1994).

2.

Bearing in mind the amount of restraint we must exercise in subjecting law enforcement conduct to judicial review, we must determine whether, as a matter of law, the conduct that Voigt alleges occurred in this case raises a cognizable claim of outrageous government conduct. Despite the paucity of directly relevant authority, we are not writing on a clean slate. Our review of the case law demonstrates that a claim of outrageous government conduct premised upon deliberate intrusion into the attorney-client relationship will be cognizable where the defendant can point to actual and substantial prejudice.

In United States v. Ofshe, 817 F.2d 1508 (11th Cir.), cert. denied, 484 U.S. 963, 108 S. Ct. 451 (1987), for example, the government used a defense attorney as an informant against the defendant in a matter unrelated to the subject of the attorney's representation (a drug prosecution). With the attorney's permission, the government placed a body bug on him to record conversations with the defendant. Despite strict instructions to the attorney not to elicit privileged information, secret defense strategy concerning Ofshe's drug prosecution was recorded by government agents. Nevertheless, the Eleventh Circuit concluded that this government misconduct was not so outrageous as to violate the Fifth Amendment. Id. at 1516. This conclusion was based on two findings: (1) that the attorney's cooperation concerned a different crime from the one for which he was representing the defendant, thus the invasion of the attorney-client relationship did not produce any evidence against the defendant; and (2) that the defendant was not prejudiced in his defense because the attorney's cocounsel continued to provide zealous representation to the defendant throughout the trial. Id. The court noted, however, that "[h]ad there been demonstrable evidence of prejudice, we would be compelled to reverse." Id. Accord United States ex rel. Shiflet v. Lane, 815 F.2d 457 (7th Cir. 1987) (dismissal not warranted where disclosure of privileged information to police lead to discovery of crucial evidence against defendant because government played no role in the breach of the privilege), cert. denied, 485 U.S. 965, 108 S. Ct. 1234 (1988); cf. United States v. Levy, 577 F.2d 200 (3d Cir. 1976) (dismissal of indictment on Sixth Amendment grounds warranted where government employs codefendant as confidential informant in order to obtain and reveal confidential defense strategy).

Only one decision has ordered that an indictment be dismissed due to preindictment intrusion into the attorney-client relationship so pervasive and prejudicial as to be considered "outrageous." United States v. Marshank, 777 F. Supp. 1507 (N.D. Cal. 1991). In Marshank, Ronald Minkin, the attorney for two cooperating defendants, provided information to the government leading to the indictment of another one of his clients. Minkin then encouraged that client to cooperate with the government in order to secure an indictment against Marshank, with whom Minkin also had an ongoing attorney-client relationship. The government never warned the attorney to avoid ethical impropriety, and affirmatively hid from both the court and the defendants the attorney's multiple, conflict-ridden representation while acting as a government informant. Granting Marshank's motion to dismiss the indictment based on a due process violation for outrageous preindictment conduct, the district court distinguished between passive tolerance and active encouragement of impropriety:

[T]he government actively collaborated with Ron Minkin to build a case against the defendant, showing a complete lack of respect for the constitutional rights of the defendant and Minkin's other clients and an utter disregard for the government's ethical obligations. ... [T]he agents and the prosecutor here never warned Minkin not to engage in unethical behavior and in fact facilitated that behavior by hiding it from the defendant. Moreover, the government colluded with Minkin to obtain an indictment against the defendant, to arrest the defendant, to ensure that Minkin would represent the defendant despite his obvious conflict of interest, and to guarantee the defendant's cooperation with the government.

Id. at 1524 (second emphasis added).

C.

1.

Voigt claims that, at the very least, the factual disputes raised by his moving papers and the government's response warranted an independent evidentiary hearing prior to trial, and that the district court's determination that he had failed to make out a prima facie showing of "outrageous government conduct" was erroneous. The district court had before it: (1) Agent Powell's affidavit, to which contemporaneous notes of his contacts with Travis were attached as exhibits; (2) Voigt's affidavit, in which Voigt claimed that Travis had been the Trust's and his attorney from the summer of 1990 through June of 1993; (3) Travis' affidavit; and (4) Travis' and Powell's grand jury testimony. Although we agree with Voigt that conducting a hearing prior to trial would have been more prudent and the better practice, a remand is unnecessary under the facts of this case since we find that the record developed at trial, taken together with Voigt's moving papers and the government's response, provided the district court an adequate basis with which to resolve Voigt's constitutional claim.

a.

Rule 12(b)(1) of the Federal Rules of Criminal Procedure requires that all "defects in the institution of the prosecution" be raised by pretrial motion. FED. R. CRIM. P. 12(b)(1). Although Rule 12 does not by its terms specify when such a motion entitles a defendant to a pretrial evidentiary hearing, we have held that a defendant's moving papers must demonstrate a "colorable claim" for relief. United States v. Brink, 39 F.3d 419, 424 (3d Cir. 1994) (remanding for hearing where Brink alleged facts that, if true, "could violate a defendant's rights under the Sixth Amendment"). See United States v. Soberon, 929 F.2d 935, 941 (3d Cir.) (if district court had "reasonable suspicion" of prosecutorial misconduct proper course was to hold evidentiary hearing), cert. denied, 502 U.S. 818, 112 S. Ct. 73 (1991). In order to be "colorable," a defendant's motion must consist of more than mere bald-faced allegations of misconduct. United States v. Sophie, 900 F.2d 1064, 1071 (7th Cir.) ("A district court does not have to hold evidentiary hearing on a motion just because a party asks for one."), cert. denied, 498 U.S. 843, 111 S. Ct. 124 (1990). There must be issues of fact material to the resolution of the defendant's constitutional claim. See United States v. Panitz, 907 F.2d 1267, 1273-74 (1st Cir. 1990) (refusal to hold evidentiary hearing on outrageousness claim proper because material facts were not in dispute); Sophie, 900 F.2d at 1071 (refusal to hold hearing proper where defendant's own submissions refuted his claim).

As our survey of the relevant case law indicates, see supra III.B.2, in order to raise a colorable claim of outrageousness pertaining to alleged governmental intrusion into the attorney-client relationship, the defendant's submissions must demonstrate an issue of fact as to each of the three following elements: (1) the government's objective awareness of an ongoing, personal attorney-client relationship between its informant and the defendant; ⁶ (2) deliberate intrusion into that relationship; and (3) actual and substantial prejudice. See Ofshe, 817 F.2d at 1516; Lane, 815 F.2d at 466; United States v. Santopietro, 809 F. Supp. 1008, 1015 (D. Conn. 1992) (no due process violation where defendant fails to demonstrate that attorney/informant revealed client confidences); Marshank, 777 F. Supp. at 1524.

Although the issue is a close one, after comparing Voigt's motion and Travis' affidavit with the government's response, we think the district court should have conducted an evidentiary hearing. Travis' relationship with both Powell and Voigt was highly disputed. Furthermore, Voigt's moving papers raised enough of a specter of ethical impropriety on the government's part to warrant closer scrutiny. Even the district court, skeptical though it was as to the degree of purposeful intrusion, believed that whatever factual disputes existed on that issue would be resolved at trial. This was an acknowledgement by the court that there were some disputed factual issues raised by Voigt's motion that needed to be resolved. Since the government itself notes that suppression of evidence is a more appropriate remedy than dismissal of the indictment, factual determinations that can lead to suppression logically should be resolved at an evidentiary hearing conducted prior to trial. ⁷

Conducting a pretrial evidentiary hearing certainly has its advantages. The district court is then in a position to place in the record its findings of facts and conclusions of law, see FED. R. CRIM. P. 12(e), which greatly facilitates appellate review. Prieto-Villa, 910 F.2d at 610. This is especially true where the legal claim, outrageous government conduct, is so highly fact sensitive. While we are not unmindful of the district court's strong interest in avoiding duplicative proceedings, judicial economy is not fostered when substituting trial testimony for a pretrial hearing generates postverdict and appellate litigation and potentially frustrates appellate review.

b.

Nevertheless, any "error" arising from the district court's failure to hold an independent evidentiary hearing in this case is unquestionably harmless. Most of the factual issues depended for their resolution on assessing Powell's and Travis' credibility. In our view, their trial testimony, when taken together with Voigt's motion papers and the government's response, provided the district court with a sufficient evidentiary record against which to measure Voigt's outrageousness claim. At trial, Voigt cross-examined Powell thoroughly about whether he in fact believed that Travis had acted in a legal capacity on behalf of the Trust or Voigt when she first approached the government. Powell also was cross-examined extensively about the degree to which he encouraged Travis to reestablish contact with the Trust and whether it was his understanding that she would do so in her capacity as an attorney. Travis testified in her own behalf and was cross-examined at length by the government as to her understanding of her relationship with Powell and her role as a confidential informant. Finally, during the trial the district court ruled on numerous claims of attorney-client privilege, which certainly provided it with insight into the nature and degree of any alleged government intrusion into the attorney-client relationship. Thus, the district court's failure to conduct a hearing, although ill-advised, was at worst harmless error.

2.

Voigt claims, however, that even assuming the record as it now stands is sufficiently developed, and we determine that it is, the district court should have dismissed the indictment because the record unequivocally demonstrates outrageous government conduct. Relying on the three-part test we set forth above, supra III.C.1.a, we hold that Voigt's claim of outrageousness fails as a matter of law with respect to the period between July 13, 1991, and May 1, 1992, because Voigt failed to establish the first element--the government's objective awareness of an attorney-client relationship between Travis and Voigt during that time. We further agree with the district court's implicit determination that there is insufficient evidence in the record on the second and third elements, purposeful intrusion and prejudice, as to the period thereafter.

a.

Voigt's claim of outrageousness based on the government's contacts with Travis during the period from July 13, 1991 (when Travis first approached the government), to May 1, 1992 (when Travis first announced that she was representing Voigt in response to the grand jury subpoenas), fails as a matter of law for two reasons. First, the record is wholly devoid of any evidence that the government was or should have been aware of a personal attorney-client relationship between Travis and Voigt during that time. Voigt argues that the tax opinion Travis prepared for him should have alerted Powell that by February or March of 1992 Travis had an ongoing personal attorney-client relationship with Voigt. According to Powell, however, Travis claimed that it was a "one-shot deal" and did not share the opinion with him. The district court credited Powell's version of the events, and we find nothing in the record to indicate that the district court's finding in this respect was clearly erroneous. In any event, the record clearly indicates that at about the same time Travis informed Powell of the tax opinion AUSA Zoubek discontinued Travis as a confidential informant.

Voigt also argues inferentially that the government's entire case at trial was based on the premise that the Trust was essentially his "alter ego." Since the Trust was a fictitious entity, Voigt reasons, any legal work Travis performed for the Trust in reality must have been performed for him personally. In this way Voigt attempts to bootstrap himself into an attorney-client relationship that is essential to the maintenance of his outrageousness claim, at least with respect to the period preceding May 1, 1992. Voigt cannot have it both ways. Having abused the corporate structure such that the Trust, in effect, became his "alter ego," we think that Voigt may not now rely on that abuse as a shield by claiming a personal attorney-client relationship with the attorney for the fraudulent corporate entity. Moreover, far from creating additional protections for officers of fraudulent corporations, the "alter ego" doctrine exists to pierce the corporate veil, thereby stripping those officers of the protections normally associated with the corporate form. See generally CHARLES CLARK, CORPORATE LAW §2.4, at 71 (1986).

In any event, even if Travis' status as an attorney for the Trust were relevant to our resolution of the outrageousness issue, the record fully supports the district court's implicit finding that Powell reasonably believed that Travis was not acting as counsel for the Trust during the period between July 13, 1991, and May 1, 1992. Accordingly, any claim of outrageousness must be premised upon the government's contacts with Travis after May 1, 1992, for that is the day Travis informed the government that she was representing the Trust and Voigt in connection with the very investigation in which she had acted as an informant.

b.

As for Travis' contacts with the government from May 1, 1992, until her indictment, the record falls woefully short of establishing the sort of purposeful intrusion into her attorney-client relationship with Voigt that would rise to the level of outrageousness. For example, Travis made two phone calls to Powell on May 1 1992. Contending that these calls were "staged" to maintain Travis' cover, Voigt asserts that they constitute proof of "purposeful intrusion." We are not persuaded. First, by the time Travis placed these calls to Powell, AUSA Zoubek had affirmatively cut off contact with Travis given her decision to rejoin the Trust as counsel. This demonstrates the government's awareness of and sensitivity to Travis' ethical obligations and belies Voigt's sinister characterization. Second, Powell asserted that he did nothing to solicit the calls, and the record supports his contention. Thus, to the extent that Travis disclosed privileged information, and there is no proof that she did, it was not at the behest of government agents.

All of Travis' post-May 1, 1992, contacts with the government were unsolicited except for her appearances before the grand jury. The government's actions during this period demonstrated sensitivity to potential ethical problems and contradicts Voigt's claim of "purposeful intrusion." Illustrative of the government's sensitivity was Travis' call to AUSA Ernst in September of 1992. Ernst did not attempt to extract information from Travis. Instead, he informed her that she was a target of the investigation and admonished her to withdraw as counsel given her obvious conflict of interest. Travis' next contact with the government was her unsolicited call to Powell in November of 1992 to warn him about an impending fraud. To the extent that such information was privileged, it was volunteered and cannot have constituted "deliberate intrusion" on the part of the government. Similarly, we find no impropriety in Powell's asking Travis to appear before the grand jury. By this time Travis knew she was a target of the investigation and had been warned to withdraw as counsel for Voigt. Therefore, to the extent Travis continued to provide legal advice to Voigt in connection with the criminal investigation, she was violating her ethical obligation to avoid a conflict of interest. Finally, AUSA Ernst's efforts to steer clear of privileged information during Travis' grand jury testimony demonstrate that the government was attentive to ethical constraints. We fail to see any purposeful intrusion on the government's part.

Voigt's alternative claim of purposeful intrusion, which arguably has some merit, might be that the government had an affirmative duty to inform him that Travis had acted as an informant when it discovered that she was representing him in connection with the very criminal investigation in which she had acted as an informant. At least one court of appeals has speculated as to whether the government, during the investigative phase of a prosecution, may have some affirmative duty to inform a defendant of a potential conflict of interest caused by its prior association with the defendant's lawyer. See, e.g., United States v. Lopez, 71 F.3d 954, 963-64 (1st Cir. 1995) (attorney for defendant had begun grand jury investigation into his client as AUSA before switching sides). We need not reach that issue, however, because as our discussion in the next subsection indicates, Voigt has made no showing of prejudice.

c.

We find no evidence in the record of significant prejudice--the third element of our outrageous government conduct test. As the party bearing both the burden of production and persuasion on his outrageousness claim, Voigt has failed to demonstrate that he suffered any ill effects flowing from the government's allegedly improper investigative activity. For instance, Voigt does not cite even a single occasion on which Travis gave him legal advice that was calculated to damage him to the benefit of the government. Nor does he claim that Travis intentionally declined to assert the attorney-client privilege in response to the government's grand jury subpoenas ⁸ or that Travis advised him to pursue a course of conduct she knew to be illegal simply to help the government build its case. More significantly, however, Voigt failed to demonstrate that any of the information Travis provided the government after May 1, 1992, was in fact privileged. We think this alone is fatal to his claim of outrageousness. Voigt contends on appeal that he does not assail the district court's attorney-client privilege rulings because of the lenient standard of review we would apply. But we think if Voigt's assertion that "the evidence introduced both prior to and at the trial included hundreds, if not thousands, of privileged attorney-client communications" (Voigt's Br. at 12) had any merit whatsoever, he would have pointed to at least one document Travis provided the government that was privileged. By failing to meet his burden to establish the privilege he claims, Voigt has precluded us from finding that an attorney-client relationship between Travis and him ever existed, let alone that it was violated.

Finally, Voigt invokes our decision in Levy, 577 F.2d at 200, along with other similar decisions, in an attempt to have us find that the government's intrusion into his attorney-client relationship, standing alone, is per se prejudicial. Levy, however, is distinguishable on two fronts. First, Levy was decided under the Sixth Amendment. Second, and more importantly, Levy, like most of the cases that Voigt has cited, concerned the government's deliberate intrusion into a defendant's attorney-client relationship in order to gain access to confidential defense strategy. See, e.g., United States v. Valencia , 541 F.2d 618 (6th Cir. 1976) (dismissal appropriate where government obtains defense strategy). ⁹ The record in this case demonstrates that the government was scrupulous in its effort to avoid procuring confidential defense strategy. See generally Ofshe, 817 F.2d at 1516 (no dismissal warranted where inadvertently intercepted defense strategy not used against the defendant). If any privileged information was disclosed to the government in this case, it concerned the workings of the Trust, not Voigt's legal strategy in responding to the criminal investigation into his activities. Voigt's claim of severe prejudice amounts to little more than an argument that "where there's smoke, there must be fire." We find neither. ¹⁰

IV.

RIGHT TO COUNSEL OF CHOICE

Voigt claims that the district court's disqualification of James Binns, a third attorney he sought to add to his defense team, violated his right to counsel of choice under the Sixth Amendment. Voigt seeks per se reversal of his conviction on the theory that the manner in which the district court disqualified Binns was arbitrary.

A.

1.

The nature and extent of James Binns' relationship with the Trust, like that of Travis, is somewhat ambiguous and eludes precise definition. An attorney who also was Voigt's long-time friend, Binns first came into contact with the Trust in April of 1992 when he was contacted by Travis and Voigt in connection with the government's investigation into the Trust. Shortly thereafter, he accompanied Voigt to the Linwood, New Jersey offices of the FBI and "attempted" to meet with Powell.

Binns then met with Anderskow regarding the grand jury subpoenas that had been served on him. By Binns' own account, he told Anderskow that he would be acting as counsel for Voigt only, but would "facilitate the production of documents to the Government" in connection with Anderskow's subpoena. In a June interview with the FBI, however, in response to the FBI's request to review certain documents, Anderskow apparently stated that Binns had been retained by the Trust and was representing Voigt, Anderskow, and any other Trust members who came under investigation regarding the activities of the Trust. Binns was not present at Anderskow's interviews, nor did he have any contact with the FBI around that time.

In June of 1992, Travis and Binns spent five days together in a New Jersey hotel assembling documents responsive to grand jury subpoenas that had been served on Voigt and Anderskow that spring. Travis asserted that "Binns was operating in the role of attorney for the Trust and its various members" at that time; Binns maintained that Travis was the attorney for Voigt, Anderskow, and the Trust, and that she withheld many documents from Binns on grounds of attorney-client privilege with respect to those parties.

Binns and Travis also worked together that weekend and periodically until November of 1992, to devise Voigt's defense strategy. According to Binns, he advised Travis numerous times that as a potential target of the grand jury's investigation she should seek a criminal defense attorney to represent her. Travis replied that she did not want an attorney and that she would represent herself.

On November 12, 1992, Binns sent a letter to AUSA Ernst that stated as follows:

Please be advised that for the limited purpose of responding to outstanding subpoenas I am representing ... [the Trust], Ralph Anderskow, John Voigt and Jack Dunn.

App. at 56. When Binns filed a notice of appearance in July of 1993 indicating that he was joining Voigt's defense team, which already consisted of two privately retained attorneys, the government submitted a letter to the district court suggesting a potential conflict arising out of Binns' prior representation of the Trust and Anderskow during the investigative phase of the case and requesting a hearing. The government also indicated that there was a possibility that Binns would be called to testify at trial since a potential victim of the Trust had been instructed to deposit his advance fee into Binns' escrow account.

Shortly thereafter, codefendant Mercedes Travis filed a formal motion to disqualify Binns. She submitted an affidavit describing her professional interaction with Binns and his actions in representing the Trust and its members in response to government subpoenas. She argued that when Binns formerly represented the Trust he "was loosely representing all members of the Trust," and that she had consulted with him numerous times when he was acting in that capacity, such that she was in effect a former client of his.

Travis also alleged that Binns might be in possession of certain documents or recordings material to her defense. According to her affidavit, four boxes of her Trust documents and personal material had been shipped to Binns, but only two of those boxes were produced to the government. The remaining boxes and their contents have not been seen since they were shipped from Geneva . Travis maintained that they are in Binns' possession and control. The only missing item that Travis mentioned specifically is a tape of a two-and-one-half-hour telephone conversation between Voigt, and Dunn and herself that she had surreptitiously recorded in March of 1992. Travis stated that she phoned and faxed Binns repeatedly in an effort to recover her papers and this tape in particular, but Binns did not respond. Travis asserted this as a separate ground for Binns' disqualification, arguing that

it is possible in the defense of this matter that I may need to have access to this tape or documents or to account for their absence. Mr. Binns may well have duties to his current client not to provide access to this tape or these documents. Mr. Binns could conceivably be the only witness available to me should it be necessary for me to account for the absence of the tape or the documents.

Id. at 71.

In response to the government's letter and Travis' disqualification motion, Binns submitted a letter to the district court attempting to dispel any notion that his representation of Voigt at trial would raise a conflict problem. First, Binns asserted that he never had an attorney-client relationship with Travis. Binns claimed, therefore, that he could not have acquired any confidential information in the course of his association with Travis that would prejudice her defense. Binns also disavowed any knowledge of the potential use of his escrow account in connection with a victim of the Trust. Binns asserted that "[t]here is no possibility that anyone acting in good faith would call me as a fact witness at the trial of this case." App. at 87. Finally, Binns asserted that his alleged "representation" of codefendant Anderskow had been limited to facilitating the Trust's response to the government's subpoenas. Binns also claimed that after Anderskow's meeting with the FBI, in which Anderskow had indicated that Binns was representing the Trust and its members, he made clear to Anderskow that he was representing only Voigt.

With respect to the documents, Binns offered the following account of the way in which they came into his possession and the manner in which he disposed of them:

In October, 1992 I received four (4) boxes of documents from Jack Dunn. He sent them from Geneva , Switzerland . Messrs. Voigt and Dunn told me that they couldn't get Mercedes Travis to either come to the United States or send documents responsive to Agent Powell's 2nd Grand Jury subpoena. They told me that she refused their repeated requests to send the documents unless she was paid a considerable sum of money.

When I received the boxes I did not open them or look at the contents. I asked Mr. Voigt to come to my office to pick up the boxes. He said he wanted to produce everything. ... Mr. Voigt produced all of the documents to the Grand Jury. According to him, Ms. Travis withheld a number of documents which she had in her possession.

Id. at 86.

2.

Before hearing oral argument on Travis' motion, the district court stated:

I must say that the record before me raises great concern in my mind. We have here additional counsel. My concern is if we allow this additional counsel to participate, we may wind [] up polluting an otherwise hopefully error-free trial and creating issues of conflict of interest, as well as the possibility that this person who seeks to act as an attorney is, in fact, a potential witness.

Id. at 190-91. Binns then addressed the district court, essentially reiterating his reasons as to why the motion to disqualify should be denied, and offered to take the stand to repeat them under oath. Attorneys for codefendants Anderskow and Anchors indicated their clients' willingness to waive any issue of conflict arising out of Binns' representation of Voigt. Both the government and Travis reiterated why Binns should be disqualified.

The district court did not hold an evidentiary hearing. Instead, relying on the affidavits and Binns' oral representations, the court decided to grant the disqualification motion:

We have here a number of very serious issues. As a matter of fact, I would characterize it really as a foaming caldron of representation issues here. Such that I am convinced that it would be foolhardy for me to go forward and inject potential error and possible violation of the rights of codefendants in what purports to be a lengthy and complicated criminal case right at its inception before we have even heard any motions.

....

... Mr. Binns has had substantial involvement in pre-indictment events concerning the case. I don't need to pass on his credibility versus Ms. Travis's credibility or to the extent that Mr. Anderskow did or did not authorize his representation. We have a letter that he represented him for a limited purpose. We have Mr. Anderskow, according to counsel's submission, saying that he thought Mr. Binns was going to represent him and later saying that he didn't. While Mr. Anderskow certainly can waive any conflict, the waiver would have to be knowing and voluntary, and we'll get into that a bit later.

And certainly Ms. Travis doesn't waive any issue here. ...

And I am convinced, based upon the precedent, that it would be very foolish for me to proceed and to allow [Binns to represent Voigt]. ... [T]o allow him to come into court and cross-examine other persons based upon his personal knowledge, possibly to examine persons as to whom he has represented beforehand, whether directly or otherwise, is exactly the concern that the cases have raised.

Id. at 216-18. The district court went on to note that it did not think that Anderskow's or Anchor's waiver could be considered knowing and voluntary at the beginning of a large multi-defendant, multi-count trial. Binns ultimately was never called to testify at trial, although there were sporadic references to him during testimony.

B.

The Sixth Amendment provides that "[i]n all criminal prosecutions, the accused shall enjoy the right ... to have the Assistance of Counsel for his defence." U.S. CONST. amend VI. One element of this basic guarantee is the right to counsel of choice. Powell v. Alabama , 287 U.S. 45, 53, 53 S. Ct. 55, 58 (1932). The right to counsel of choice, however, is not absolute. Wheat v. United States , 486 U.S. 153, 108 S. Ct. 1692 (1988). Thus, where "considerations of judicial admin istration" supervene, the presumption in favor of counsel of choice is rebutted and the right must give way. Fuller v. Diesslin, 868 F.2d 604, 607 & n.3 (3d Cir.), cert. denied, 493 U.S. 873, 110 S. Ct. 203 (1989).

Our decision in Fuller reveals that counsel of choice cases can further be divided into two categories. The first and most common type of case involves "arbitrary" denials of the right to counsel. Fuller, 868 F.2d at 604; United States v. Flanagan, 679 F.2d 1072, 1075 (3d Cir. 1982) (Sixth Amendment "goes no further than preventing arbitrary dismissal of the chosen attorney."), vacated on other grounds, 465 U.S. 259, 104 S. Ct. 1051 (1984). A disqualification of counsel of choice is arbitrary not because it is substantively "erroneous," but because it was the product of a failure to balance proper considerations of judicial admin istration against the right to counsel. See Fuller, 868 F.2d at 604 (flat refusal to admit out-of-state attorneys pro hac vice); United States v. Romano, 849 F.2d 812 (3d Cir. 1988) (summarily denying request for chosen counsel); United States v. Rankin, 779 F.2d 956 (3d Cir. 1986) (summarily denying request for continuance that would permit defendant to retain chosen counsel); United States v. Laura, 607 F.2d 52 (3d Cir. 1979) (failure to make findings essential to balancing required by Sixth Amendment). Under current circuit precedent, arbitrary denials of the right to counsel of choice mandate per se reversal. Fuller, 868 F.2d at 607-08 (citing Romano, 849 F.2d at 818, 820).

The second type of right to counsel of choice case concerns "a nonarbitrary, but erroneous denial." Id. at 609 n.4. In these cases, as Fuller's dictum describes, "a trial court could make a reasoned determination on the basis of a fully prepared record (hence a nonarbitrary determination), but still err in concluding that counsel of choice should be denied." Id. Thus, although a trial court's disqualification decision may be substantively erroneous, it is nonarbitrary because the trialcourt engaged in the balancing required by the Sixth Amendment and developed the record necessary to do so. Id. This is an important distinction for two reasons. First, and most importantly, Fuller suggested, albeit in dictum, that nonarbitrary-yet-erroneous denials of the right to counsel of choice might be subject to harmless error analysis, and noted that no Third Circuit case has decided that issue definitively. Id. Second, the standard of review may be different, for the question whether a disqualification is "arbitrary" is quite different from the question whether the disqualification was substantively unjustified under Wheat and its progeny.

C.

Voigt claims that the district court failed to conduct the sort of inquiry required by our cases and, thus, that it arbitrarily violated his right to counsel of choice. In the alternative, Voigt contends that even if nonarbitrary, the district court's disqualification decision constituted an abuse of discretion.

1.

Although two potential grounds for disqualification were raised in the district court (Binns' prior representation and his status as a potential witness), it appears that the court relied on only the former.

a.

The district court's oral disqualification decision, which spanned four pages of transcript, indicates that the principal, if not the sole, basis for its decision was Binns' prior status as an attorney for the Trust, Anchors, Anderskow and, perhaps, Travis during the grand jury investigation. See, e.g., App. at 218 ("[T]o allow him ... possibly to examine persons as to whom he represented beforehand ... is exactly the concern that the cases have raised."). The court viewed this as raising the potential for serious conflicts. Clearly, the potential for serious conflicts is a consideration of judicial admin istration that can outweigh a defendant's right to counsel of choice. Wheat, 486 U.S. at 163, 108 S. Ct. at 1699; United States v. Moscony, 927 F.2d 742, 750 (3d Cir.), cert. denied, 510 U.S. 1211, 111 S. Ct. 2812 (1991); Davis v. Stamler, 650 F.2d 477, 480 (3d Cir. 1981). There is no question that the trial court performed the balancing required by our cases and considered a factor legitimately weighing against the right to counsel of choice.

Voigt contends that the district court's refusal to hold a separate evidentiary hearing renders the district court's disqualification of Binns per se arbitrary. He relies on two authorities in support of his claim: Fuller, 868 F.2d at 604, and, to a lesser extent, United States v. Romano, 849 F.2d 812 (3d Cir. 1988). In Fuller, a defendant who was represented by in-state counsel filed a motion for admission of two out-of-state lawyers pro hac vice to represent him. The state trial court denied the motion without holding a hearing or making particularized findings of fact, on the grounds that the local counsel was competent to try the case and that the admission of the two out-of-state attorneys would likely result in delays and admin istrative hassles. 868 F.2d at 605. On appeal from the grant of Fuller's petition for a writ of habeas corpus, this court held that "the trial court's wooden approach and its failure to make record-supported findings balancing the right to counsel with the demands of the admin istration of justice resulted in an arbitrary denial of Fuller's motion for counsel pro hac vice." Id. at 611.

Contrary to Voigt's assertion, our decision in Fuller does not stand for the proposition that a trial court's denial of a defendant's chosen counsel must be based on a hearing and supported by factual findings in order to pass constitutional muster. While we held in Fuller that a trial court may not deny a defendant's right to counsel of choice on the basis of generalizations alone, we took pains to clarify that "we d[id] not hold that a court is prohibited from using its 'instinct and judgment based on experience' when it weighs the competing rights of the litigant to counsel of his choice and wise judicial admin istration." Id. (citation omitted). As long as the court makes a "reasoned determination on the basis of a fully prepared record," its decision will not be deemed arbitrary. 868 F.2d at 609 n.4.

Voigt also cites United States v. Romano, 849 F.2d at 812, in support of his argument that the district court's failure to hold a hearing and make factual findings was reversible error. In Romano, a pro se defendant sought to reserve the right to select counsel of her choice in the event that the court found it necessary to have stand-by counsel take over. The district court summarily denied her request, instead appointing stand-by counsel to back up defendant and potentially take over her defense. This court ruled, as it did in Fuller, that the failure to conduct a hearing and make findings of fact as to the suitability of defendant's chosen counsel violated the defendant's Sixth Amendment rights and constituted reversible error.

Taken together, Fuller and Romano do no more than illustrate the well-established principle that a trial court may not arbitrarily deny a defendant's right to counsel of choice. While in both of those cases the court's failure to hold a hearing or make factual findings was fatal, neither case establishes formal procedures that a court must follow in weighing a defendant's Sixth Amendment right to counsel of choice against the interests of the proper and fair admin istration of justice. Rather, we found hearings and/or factual findings necessary in those cases because the district courts' determinations had no basis in fact or reason; the trial court in Fuller denied the defendant's request for admission of counsel pro hac vice on the basis of generalizations and speculation, while the district court in Romano denied the defendant's request for no apparent reason at all. Without some sort of fact finding or hearing, these determinations could only be considered arbitrary.

In determining whether to disqualify counsel on conflict of interest grounds, the district court need not find an actual, existing conflict of interest. As the Supreme Court stated in Wheat, the court

must recognize a presumption in favor of petitioner's counsel of choice, but that presumption may be overcome not only by a demonstration of actual conflict but by a showing of serious potential for conflict. The evaluation of the facts and circumstances of each case under this standard must be left primarily to the informed judgment of the trial court.

486 U.S at 164, 108 S. Ct. at 1700. Determining whether such a potential conflict exists is no simple task. "The likelihood and dimensions of nascent conflicts of interest are notoriously hard to predict, even for those thoroughly familiar with criminal trials." Id. at 162-63, 108 S. Ct. at 1699.

In this case, the district court heard oral argument, but did not hold an evidentiary hearing. At the time of the argument, however, the court had before it the submissions of the various parties, including sworn affidavits and documentary evidence attached as exhibits. This record was fairly substantial--certainly far more so than anything that was before the courts in Fuller and Romano. The government's eleven-page letter of August 6, 1993, attached exhibits including: (1) correspondence between Binns and the U.S. Attorney's Office regarding whom he represents; (2) a memorandum and notes by Mercedes Travis regarding litigation strategies and mentioning Binns; and (3) communications with investors in the Trust directing them to contact Binns or deposit funds into his escrow account. Travis' motion included a sworn affidavit setting forth her relationship with Binns. ¹¹ Binns' letter to the court laid out his version of events in great detail and attached ninety-six pages of documentary support, including but not limited to affidavits, grand jury transcripts, correspondence to and from Binns, and FBI reports. Indeed, Binns' letter and supporting documentation were so thorough that he told the court at the hearing, "in substance, you have the story. The story is contained in my letter ... ." App. at 204. Under these circumstances, we conclude that the record was more than sufficient to enable the district court to make a reasoned and well-informed decision. Formal findings of fact are not required. ¹²

b.

We agree with Voigt, however, that Binns' status as a potential witness, standing alone, cannot render the district court's disqualification order nonarbitrary. Although Binns' status as a potential witness is certainly a proper consideration of judicial admin istration, Stamler, 650 F.2d 480-81, the record indicates that the decision to disqualify Binns was based primarily on his alleged prior representation of the Trust and its members. To be sure, the district court made passing reference to the possibility of Binns' becoming a witness at trial. See App. at 190-91. Yet none of the reasons referred to by the district court in its final oral decision indicated that Binns' status as a potential witness was one of the "considerations of judicial admin istration" that weighed into its balancing. Moreover, the record is devoid of any "findings" as to Binns' status as a potential witness that would have allowed the district court properly to weigh that consideration against Voigt's presumed right to counsel of choice (and allowed us to exercise appellate review).

The government's retort that "Voigt conspicuously fails to argue that the district court could not have made the necessary findings....," Government's Br. at 34, is unsatisfactory in several respects. First, it all but concedes that the district court failed to make any findings with respect to Binns' status as a potential witness. Second, the government appears to make this argument in suggesting that the district court's disqualification was nonarbitrary. But to be nonarbitrary, as we have noted, the district court actually must make findings based on evidence in the record and weigh those findings against the right to counsel. Permitting the government to argue that there was evidence in the record upon which the district court could have based findings that it concededly failed to make would simply inject a harmless error inquiry into the one area that our right to counsel of choice jurisprudence indicates is singularly inappropriate. Therefore, since the district court failed to address adequately the likelihood that Binns would be called as a witness, record evidence concerning that potential is irrelevant to the "arbitrariness" question.

In any event, we have determined that the court had sufficient other evidence before it to suggest that disqualification was appropriate. It specifically referred to that evidence in announcing its decision to disqualify Binns. That is all our decisions prohibiting arbitrary denials of the right to counsel of choice require. See, e.g., Fuller, 868 F.2d at 604; Romano, 849 F.2d at 812. We therefore reject Voigt's claim that the district court arbitrarily denied his Sixth Amendment right to counsel of choice.

2.

In the alternative, Voigt contends that the disqualification decision amounted to an abuse of discretion because it was unwarranted given the information before the district court. We disagree. In Wheat, 486 U.S. at 153, 108 S. Ct. at 1692, the Supreme Court considered the circumstances under which a trial court, consistent with the Sixth Amendment, could disqualify a defendant's chosen attorney. Wheat involved an attorney's potential representation of several codefendants in the same trial. Referring to the balancing required of trial courts in determining whether a potential conflict warranted disqualification, the Court wrote:

[A] district court must pass on the issue whether or not to allow a waiver of a conflict of interest by a criminal defendant not with the wisdom of hindsight after the trial has taken place, but in the murkier pre-trial context when relationships between parties are seen through a glass, darkly. The likelihood and dimensions of nascent conflicts of interest are notoriously hard to predict, even for those thoroughly familiar with criminal trials. ... For these reasons we think the district court must be allowed substantial latitude in refusing waivers of conflicts of interest ... in the more common cases where a potential for conflict exists which may or may not burgeon into an actual conflict as the trial progresses. ...

....

... The District Court must recognize a presumption in favor of [a defendant's] counsel of choice, but that presumption may be overcome not only by a demonstration of actual conflict but by a showing of a serious potential for conflict.

Id. at 162-64, 108 S. Ct. at 1699-1700. The court also noted that, even apart from the requirements of the Sixth Amendment, the district court's independent duty "to investigate potential conflicts arises in part from the legitimate wish of district courts that their judgments remain intact on appeal." Id. at 161, 108 S. Ct. at 1698. Finally, the Court noted with approval that in the case before it "the District Court relied on instinct and judgment based on experience in making its decision." Id. at 163, 108 S. Ct. at 1699.

We begin by observing that the unique factual scenario presented by Binns' proposed representation of Voigt is quite different from the one presented in Wheat. This is not a case where the district court's sole or even primary interest was in protecting Voigt's right to the effective assistance of counsel by disqualifying an attorney whose potential conflicts of interest might impede his ability to defend his client. See, e.g., United States v. Lussier, 71 F.3d 456 (2d Cir. 1995) (reviewing propriety of trial court's decision to accept defendant's waiver of conflict-free representation), cert. denied, 116 S. Ct. 1321 (1996); United States v. Ross, 33 F.3d 1507 (11th Cir. 1994) (reviewing propriety of disqualification ordered to safeguard defendant's right to conflict-free representation), cert. denied, 115 S. Ct. 2558 (1995).

On the contrary, as the record makes clear, what concerned the district court was the possibility that Binns' prior representation of the Trust and its members during the grand jury investigation might affect Anderskow's, Anchor's and Travis' ability to receive a fair trial. Nevertheless, because the effect of a disqualification is to deny a criminal defendant his or her presumptive right to chosen counsel, the question under Wheat is the same, even where the trial court's disqualification of chosen counsel is aimed at protecting the rights of persons other than the defendant. Thus, we must determine whether the district court's conclusion that there was an actual or serious potential for conflict of interest constituted an abuse of discretion. Cf. Moscony, 927 F.2d at 750-51 (reviewing disqualification of defendant's attorney aimed, in part, at protecting rights of several government witnesses attorney represented at grand jury); United States ex rel. Stewart v. Kelly, 870 F.2d 854 (2d Cir. 1989) (reviewing disqualification of attorney aimed, in part, at protecting rights of witness attorney had represented in the past). ¹³