Attorney's
Testimony Page2
[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.
