Conspiracy
Page1
7203:
Willful Failure to File Return, Supply Information, or Pay Tax:
Sufficiency of Indictment or Information: Conspiracy
[2005-1
USTC ¶50,241 ]
United States of America
, Plaintiff-Appellee v. Timothy Kosinski, Defendant-Appellant.
U.S.
Court of Appeals, 6th Circuit; 03-2414,
March 22, 2005
.
Unpublished opinion affirming an unreported DC Mich. decision.
[ Code
Sec. 7203]
Penalties, criminal: Criminal conviction: Jury instructions:
Conspiracy to defraud IRS: Sufficiency of indictment: Sentencing:
Calculation of tax loss. --
An
individual was properly convicted of conspiracy to defraud the IRS. The
indictment specified that he knowingly and willingly joined with other
individuals for the purpose of defrauding the IRS, and named individuals
and acts. Trial evidence established that the individual conspired with
others to claim illegal deductions for his construction company and
assisted a subcontractor in avoiding employee and withholding taxes.
Further, the jury instructions clearly required the jury to find intent
and an agreement to defraud the IRS. His claim that he was incorrectly
sentenced also was rejected. The district court reasonably included in
calculating the tax loss: (1) the unpaid taxes of subcontractors, and
(2) unreported income attributable to checks made out to subcontractors
that were deposited in to the individual's personal bank account. There
was no proof that the amounts deposited into his personal bank account
were loan repayments. Finally, his claims that a portion of the tax loss
was diverted income and, therefore, only a percentage was includible in
calculating the tax loss, was rejected.
Before: Boggs, Chief Judge and Martin, Circuit Judge, and Weber,
District Judge. *
¬ Caution: The
court has designated this opinion as NOT FOR PUBLICATION. Consult the
Rules of the Court before citing this case.®
PER CURIAM: Timothy Kosinski appeals from his criminal convictions
stemming from tax fraud. He argues that 1) prejudicial testimony was
introduced at trial, 2) the indictment was constructively amended, 3)
the jury was improperly instructed, 4) Count One (Conspiracy) of the
indictment was legally insufficient, 5) his motion for acquittal on
Count One (Conspiracy) was erroneously denied, 6) his sentence was
miscalculated under the Guidelines, and 7) he was sentenced in violation
of the Sixth Amendment. For the following reasons, we affirm his
conviction, but vacate his sentence and remand for resentencing.
I
On June 20, 2002, a grand jury returned a nine-count indictment against
Timothy Kosinski: one count of conspiracy to defraud the IRS and to
structure currency transactions to evade reporting requirements, five
counts of subscribing a false federal tax return, and three counts of
structuring a currency transaction to evade reporting requirements. A
jury found Kosinski guilty on seven counts, and not guilty on two of the
three structuring counts. The district court sentenced Kosinski pursuant
to the Sentencing Guidelines. The court found an offense level of
nineteen, which corresponds to a range of thirty to thirty-seven months
of imprisonment for offenders with no criminal history. The district
court then sentenced Kosinski to thirty months of imprisonment for
Counts One and Seven and thirty months of imprisonment for Counts Two
through Six, to run concurrently. Kosinski was also ordered to pay an
assessment of $7,000, a fine of $60,000, and the costs of incarceration.
Kosinski is a dentist, who founded T.J. Construction ("T.J.")
in 1992, after the death of his father. His father was a carpenter and
independent contractor, and he had done work with Thyssen Steel
Incorporated ("Thyssen"). Thyssen manufactures steel wire,
steel coil, and other steel products. Under Kosinski, T.J. picked up
where his father had left off, and continued to do work for Thyssen.
Thyssen was in the midst of a multi-million dollar expansion of its
warehouse system, in which T.J. had considerable involvement.
Specifically, T.J. acted as a "quasi-general contractor" for
major aspects of a warehouse expansion project in
Detroit
,
Michigan
, and as a true general contractor for the construction of a new
warehouse in
Richburg
,
South Carolina
.
Phillips Contracting Company, which was run by Melvin Phillips, served
as a subcontractor for T.J. on the Thyssen projects, doing most of the
concrete, excavation, and underground utility work. T.J. handled
paperwork for Phillips, and, at Melvin Phillips's request, paid in cash
for work performed. Kosinski and Melvin Phillips worked together for
several years and were friends. Their relationship as business
associates was particularly close, so much so that two of Phillips's
employees testified that they believed Kosinski and Phillips were
partners.
Between 1996 and 1998, checks totaling $8,143,625 were drawn on T.J.'s
business account and made payable to Melvin Phillips or Phillips
Contracting, but were deposited in Kosinski's personal bank accounts.
Kosinski and his associates withdrew most of the money in cash, and used
much of the cash to make payments to Phillips. Kosinski concealed the
flow of this money by making numerous withdrawals of $9,500 --below the
$10,000 reporting threshold. Kosinski, his wife, and his employee, Nina
Spratt, often engaged in multiple transactions on a single day. Between
January 1995 and May 1999, Kosinski and his associates withdrew
$7,676,000 in cash from his various personal accounts. Although Kosinski
claimed tax deductions for the full amount of $8,143,625, at least
$1,400,000, and possibly more, was never paid to Phillips Contracting.
Melvin Phillips paid his employees with a combination of checks and
cash. Neither the checks nor the cash payments reflected any
withholding. Phillips Contracting did not file any employment tax
returns with the IRS between 1995 and 1999. Testimony was introduced
that Phillips had agreed with employees to pay them less in return for
not withholding any taxes, with the awareness that the employees would
not pay those taxes. Melvin Phillips claimed that he used cash to pay
suppliers in order to get a better deal; for instance, he claimed to
have spent over $1,000,000 in cash on concrete. The project's concrete
suppliers, however, denied having ever received a cash payment, and the
defense produced no witness or document that confirmed any cash payments
for supplies.
Kosinski also claimed a business deduction for work done between 1996
and 1998 at his primary home, his vacation home, and his mother's home.
Kosinski paid for the work out of T.J.'s business account, and then
claimed deduction for the work on T.J.'s income tax. Contractors are not
permitted to take business deductions for work performed at their home
or the home of a relative.
Al Paas, the architect overseeing the project for Thyssen, acted as the
owner's construction manager. On at least three occasions, he received
an envelope from Kosinski containing $5,000 in cash. Although the record
is somewhat unclear about the date of these payments, there was at least
some testimony that the payments were made during the period of the
conspiracy: 1995 to 1999. Kosinski told Paas to "use" the
money and never asked for receipts, nor was the money reported to the
IRS by any party. In mid-1996, Paas recommended to Thyssen that Kosinski
receive an additional $400,000 in performance bonuses. Paas did not
inform Thyssen of the $5,000 payments he recieved, but he testified that
they did not influence his handling of the project in any way.
II
Kosinski makes five claims seeking reversal of some or all of his
convictions. He also argues that his sentence was calculated incorrectly
and that applying the Sentencing Guidelines violated his Sixth Amendment
rights.
A.
Prejudicial Testimony
Kosinski argues that the testimony of Paas about the $5,000 payments and
their purpose was improperly admitted and prejudicial. He claims that
the government elicited the testimony to show that he bribed Paas and
received favorable contracts and an increase in the performance bonus.
He argues that in a trial for conspiracy to defraud the IRS, this
testimony had no probative value and was prejudicial. Kosinski also
argues that the testimony showed that the $5,000 payments took place in
1991 or 1992, before the conspiracy occurred. Kosinski's counsel
objected to the testimony at trial and subsequently moved for a
mistrial.
We review for abuse of discretion the district court's denial of a
motion for mistrial.
United States
v. Rigsby, 45 F.3d 120, 125 (6th Cir. 1995). Although Kosinski
never cites it, presumably he is arguing that the evidence was
inadmissible under Federal Rule of Evidence 404(b), which provides in
relevant part that "[e]vidence of other crimes, wrongs, or acts is
not admissible to prove the character of a person in order to show
action in conformity therewith." Such evidence is admissible,
however, if it is offered to show "motive, opportunity, intent,
preparation, plan, knowledge, identity, or absence of mistake or
accident." Ibid. Finally, even if relevant, "evidence
may be excluded if its probative value is substantially outweighed by
the danger of unfair prejudice, confusion of the issues, or misleading
the jury, or by considerations of undue delay, waste of time, or
needless presentation of cumulative evidence." Fed. R. Evid. 403.
It is clear from the record that the government elicited extensive
testimony suggesting that Paas was paid bribes to secure favorable
contracts and bonuses for T.J. The prosecutor's questions clearly
intimated a link between the payments to Paas and T.J.'s increased
performance bonus. From the testimony elicited on direct examination,
the jury probably could infer a link between the payments/bribes and the
favorable contracts T.J. was awarded without competitive bidding.
Kosinski is simply wrong, however, to assert that the payments were
clearly outside the time-frame of the conspiracy. Although the testimony
is somewhat conflicting, at one point Paas was asked if he knew where
the money from the $7,600,000 in cash generated during 1995 to 1999 was
spent. He eventually conceded that some of it went to pay him. There is
apparently contradictory testimony elsewhere, but the jury reasonably
could have concluded that the payments occurred during the relevant
time-frame.
The testimony was probative because the $5,000 cash payments themselves
were tax evasions. Kosinski paid the $5,000 without witholdings, and
Paas never reported the payments. Paas testified that the money was used
for expenses or given to charity, but there is no evidence to support
this and the jury could conclude the $5,000 payments were unreported
income. This would make Paas a participant, if a minor one, in the
conspiracy to avoid reporting income and paying taxes. The favorable
treatment from Paas, such as the increased performance bonus, is thus
relevant to showing why the bribes were paid and why the jury should
disbelieve the claim that the money was for expenses and charity.
The bribery testimony was not unduly prejudicial. Obviously, evidence
that Kosinski paid bribes casts his general moral character in an
unfavorable light. But the testimony showed both that Paas was
participating in the conspiracy by personally evading taxes and by
facilitating or acquiescing to the rest of the scheme. Therefore, we
conclude the district court did not abuse its discretion in admitting
the testimony.
B.
Constructive Amendment of the Indictment
Kosinski claims that the indictment was constructively amended so that
it was possible that the jury convicted him of bribery, rather than the
charges on which he was indicted. He argues that the evidence of bribery
was improperly introduced, and the jury instructions on Count One
(Conspiracy) permitted a guilty verdict even if the jury found that
defrauding the IRS was only a collateral or incidental effect of the
conspiracy. This claim is without merit.
The Fifth Amendment guarantees that an accused be tried only on those
offenses presented in an indictment and returned by a grand jury. Stirone
v.
United States
, 361
U.S.
212, 217-19 (1960). "[A]n amendment involves a change, whether
literal or in effect, in the terms of the indictment." United
States v. Barrow [ 97-2
USTC ¶50,558], 118 F.3d 482, 488 (6th Cir. 1997). "This
Circuit has held that a variance rises to the level of a constructive
amendment when the terms of an indictment are in effect altered by the
presentation of evidence and jury instructions that so modify essential
elements of the offense charged that there is a substantial likelihood
that the defendant may have been convicted of an offense other than that
charged in the indictment."
United States
v. Chilingirian, 280 F.3d 704, 711 (6th Cir. 2002). We review
the question of whether there was an amendment to the indictment de
novo.
Id.
at 709.
As we concluded above, the evidence of bribery was properly admitted.
Even though properly admitted, however, it may still have created the
possibility of conviction on an uncharged count. To determine whether
this could have occurred, we look to the jury instructions. See
United States v. Campbell, 317 F.3d 597, 607 (6th Cir. 2004) (juries
are presumed to follow instructions of the trial judge).
Kosinski's claim here is without merit because the jury instructions
make clear that the jury must find intent and agreement to defraud the
IRS. The district court started its jury instructions by reading from
the indictment, which stated that the jury must find it was "an
object of the conspiracy that [the conspirators] would and did defraud
the United States for the purpose of impeding, impairing,
obstructing, and defeating the lawful functions of the Internal Revenue
Service ...." (emphasis added). The court drove the point home by
repeating several times during the instructions that the jury must find
that Kosinski was part of a conspiracy that intended to defraud the IRS:
A
conspiracy to defraud the
United States
reaches any conspiracy for the purpose of impeding, impairing,
obstructing or defeating the lawful function of the government. I
instruct you that the Internal Revenue Service is an agency of the
Department of Treasury of the
United States
.
....
[You
must find] that two or more persons conspired, or agreed, to defraud the
United States
, or one of its agencies or departments, by dishonest means.
....
[T]he
Government must prove beyond a reasonable doubt that there was a mutual
understanding ... between two or more people, to cooperate with each
other to defraud the
United States
.... This is essential.
(emphasis added). The district court also reiterated that to convict
Kosinski the jury must find that he knowingly and purposefully joined
the conspiracy and acted to further its aim of defrauding the IRS:
[T]he
Government must prove that the Defendant knew and agreed to the purposes
of the conspiracy and knowingly and voluntarily joined the conspiracy.
....
[J]ust
because the Defendant may have done something that happened to help a
conspiracy does not make him a conspirator.
....
What
the Government must prove beyond a reasonable doubt is that the
Defendant knew the conspiracies [sic] main purpose, and that he
voluntarily joined it intending to help advance or achieve its goals.
Finally, the jury form itself made clear that purpose was a necessary
element of the Conspiracy Count:
As
to the first object other conspiracy charged in Count One, that the
defendant conspired to defraud the United States for the purpose of
impeding and impairing the lawful functions of the Internal Revenue
Service, we the jury unanimously find the defendant Timothy Kosinski:
Guilty.
(emphasis added). Consistent with these instructions, the jury could
convict only if it found that the purpose of the conspiracy was to
defraud the IRS.
C.
Jury Instruction
Kosinski argues that the district court erroneously rejected his
proposed jury instruction with respect to Count One (Conspiracy).
Kosinski had asked the district court to include the following
instruction: "the Government must prove that Dr. Kosinski had the
actual intent to frustrate or impede the IRS, not merely that impeding
the IRS was a foreseeable consequence of the conspiracy." He argues
that in the absence of this instruction, the jury may have convicted
even if defrauding the IRS was only a collateral or incidental effect of
the conspiracy. This claim has the same basis as the constructive
amendment claim, and we reject it for the same reason.
This court reviews jury instructions as a whole to determine whether
they fairly and adequately inform the jury of relevant considerations
and explain the applicable law to assist the jury in reaching its
decision.
United States
v. Layne, 192 F.3d 556, 574 (6th Cir. 1999). "Trial courts
have broad discretion in drafting jury instructions, and we reverse only
for abuse of discretion." United States v. Prince, 214 F.3d
740, 761 (6th Cir. 2000) (citations omitted). "A district court's
refusal to deliver a requested jury instruction amounts to reversible
error only if the instruction (1) is a correct statement of the law, (2)
was not substantially covered by the charge actually delivered to the
jury, and (3) concerns a point so important in the trial that the
failure to give it substantially impairs the defendant's defense." United
States v. Jackson, 347 F.3d 598, 606 (6th Cir. 2003) (citations
omitted).
The district court did not err because Kosinski's requested instruction
was "substantially covered by the charge actually delivered to the
jury." As the discussion of jury instructions in the previous
section indicates, the district court not only covered this point, but
did so in a highly repetitive fashion. The court then repeated that
purpose requirement --by a conservative count --at least three times
while giving jury instructions. Finally, the jury form also stated that
the jury must find purpose to convict on Count One.
D.
Legal Sufficiency of Count One
Kosinski argues that Count One (Conspiracy) of the indictment is
insufficient as a matter of law and the district court erred by denying
his motion to dismiss the Count. Kosinski asserts that
"[a]llegations of failure to report income are not sufficient to
make out a conspiracy to impair and impede the IRS." Kosinski is
vague as to which elements of the conspiracy charge are left out, but he
states that the indictment "allege[s] only consequences of cash
transactions and structuring." From this we infer that he is making
an allegation that the indictment does not allege either purpose to
defraud the IRS or an agreement to defraud the IRS.
We review de novo the sufficiency of an indictment.
United States
v. DeZarn, 157 F.3d 1042, 1046 (6th Cir. 1998). An indictment is
legally sufficient "if it, first, contains the elements of the
offense charged and fairly informs a defendant of the charge against
which he must defend, and second, enables him to plead an acquittal or
conviction in bar of future prosecutions for the same offense."
United States
v. Superior Growers Supply, Inc., 982 F.2d 173, 176 (6th Cir.
1992).
The essential elements of a conspiracy are:
(1)
the conspiracy described in the indictment was wilfully formed, and was
existing at or about the time alleged; (2) that the accused willfully
became a member of the conspiracy; (3) that one of the conspirators
thereafter knowingly committed at least one overt act charged in the
indictment at or about the time and place alleged; and (4) that such
overt act was knowingly done in furtherance of some object or purpose of
the conspiracy as charged.
United States v. Kraig [ 96-2
USTC ¶50,616], 99 F.3d 1361, 1368 (6th Cir. 1996) (citations
omitted).
The indictment states all of these elements. It alleges that Kosinski
willfully and knowingly joined with others to defraud the IRS. It names
several other individuals and alleges that they committed a number of
acts with the purpose of defrauding the IRS. The indictment also lists
hundreds of overt acts that it alleges were in furtherance of the
conspiracy --mostly bank transactions, but also payments to workers and
others. Although the indictment does not charge any substantive offense,
that is unnecessary for a conspiracy to defraud under 18 U.S.C. § 371. United
States v. Khalife, 106 F.3d 1300, 1303 (6th Cir. 1997) (because
there is no substantive offense underlying a conspiracy to defraud under
18 U.S.C. § 371, an indictment need not refer to any substantive
offense). We therefore reject this claim.
E.
Judgment of Acquittal on Count One (Conspiracy)
Kosinski claims that denial of his motion for acquittal with respect to
Count One (Conspiracy) was in error. He argues that the evidence, viewed
in the light most favorable to the prosecution, failed to establish that
impeding and impairing the IRS was an object of the conspiracy. After
two pages summarizing case law, the entirety of Kosinski's argument is
the following two sentences:
In
this case, evidence that Mr. Phillips did not pay taxes for his
employees or provide 1099's for his subcontractors did not establish
evidence of Mr. Phillips [sic] conspiracy with Dr. Kosinski. A
conclusion that an agreement was proved is contrary to the jury
instruction that a general contractor has no legal obligation for taxes
of his subcontractors.
This argument is without merit.
We must uphold a jury verdict if there is substantial evidence, viewed
in the light most favorable to the government, to support it.
United States
v. Wells, 211 F.3d 988, 1000 (6th Cir. 2000). We allow the
government to benefit from all reasonable inferences. Ibid.
The evidence did not show merely that Phillips did not pay taxes or
withholding for his employees. It showed that he conspired with Kosinski
to do this. Kosinski was not free to conspire with Phillips to avoid
paying Phillips's employees' taxes merely because he was not responsible
for those taxes in the first instance. Moreover, evading withholding and
taxes for employees was only one part of the conspiracy. Evidence was
introduced showing that Kosinski conspired with others to claim illegal
deductions for T.J., to conceal revenue from the project, to structure
financial transactions so as to avoid reporting, and many other illegal
acts. If the jury found credible the evidence on any one of these
allegations, it would have been sufficient to convict on Count One
even if the jury completely discounted the evidence that Kosinski and
Phillips conspired to avoid paying their employees' taxes.
F.
Tax Loss Calculations in Sentencing
Kosinski argues he was sentenced incorrectly. He argues that his offense
level should be determined by U.S.S.G. §2S1.3 instead of U.S.S.G.
§2T1.9. He also argues that the calculation of tax loss was erroneous.
Although we review interpretations of the Guidelines de novo, the
determination of the amount of loss is a finding of fact that we will
not disturb unless clearly erroneous.
United States
v. Guthrie, 144 F.3d 1006, 1011 (6th Cir. 1998). "When a
district court calculates the amount of loss caused by a crime involving
fraud or deceit, the court need not determine the amount of loss with
precision. The guidelines require a district court to make a reasonable
estimate ...."
United States
v. Kohlbach, 38 F.3d 832, 835 (6th Cir. 1994).
The district court correctly applied U.S.S.G. §2T1.9 to the conspiracy
charge in Count One. The guideline applicable to structuring, U.S.S.G.
§2S1.3(c)(1), states that "if the offense was committed for the
purpose of violating the Internal Revenue laws, apply the most
appropriate guideline from Chapter 2, Part T (Offenses Involving
Taxation) if the resulting offense level is greater than that determined
above." The offense level under U.S.S.G. §2S1.3 is 6; whereas
under U.S.S.G. §2T1.9 the minimum offense level is 10. Thus, U.S.S.G.
§2T1.9 applies.
The defendant argues that we cannot be sure the offense was committed
for the "purpose of violating" tax laws, noting that Count One
identified two aims of the conspiracy (to structure and to defraud the
IRS), and asserting that the jury was not asked to return a verdict on
whether the conspiracy was to structure or to defraud the IRS (or both).
This is simply a misrepresentation; the jury form breaks out the two
purposes of the conspiracy in Count One and the jury found defendant
guilty with respect to both.
The district court did not commit clear error in calculating the amount
of tax loss. The district court began with the $5,635,000 in cash
between 1996 and 1998 that was paid to Melvin Phillips. At Phillips's
(separate) trial, it was estimated that 40% of the cash payment Phillips
received was used for the cash payroll, and the district court used the
same assumption here. That put the unreported payroll at $2,254,000; the
district court then took 28% of that figure as an estimate of tax loss,
pursuant to U.S.S.G. §2T1.1. This produced a tax loss of $631,176,
which was used to calculate Kosinski's offense level. Kosinski argues
that because he was not legally responsible for the taxes of Phillips's
subcontractors, he should be assessed only the unreported wages of
Phillips's direct employees, excluding subcontractors. However, even if
Kosinski was not responsible for the subcontractors' taxes, he was part
of a conspiracy to avoid payment of taxes for Phillips's employees and
subcontractors alike. Thus, it was reasonable for the district court to
include the unpaid taxes of the subcontractors as part of the tax loss
associated with the conspiracy.
Finally, Kosinski challenges the tax loss calculations of the district
court with respect to Counts Two through Six (Subscribing a False Tax
Return). Kosinski argues that the checks made out to Phillips, but
deposited in Kosinski's personal account, are loan repayments and should
not be included as unreported income. But since there is no evidence of
this loan agreement, the district court did not commit clear error by
concluding otherwise. Kosinski also claims that the court erred because
$342,000 of the amount considered as tax loss was really diverted
income, and should be multiplied by 28% to get tax loss. Kosinski does
not explain why this is so, except by citation to motions filed below,
and therefore waives this claim.
G.
Sentencing under the Guidelines
Kosinski also argues that the district court erroneously sentenced him
based on facts not found by the jury, in contravention of United
States v. Booker, 125 S. Ct. 738 (2005). He argues that this case
should be remanded for resentencing. We agree.
In Booker, the Supreme Court concluded that judicial fact-finding
which led to a sentence under the Guidelines greater than that
authorized by the jury verdict alone violated the Sixth Amendment.
Id.
at 755-56. The Court's solution was to strike 18 U.S.C. § 3553(b)(1),
which is the provision making the Guidelines mandatory.
Id.
at 756-57. The Court left intact the remainder of the Guidelines,
instructing that they must be consulted by a sentencing court but are no
longer binding. Ibid. The Supreme Court has instructed us to
apply Booker to cases on direct review using "ordinary
prudential doctrines, determining, for example, whether the issue was
raised below and whether it fails the 'plain-error' test."
Id.
at 769.
Although Kosinski did not raise a Sixth Amendment objection in the
sentencing court, he did object to the factual determinations made by
the judge. Before this court, he filed briefs with Sixth Amendment
arguments based first on Blakely v. Washington, 124 S. Ct. 2531
(2004), and then on Booker, as those cases were decided. We are
satisfied that the objection below to judicial fact-finding preserved
the Sixth Amendment issue for review.
This case is factually indistinguishable from Booker itself and
thus resentencing is required. Booker was convicted by a jury of
possessing at least 50 grams of cocaine. 125
S. Ct.
at 746. At sentencing, the district court determined that Booker
possessed at least 616 grams of cocaine and sentenced him accordingly. Ibid.
Had Booker been sentenced on the jury's finding alone, the Guideline
range would have been 210 to 262 months. Ibid. Instead, based on
the district court's finding that Booker possessed more cocaine, Booker
received a sentence of 360 months. Ibid. The Supreme Court
concluded that because only 50 grams was argued to the jury, the
sentence exceeded that authorized by the jury verdict and thus violated
the Sixth Amendment.
Id.
at 756. In this case, Kosinski was sentenced based on the amount of tax
loss determined by the district court. The jury was never asked to
determine tax loss. Without the district court's factual determination
of tax loss, the offense level would be 10, corresponding to a sentence
of 6 to 12 month. U.S.S.G. §2T1.9. Applying the reasoning of Booker,
the 30-month sentence Kosinski received plainly went beyond that
authorized by the jury. We therefore conclude that Kosinski was
sentenced in violation of the Sixth Amendment.
III
For the reasons set forth above, we AFFIRM Kosinski's
convictions, but VACATE his sentence and REMAND for
resentencing consistent with Booker and this opinion.
*
The Honorable Herman J. Weber, United States District Judge for the
Southern District of Ohio, sitting by designation.
[92-1
USTC ¶50,111]
United States of America
, Plaintiff-Appellee v. Lonnie Schmidt, Defendant-Appellant
(CA-9),
U.S. Court of Appeals, 9th Circuit, 90-10473, 10/15/91, 947 F2d 362,
Affirming an unreported District Court decision
[Code Sec.
6050I ]
Currency transaction reports: Money laundering.--A taxpayer was
properly convicted of conspiring to evade the requirements of filing
currency transaction reports. There was sufficient evidence that the
taxpayer and another individual entered into agreements with two
undercover IRS agents and with other individuals to conduct several
money laundering transactions to avoid the currency transaction
reporting requirements. The criminal indictment that charged the
taxpayer with being a financial institution which did not file currency
transaction reports contained the elements of the crime charged in
adequate detail.
Daniel
S. Linhardt, Assistant United States Attorney,
Sacramento
,
Calif.
95814
, for plaintiff-appellee. William A. Cohan, Jennifer A. Greene, Cohan
& Greene, P.C., 1410 Santa Fe Dr., Encinitas, Calif., for
defendant-appellant.
Before
CHAMBERS, Senior Circuit Judge, SNEED, Circuit Judge, and KELLEHER,
District Judge. *
OPINION
KELLEHER,
District Judge:
I.
Factual and Procedural Background
Internal
Revenue Special Agent Richard Carl was contacted in August 1985 by
Internal Revenue Agent Mulholland to investigate appellant Lonnie
Schmidt. Carl posed as a Northern California representative in charge of
collections for an organized crime gambling interest from
Las Vegas
. Carl and the Internal Revenue Service had learned that the appellant,
along with Herbert Bates, had failed to file Currency Transaction
Reports (CTRs).
Agents
Carl and Mulholland, in their undercover roles, became acquainted with
Dean Salisbury and Joe Gorman. These individuals introduced the agents
to the appellant and Bates.
On
August 10, 1985, agents Carl and Mulholland, along with
Salisbury
and Gorman, had an introductory meeting with the appellant and Bates to
learn about their operation. The appellant claimed that he was the
representative of First Surety Bank, Ltd. (FSBL), a bank duly licensed
by the government of the
Marshall Islands
. The appellant also stated that, as a foreign bank, any transaction
that he handled for Carl and Mulholland would not be within the
reporting requirements.
The
appellant and Bates explained to the agents that they were outside the
reporting requirements because they handled FSBL through their
management company, International Commercial Business Management (ICBM).
Bates claimed that, even though the Bank's funds were within the
United States
, legally the Bank was outside the country. The appellant explained that
he and Bates did not have to conform to the reporting requirements for
their transfers of cash through domestic banks because these
transactions were "bank-to-bank" transactions outside the
purview of the reporting requirements. 1
One
of the agents asked the appellant if it mattered from where the funds
came. The appellant answered that it did not.
Salisbury
then assured the appellant and Bates that the funds came from a legal
source. The appellant then suggested different ways in which CTRs could
be avoided, one of which was to keep all the transactions under $10,000
by going to different banks in Sacramento and, if necessary, in the
Reno/South Lake Tahoe area.
The
appellant informed the agents that his commission would be due at the
time the transactions were completed. He then informed the agents that
only he and Bates were involved in the transaction. Before the meeting
ended, the appellant asked how he could get in touch with Carl since he
did not have, and might not ever get, Carl's last name. 2
Carl
next met with the appellant on August 13, 1985. Carl was now dealing
with only the appellant because Carl had asked that Bates not be present
at any further meetings. At this meeting, Carl told the appellant that
he had $25,000 which he wished to exchange for a cashier's check. The
appellant asked if it was possible for Carl to break the check down into
more than one check because he wanted to get around filing a CTR.
The
appellant explained how he would convert the cash into cashier's checks.
He said that he had opened a new account with a bank and used several
banks for converting cash into cashier's checks. Carl then gave the
appellant $25,000 in
United States
currency which the appellant converted into two cashier's checks, one
for $9,000 and one for $16,000.
On
August 15, 1985, Carl again met with the appellant and converted $27,000
into wire transfers. The appellant guaranteed Carl that no CTRs would be
generated as a result of these transfers because these were
"bank-to-bank" transfers.
On
August 22, 1985, Carl and the appellant met and decided to dismiss
Salisbury
and Gorman from any further transactions.
On
September 3, 1985, Carl gave the appellant $100,000 in currency in
exchange for cashier's checks. Carl stated that this money was
associated with crime figures. Carl raised the prospect of handling
tainted money from other individuals. The appellant was amenable to the
arrangement as long as a proper commission could be worked out.
On
September 25, 1985, Carl met with the appellant to convert an additional
$25,000 into cashier's checks and to discuss further money laundering
for an individual whom he had identified in an earlier conversation as a
"dope dealer." The appellant then discussed some of the
services he could provide for the dealer. During the course of the
meeting, Carl stated that he could be arrested for the operations in
which he was involved. The appellant stated that he understood this.
Later in the conversation, the appellant stated that he could act as a
courier between the Cayman Islands and the
United States
for Carl's associates.
The
last conversation between Carl and the appellant occurred on October 15,
1985. The two discussed the services the appellant would be willing to
provide for Carl's supposed drug dealing friends. They discussed how the
appellant would launder the money and how much commission he would take.
Carl then gave the appellant $23,000 which the appellant converted into
cashier's checks.
On
October 16, 1985, Carl returned to the appellant's office with a search
warrant. The appellant was told that he was required to file CTRs on all
transactions in excess of $10,000. 3
During this search, the IRS seized documents concerning a transaction
between the appellant and
Rob
ert O'Lear. This transaction is the basis of the second count against
the appellant.
O'Lear
knew that the appellant was an officer of ICBM, and he went to the
appellant to cash a check for $16,662.19 made out to Katherina Wolf.
O'Lear used the check to purchase a certificate of deposit (CD) from the
appellant for $500.00. The appellant then gave O'Lear the balance of the
check in cash. O'Lear received a receipt, typewritten on FSBL letterhead
and dated May 24, 1985, showing that he received $16,162.19 in cash.
O'Lear
testified that the cash was
United States
currency. O'Lear further testified that, despite the fact that the
receipt had FSBL letterhead on it, the only institution with which he
identified the appellant was ICBM. No CTR was ever filed on this
transaction.
Count
seven regards different transactions. During 1987, undercover Internal
Revenue Service agent Dallas McKnight, Jr. learned that a number of
individuals were using the appellant to conduct currency transactions
for which no CTRs were generated.
On
October 28, 1987, McKnight met with the appellant in
Sacramento
and converted $15,000 in
United States
currency. The appellant told the agent that he was the representative of
an overseas bank and was excluded from the currency transaction
reporting requirements.
McKnight
had an unincorporated business organization, which was merely a paper
corporation, named South Wind Limited. The appellant explained to
McKnight that McKnight could avoid taxation by creating a trust naming
FSBL as its beneficiary. FSBL would then give McKnight back all his
money.
The
appellant also told agent McKnight that the money, though always kept in
the
United States
, was legally overseas. The agent explained that he did not want to open
any account with the appellant; rather, he merely wanted to obtain
cashier's checks for currency.
The
appellant further explained to agent McKnight what his commission would
be and stated that this amount would keep McKnight's name off any CTRs.
McKnight gave the appellant $15,000 and the appellant gave him three
cashier's checks in return.
McKnight
also gave the appellant $25,000 on October 29 and November 2, 1987 with
which the appellant purchased cashier's checks from First Interstate
Bank and from the Bank of Alex Brown. The CTR filed by the Bank of Alex
Brown reveals that the appellant gave the $25,000 in a lump sum to the
teller and made no effort to conceal his identity.
The
district court also had before it testimony from Drew Roddy who had
previously been convicted in the Western District of Washington for
laundering more than $155,000 through the appellant. Roddy was contacted
by one of his clients who wanted a cashier's check for $155,420.77.
Roddy contacted the appellant on September 30, 1987 and asked the
appellant to obtain a cashier's check for that amount of money. Roddy
then flew to
Sacramento
to consummate the transaction.
Mary
Shoup, Contact Representative for the Internal Revenue Service's
Detroit
Computing
Center
, testified that no CTR was filed for the Drew Roddy transaction or for
the $15,000 transaction with McKnight which was consummated on October
28, 1987.
At
the district court level, the appellant waived his rights to a jury
trial, to confront witnesses, and to subpoena witnesses. He consented to
a trial on the written record, and the parties submitted their arguments
and evidence through briefs and exhibits.
The
court returned guilty verdicts on counts one through seven and not
guilty verdicts on counts eight and nine. The appellant was sentenced to
four years for each count to run concurrently with each other and with
the sentence imposed by the United States District Court for the Western
District of North Carolina 4
and a fine of $20,000 on counts one through six.
The
appellant appealed to this court claiming that the government failed to
prove a conspiracy, the indictment failed to allege a crime with
sufficient specificity, and the trial court erred in denying the
suppression of evidence on count two.
We
affirm the district court's holding.
II.
Discussion
A.
Did the Evidence Establish the Existence of a Conspiracy?
1.
Standard of Review
To
determine whether the evidence is sufficient to support the criminal
conviction, the Court asks whether, after "viewing the evidence in
the light most favorable to the prosecution, any rational trier of fact
could have found the essential elements of the crime beyond a reasonable
doubt."
United States
v. Melchor-Lopez, 627 F.2d 886, 890 (9th Cir. 1980).
2.
Analysis
"The
essential elements of conspiracy, which have been stated repeatedly in
the decisions of this circuit, are 'an agreement to accomplish an
illegal objective coupled with one or more overt acts in furtherance of
the illegal purpose and the requisite intent necessary to commit that
underlying, substantive offense.' " Melchor-Lopez, 627 F.2d
at 890. Inferences of the existence of such an agreement may be drawn
"if there be concert of action, all parties working together
understandingly, with a single design for the accomplishment of a common
purpose."
Id.
Moreover, "[k]nowledge of the objective of the conspiracy is an
essential element of any conspiracy conviction."
United States
v. Krasovich, 819 F.2d 253 (9th Cir. 1987).
"There
is neither a true agreement nor a meeting of the minds when an
individual 'conspires' to violate the law with only one other person and
that person is a government agent."
United States
v. Escobar De Bright, 742 F.2d 1196, 1199 (9th Cir. 1984). An
individual must conspire with at least one bona fide co-conspirator to
meet the formal requirements of a conspiracy.
Id.
However,
"mere association with members of a conspiracy, the existence of an
opportunity to join the conspiracy, or simple knowledge, approval of, or
acquiescence in the objective or purpose of the conspiracy, without an
intention and agreement to accomplish a specific illegal objective, is
not sufficient to make one a conspirator." Melchor-Lopez,
627 F.2d at 891.
In
this case, the appellant argues that the only agreement into which he
entered was with Carl, the Internal Revenue Service agent. The
government, on the other hand, contends that the appellant entered into
an agreement with Bates and an agreement with Gorman and
Salisbury
.
a.
The Conspiracy with Bates
The
government points to the initial meeting between the parties to
establish Bates as a conspirator. Throughout that meeting, Bates led the
discussion explaining the operation and continually used the word
"we," meaning himself and the appellant, when referring to how
the operation worked. 5
The government asserts that Bates and the appellant show that they acted
in concert by stating that they were trying to combat the Internal
Revenue Service together. 6
The
government further contends that the appellant also used the word
"we" throughout his discussions. For example, when agent
Mulholland asked the appellant how many people he and agent Carl would
be dealing with, the appellant responded, "it's still just the two
of us." The "two of us" referred to the appellant and
Bates.
The
government contends that the most telling statement that shows that the
appellant and Bates acted together occurred when Carl asked what would
happen if he was unable to get in touch with the appellant. Bates
responded by saying, "[T]here is nobody but Lonnie and myself
anyhow." The appellant then added, "[Bates] probably would be
the only backup and then we don't want anyone else involved in what is
going on."
However,
the appellant argues that the meeting shows that the two were not acting
in agreement. The appellant states that the meeting illustrates that
only the appellant, and not Bates, was involved in the banking scheme. 7
The appellant also states that the record shows that Bates was
disinterested in being a party to the agreement. 8
The
appellant also claims that the fact that he made the commission deal
with agent Carl and the fact that he said he, and not he and Bates,
would work things out with the agents, illustrates that he was in
agreement only with the agents.
Finally,
the appellant points to the fact that he explained that Bates had a
completely different purpose for attending the August 10 meeting. Agent
Carl stated that he did not want Bates involved in the operation anymore
because Carl feared for his own safety. He felt that Bates talked too
much. The appellant stated, "[Bates] was here under the other
circumstances." Thus, the appellant claims that if he and Bates had
agreed to act in concert, they had not agreed to commit the same
offense.
The
court must look at the evidence in a light most favorable to the
government. We must ask whether any rational trier of fact could look at
the evidence and conclude that the appellant and Bates agreed to commit
the same offense and had the intent to carry out the offense beyond a
reasonable doubt. We conclude that a rational trier of fact could,
beyond a reasonable doubt, conclude that both men were co-conspirators.
Although
the appellant and Bates seemingly had different functions in the
operation, the evidence shows that they could have agreed to launder the
money and could have formed the requisite intent to carry this out. The
evidence shows that Bates was indeed a part of the first meeting.
Furthermore, Bates and the appellant seemed to be acting together in
this venture; Bates did explain the operation, had a full understanding
of what was going on, and was to serve as the appellant's backup contact
for the agents. To act together does not mean that both had to carry out
the same duties.
The
evidence shows that a rational trier of fact could conclude beyond a
reasonable doubt that Bates was not merely associated with the
operation. Any rational trier of fact could conclude that Bates was a
member who was in agreement with the appellant as to the goal of the
operation: evading the requirement of filing CTRs.
Thus,
we conclude that a conspiracy existed between Bates and the appellant.
b.
The Conspiracy with Gorman and
Salisbury
The
government contends that the appellant also conspired with Gorman and
Salisbury
. It claims that during the August 10 conversation, several references
were made by
Salisbury
and the appellant to working out an arrangement whereby agent Carl would
be bringing currency to the appellant for conversion.
The
government contends that the appellant made an agreement with
Salisbury
to divide the fees that Carl would pay the appellant. The evidence shows
that agent Carl would have testified that the August 22, 1985 meeting
was to clarify the trouble between the appellant and
Salisbury
and Gorman over the division of fees that Carl was paying the appellant.
The
appellant argues that no conspiracy existed between him and
Salisbury
and Gorman. The appellant states that the evidence shows that
Salisbury
and Gorman had an agreement with Mulholland to which the appellant was
not a part. The appellant asserts that Gorman had an agreement with
Mulholland concerning a "warehouse banking concept." Since the
appellant knew nothing of this agreement, he argues that this shows that
no agreement between him and
Salisbury
and Gorman existed.
However,
the appellant's arguments fail. A rational trier of fact could conclude
that an agreement existed beyond a reasonable doubt. Agent Carl would
have testified that the August 22 meeting occurred in order for Gorman
and
Salisbury
to iron out their agreement with the appellant. Also, the fact that an
agreement existed between
Salisbury
, Gorman, and Mulholland, to which the appellant was not a party, does
not mean that a different agreement was not reached at the August 10
meeting. Furthermore, a rational trier of fact could conclude that an
agreement was reached at the August 10 meeting.
Therefore,
we affirm the district court's holding that a conspiracy existed between
the appellant and Gorman and
Salisbury
.
B.
Did the Indictment Allege a Crime With Sufficient Specificity?
1.
Standard of Review
This
Court reviews the legal sufficiency of an indictment de novo.
United States
v. Dela Espirella, 781 F.2d 1432 (9th Cir. 1986).
2.
Analysis
"An
indictment is sufficient if it contains the elements of the charged
crime in adequate detail to inform the defendant of the charge and to
enable him to plead double jeopardy."
United States
v. Buckley, 689 F.2d 893, 896 (9th Cir. 1982). "Two
corollary purposes of an indictment are: (1) to ensure that the
defendants are being prosecuted on the basis of the facts presented to
the grand jury, and (2) to allow the court to determine the sufficiency
of the indictment."
Id.
The government need only allege the "essential facts necessary to
apprise a defendant of the crime charged" and not its theory of the
case.
Id.
In
this case, the appellant argues that the indictment failed to allege a
crime with sufficient specificity. The appellant states that the
government's statement, "Individuals who engaged in substantial
exchanges of currency were 'financial institutions' required to file
CTRs pursuant to Title 31, Code of Federal Regulations, Section
103.11," subsumes all participants in a currency transaction over
$10,000, thereby nullifying the legal limitations on persons required to
file CTRs. That is, the appellant argues that this statement is
erroneous because it asserts that all people who physically transfer
more than $10,000 in currency would be financial institutions. The
appellant argues that this regulation does not apply because he is not a
financial institution.
The
appellant also argues that the indictment does not specify which of the
two theories the government was pursuing: (1) that the appellant was a
financial institution who conspired with Bates to commit the offenses of
failing to file the CTRs; and (2) that the appellant, conspiring with
Bates, impeded and obstructed the IRS information acquisition by causing
commercial banks to file false CTRs which failed to identify the true
source of the funds.
Furthermore,
the appellant argues that the indictment fails to charge the appellant
with violating the only statutes which would be applicable to the
government's prosecution: 31 U.S.C. §5324, 18 U.S.C. §§1956 and 1957,
and 26 U.S.C. §6050I
.
The
government, on the other hand, contends that the indictment is pled with
sufficient specificity. The government claims that it did not allege
that the appellant caused banks to file false CTRs. The government
simply states that the indictment charges the appellant with being a
financial institution who did not file CTRs even though required by law.
The
appellant's argument has no merit. The indictment is not ambiguous; in
fact, it is very specific in setting out the government's theory of
prosecution. The indictment apprised the appellant of the crime charged
against him. Moreover, the phrase, "Individuals who engaged in
substantial exchanges of currency were 'financial institutions' . .
." does not have the meaning the appellant is trying to give it.
Read in context, it merely states that the appellant and Bates were
financial institutions who made transfers of more than $10,000. Thus,
the indictment does contain the elements of the crime charged in
adequate detail to inform the appellant of the charges against him.
Thus,
we affirm the district court's ruling and hold that the indictment was
pled with adequate detail.
C.
Did the Appellant Act as a Financial Institution?
1.
Standard of Review
Interpretation
of statutes and regulations are reviewed de novo.
United States
v. Varbel, 780 F.2d 758, 761 (9th Cir. 1986).
2.
Analysis
A
financial institution is defined as:
A
person who is engaged as a business in dealing in or exchanging currency
as, for example, a dealer in foreign exchange or a person engaged
primarily in the cashing of checks.
31
C.F.R. §103.11(3). This definition is quite broad and is consistent
with Congress' intent to create a "sweeping law enforcement tool
for locating inter alia, large transfers, in currency, of the
proceeds of unlawful transactions."
United States
v. Dela Espirella, 781 F.2d 1432, 1437 (9th Cir. 1986).
"Congress recognized the importance of reports of large and unusual
currency transactions in ferreting out criminal activity and desired to
strengthen the statutory basis for requiring such reports."
Id.
The
definition under 31 C.F.R. §103.11(3) is broad enough to include
private individuals and money launderers. Dela Espirella, 781
F.2d at 1437; United States v. Goldberg, 756 F.2d 949 (2d Cir.
1985).
The
government contends that the evidence shows that the appellant is,
indeed, a financial institution. Before he began dealing with the
government agents, he cashed a check and gave a customer more than
$10,000 in cash without filing a CTR. Furthermore, over a two month
period in 1985, the appellant converted $175,000 in currency into
cashier's checks or wire transfers without filing CTRs. The evidence,
the government contends, also discloses the appellant's willingness to
convert up to $3 million per month in narcotics money into cashier's
checks and wire transfers.
The
government also points to evidence that the appellant, in 1987,
converted approximately $155,000 in cash into a cashier's check.
Moreover, he converted $15,000 in cash into cashier's checks for agent
McKnight.
The
appellant, on the other hand, contends that he does not fit the
definition of a financial institution. The appellant states that he was
just a courier for the agents who brought their money to the various
banks to get the cashier's checks. He claims that he had no reserve of
cash or cashier's checks to complete the transactions himself; rather,
he claims to have simply gone to the banks to exchange cash for the
agents.
The
appellant cites United States v. Murphy, 809 F.2d 1427 (9th Cir.
1987) as controlling. In that case, the defendants laundered $4 million
for two undercover agents by depositing the money in a domestic bank in
such a manner as to conceal the true source and ownership of the money
from the Internal Revenue Service. The defendants were charged with
conspiring to conceal and falsify material facts within the jurisdiction
of the Internal Revenue Service and with conspiring to defraud it in its
collection of information. The court held that there was a duty of
disclosure, but there was no duty to disclose the source of the funds.
Id.
at 1431. Therefore, the court held that there was no concealment or
conspiracy to conceal.
Id.
However,
the appellant's arguments have no merit. First, the Murphy case
does not apply to this case. The appellant in Murphy was not a
financial institution. Furthermore, the appellant in this case was not
charged with causing banks to file CTRs which did not list the true
source of the funds; rather, the appellant was charged with being a
financial institution and with failing to file timely CTRs. Thus, the
appellant's reliance on this case must be disregarded.
Furthermore,
the policies behind the regulation, as enunciated in the Dela
Espirella case, support the government's argument that the appellant
was a financial institution. Private individuals and money launderers
are included within the broad sweep of the definition of a financial
institution. Here, the appellant was clearly a money launderer. 9
The evidence shows that, even though the appellant was initially told
that the money was from a legal source, agent Carl later told the
appellant on several occasions that the money was from a criminal
enterprise. The appellant, with this knowledge, continued to make
transactions for the agent.
Thus,
the appellant was clearly a financial institution. We therefore affirm
the holding of the District Court.
D.
Suppression of the Evidence
1.
Standard of Review
Motions
to suppress are generally reviewed de novo.
United States
v. Thomas, 863 F.2d 622, 625 (9th Cir. 1988). This includes whether
a search warrant describes the items to be seized with sufficient
particularity. See
United States
v. Spilotro, 800 F.2d 959, 963 (9th Cir. 1986).
However,
a "magistrate's determination of probable cause is treated with
great deference and is not reviewed de novo."
United States
v. Alexander, 761 F.2d 1294, 1300 (9th Cir. 1985). The court may not
reverse a magistrate's finding of probable cause unless it is clearly
erroneous.
United States
v. McQuisten, 795 F.2d 858, 861 (9th Cir. 1986). The court need
only find that, "under the totality of the circumstances, the
magistrate had a substantial basis for concluding that probable cause
existed."
Id.
"In doubtful cases, preference should be given to the validity of
the warrant."
Id.
2.
Was the Search Warrant Overbroad?
The
appellant has appealed only that portion of the search warrant which
relates to the suppression of the evidence on count two of the
indictment. The only evidence seized in the search relating to count two
was a receipt for over $10,000 in cash by O'Lear.
The
Fourth Amendment requires a search warrant to describe the items to be
seized with sufficient particularity to prevent "general
exploratory rummaging in a person's belongings." Coolidge v.
New Hampshire
, 404
U.S.
443, 467 (1971). "The warrant must particularly describe both the
place to be searched and the person conducting the search reasonably to
identify the things authorized to be seized." Spilotro, 800
F.2d at 963. "The description must be specific enough to enable the
person conducting the search reasonably to identify the things
authorized to be seized."
Id.
"In
determining whether a description is sufficiently precise, we have
concentrated on one or more of the following: (1) whether probable cause
exists to seize all items of a particular type described in the warrant;
(2) whether the warrant sets out objective standards by which executing
officers can differentiate items subject to seizure from those which are
not; and (3) whether the government was able to describe the item more
particularly in light of the information available to it at the time the
warrant was issued."
Id.
a.
Was There Probable Cause to Seize the Items in the Search Warrant?
The
appellant claims that there was insufficient probable cause to permit
such a search and seizure of all the records. The appellant cites United
States v. Offices Known as 50 States Distributing Co. 708 F.2d 1371
(9th Cir. 1983), to support its argument. In that case, we held that a
warrant allowing for the seizure of every piece of paper or documents
relating to a business is proper when probable cause exists that the
enterprise is permeated by fraud.
Id.
at 1374. The appellant states that because the search warrant did not
allege that the businesses involved were permeated by fraud, probable
cause did not exist to seize all the records.
However,
the appellant's arguments have no merit. 50 States Distributing Co.,
does not apply to this case. In that case, fraud was one of the crimes
with which the government charged the appellant. Thus, in order to seize
all the business documents to prove that the appellant was involved in
fraudulent conduct, the government had to have probable cause that the
business records were permeated by fraud. In the case before us, the
government charged the appellant with failing to file the CTRs. Thus,
fraud is not one of the charges against the appellant.
The
government, however, states that probable cause did, in fact, exist. It
states that the affidavit for the search warrant listed five instances
where the appellant had received in excess of $10,000 without filing a
CTR. The affidavit also included the appellant's statement that he never
filed the CTRs and that he cashed checks for other clients from the
large amount of currency he maintained in his safe.
Looking
at the totality of the circumstances, the magistrate had a substantial
basis for concluding that probable cause existed. The affidavits showed
that the appellant engaged in a series of transactions in which he
accepted
United States
currency in exchange for cashier's checks and wire transfers. The
magistrate's finding that probable cause existed is therefore not
clearly erroneous; the magistrate could reasonably have found, based on
the affidavits before him, that the appellant was acting as a financial
institution, that he violated federal law, and that the evidence could
be found in his office.
Thus,
we affirm the district court's holding.
b.
Was the Warrant Particularized?
For
a warrant to be valid, it must be "reasonably specific, rather than
elaborately detailed, in its description of the objects of the
search." United States v. Brock, 667 F.2d 1311, 1322 (9th
Cir. 1982), cert. denied, 460
U.S.
1022 (1983); See United States v. Holzman, 871 F.2d 1496, 1508
(9th Cir. 1989). This circuit follows the rule that where invalid
portions of a warrant may be stricken and the remaining portions held
valid, seizures pursuant to the valid portions will be upheld. Spilotro,
800 F.2d at 967. Suppression of the evidence is justified when no
portion of the warrant is sufficiently particularized to pass
constitutional muster.
United States
v. Cardwell, 680 F.2d 75, 78 (9th Cir. 1980).
The
appellant claims that the warrant is defective because the government
failed to utilize the results of its investigation and available
information to describe more particularly the items to be seized and
refine the scope of the warrant. See
Id.
The appellant claims that the warrant should have been
particularized to business records relating to currency transactions
exceeding $10,000. While the appellant admits that the affidavit
specifically alleged the failure to file CTRs on currency transactions
exceeding $10,000, the appellant claims that it did not detail the
particular items to be seized.
Rather,
the appellant claims that the affidavit authorized the wholesale seizure
of entire categories of items, even those not generally evidence of
criminal activity, and provided no guidelines to distinguish items which
it had probable cause to seize and those which it did not. See Spilotro,
800 F.2d at 964. The appellant also points to the inventory list which,
he claims, shows that most of the items seized were not even related to
CTR violations.
The
appellant cites Cardwell to support his argument. In Cardwell,
the court held that the search warrant was not sufficiently particular.
The warrant directed the authorities to seize:
.
. . corporate books and records, including but not limited to cancelled
and duplicate checks, check stubs, journals, ledgers, weekly summaries,
driver trip envelopes, and daily schedules of the fellowing [sic]
corporations: Midwest Growers Cooperative Corporation, Coast Express,
Inc., West Coast Systems Inc., and Interstate Carriers Corporation which
are the fruits and instrumentalities, of violations of 26 U.S.C. §7201
.
680
F.2d at 76. The court held that no portion of the search warrant was
sufficiently particularized to pass constitutional muster and ruled that
total suppression was required.
Id.
at 78.
The
government contends that the search warrant clearly limits the documents
to be seized by time, from November 2, 1984 to the time the search
warrant was being executed, October 16, 1985. Furthermore, it claims
that the warrant is limited to the records from FSBL, the appellant,
ICBM, and Bates and to only those records relating to the cashing,
exchanging, or handling of cash or cash equivalents in the amount of
$10,000 or more. Thus, the government contends that the warrant has met
the specificity requirements.
We
feel that the warrant is indeed sufficiently specific. First, the
appellant is only trying to suppress evidence pertaining to count two.
The search warrant is obviously specific enough as to this. The warrant
states that the agents were to search for:
Records
for the period November 2, 1984 to the present for FIRST SURETY BANK
LIMITED (FSBL), INTERNATIONAL COMMERCIAL BANK MANAGEMENT (ICBM), LONNIE
G. SCHMIDT, and HERBERT A. BATES, which relate to the cashing,
exchanging or handling of cash or cash equivalents in amounts of $10,000
or more.
This
is sufficiently specific. The government is not required to list the
items in the elaborate detail which the appellant is asking.
Also,
Cardwell can be distinguished from the case at hand. In that
case, no part of the warrant was reasonably specific. The Court's
holding that the government failed to "utilize the results"
and available information to particularize the warrant must be read in
this light. In that case, the warrant was not specific at all. The
government could have used the information it had to make it
sufficiently specific. However, in the case at hand, the government did
use the available information to particularize the warrant sufficiently.
Thus,
we hold that the warrant is sufficiently specific.
c.
Is the Warrant Facially Overbroad?
The
appellant finally argues that the warrant must fail because it is
facially overbroad. The appellant states that all the limitations stated
in the warrant are not limitations at all because they still allow the
government to search the whole premises.
The
appellant also argues that the good faith exception does not apply. When
agents have executed a warrant that is subsequently found to be
defective, suppression of the evidence is not a proper remedy if the
agents acted in good faith.
United States
v.
Leon
, 468
U.S.
897, 922, 926 (1984). The appellant contends that the agents could not
have acted in good faith in enforcing the warrant because the warrant
was facially overbroad.
The
appellant cites United States v. Crozier, 777 F.2d 1376 (9th Cir.
1985), for support. In that case, the Court held that a warrant was
facially overbroad to the extent that the officers could not have acted
in good faith in enforcing it.
Id.
at 1382. The warrant did not particularize any property to be seized; it
merely authorized the seizure of "material evidence of violation 21
USC 841, 846 (Manufacture and Possession with intent to distribute
Amphetamine and Conspiracy)."
Id.
at 1381. The affidavit was more detailed, but the agent did not have it
when executing the warrant.
However,
we hold that the warrant is not facially overbroad. Even if we consider
the warrant to be so, the good faith exception applies. This case can be
distinguished from Crozier. In that case, the warrant did not
particularize any property to be seized. In this case, the warrant was
particular as to what records and evidence the agents were to search for
and the time periods in which the relevant record could be found. This
is much more specific than the warrant in Crozier. Thus, the good
faith exception applies and the receipt in question was admissible.
Therefore,
the search warrant is valid, and we affirm the district court's ruling.
III.
Conclusion
We
AFFIRM the district court's holding on all issues before us.
*
The Honorable
Rob
ert J. Kelleher, Senior
United States
District Judge for the Central District of California, sitting by
designation.
1
However, the government contends that the appellant, prior to meeting
with the agents, had been told by at least one bank that CTRs would be
filed on transactions done through his FSBL account. Furthermore, the
manager of Bank of America told the appellant that he personally should
be filing CTRs for FSBL customers.
2
Without Carl's last name, it would be impossible to fill out a CTR.
Furthermore, the government contends that the appellant never asked for
any identification from agent Carl.
3
The appellant filed all the CTRs on October 22, 1985. On the top of each
CTR was the statement, "I am not a financial institution."
4
The District Court in
North Carolina
sentenced the appellant to nine years' imprisonment, three years'
supervised release, and a $30,000 fine for conspiracy to impair and
impede the Internal Revenue Service, conspiracy to tamper with
witnesses, and witness tampering.
5
For example, Bates, when describing how the operation worked, said,
"It doesn't go to the bank. When we--first of all, this is very
important right now. . . . We have an arrangement set up where the money
is not given to First Surety Bank. We have an arrangement where
(unintelligible) bank gets them but it is given to ICBM. . . ."
6
Bates stated, "[E]verything we're doing is again we are trying to
get everything we have together to play their stupid game, the IRS--the
IRS has developed the games. We have to find ways to combat that dumb
game."
7
When Mulholland asked how many people he and Carl would be dealing with,
the appellant responded just he and Bates would be involved. The
appellant then went on to state, "And basically--and
this--everything to do with banking is my primary responsibility . . .
and to maintain privacy, [Bates] primarily deals in another aspect
entirely, but is familiar with what we're doing. . . . And so it would
be a confidential situation between myself and whoever was--was coming
in."
8
MULHOLLAND: Well, let's see what we can work out as far as--an
agreement, so that there is a meeting of the minds, and we all agree
with what we want to do.
APPELLANT:
Okay.
MULHOLLAND:
And once we do that, then you know . . .
BATES:
Are you guys hungry or something? Do you want to get a--
MULHOLLAND:
No, we just had a bite. We just had a bite. Thank you.
9
Money laundering is defined as a process by which cash derived from a
criminal enterprise may be easily exchanged without a trace of its
origin.
United States
v. Cuevas, 847 F.2d 1417 (9th Cir. 1988).
[80-2
USTC ¶9478]
United States of America
, Appellee v. Norman Turkish, Defendant-Appellant
(CA-2),
U. S. Court of Appeals, 2nd Circuit, Docket Nos. 79-1326, 79-1396, 623
F2d 769, 5/27/80
[Code Secs. 7201 and 7206]
Crimes: Attempt to evade income taxes: Fraud: Filing of false
returns: Indictment: Defense witness immunity.--The taxpayer's
conviction for evasion of income taxes and filing false income tax
returns was affirmed. The taxpayer, through a company, fraudulently
manipulated the market for commodity futures contracts to avoid all
risks in producing short-term capital losses in one year and deferring
an equal amount of capital gain to a subsequent year, thus postponing
payment of taxes through the fraudulent use of "streaddles" in
the crude oil futures market. He also evaded taxes on compensation he
received in return for operating the scheme. The court held that the
indictment charging the taxpayer with conspiracy to defraud the
government by impeding the collection of income taxes was sufficiently
precise to enable the taxpayer to know the charges against him and to
prepare a defense. After an extensive discussion of case law and
constitutional provisions affecting witness immunity, the court found
that the Due Process Clause of the Fifth Amendment does not contain a
general requirement that defense witness immunity be ordered whenever it
seems fair to grant it, although it refused to preclude the possibility
that unanticipated circumstances might require such an order in another
case. The court then held that the lower court properly denied the
taxpayer's request for immunity for his witnesses because the request
was untimely made at the close of the government's evidence, and because
the testimony sought thereby was not sufficiently material or
exculpatory.
Rob
ert B. Fiske, Jr., United States
Attorney, Allen R. Bentley, Gregory L. Diskant, Assistant United States
Attorneys,
New York
, N. Y. 10007, for appellee. Ronald Podolsky,
400 E. 20th St.
,
New York
, N. Y., for defendant-appellant.
Before
LUMBARD, MANSFIELD and NEWMAN, Circuit Judges.
NEWMAN,
Circuit Judge:
This
criminal appeal concerns primarily the issue of whether a defendant is
entitled to have immunity conferred upon defense witnesses who invoke
their privilege against self-incrimination. The appeal is brought by
Norman Turkish, who was convicted by a jury in the Southern District of
New York (Vincent L. Broderick, Judge) of evading income taxes and
filing false income tax returns, 26 U. S. C. 7201, 7206, and conspiring
to defraud the United States, 18 U. S. C. 371. The trial of Turkish and
three co-defendants lasted 11 weeks. Turkish and one co-defendant were
found guilty; only Turkish appeals.
The
Government's evidence established that Turkish was a principal
participant in a scheme that used fraudulent means to enable C. R.
Rittenberry & Associates, Inc., an oil company, to create artificial
tax losses in one year, offset by equally artificial taxable gains in a
subsequent year, thereby postponing for a year the taxes on millions of
dollars of corporate income. The scheme involved the use of tax
"straddles," the simultaneous purchase and sale at different
prices of equal numbers of commodity futures contracts to be performed
in different months. In the normal use of tax straddles, opportunities
for arguably lawful tax avoidance are created when the market price
varies from the prices at which the original contracts were both bought
and sold. If the market declines, the trader offsets his purchase with
an equivalent sale, thereby locking in a tax loss on his original
purchase. He then offsets his original sale contract with an equivalent
purchase, thereby locking in an approximately equal profit on his
original sale contract. He benefits when the profit is taxable in the
year following realization of the loss. In normal transactions the
trader takes the risk that market price movements will be too narrow to
create much opportunity for tax postponement and also the more serious
risk that prices will not move uniformly with respect to both his
original contracts. In the latter event the profit available to be
locked in may be less than the locked-in loss. Turkish and others
avoided these risks by fraudulently manipulating virtually the entire
business of one trading ring on the New Youk Cotton Exchange, the Crude
Oil Futures Market. This enabled them to move prices up and down at
will, so that Rittenberry could take short-term capital losses during
one tax year and defer an equal amount of off-setting capital gain to a
subsequent year, all with no risk and a considerable saving in the
postponement of taxes. Turkish not only orchestrated the fraudulent
aspects of the scheme but also evaded taxes on the money he received as
compensation for his role.
I.
The Indictment
Turkish
contends that his conviction should be reversed because the conspiracy
count of the indictment (Count One) did not charge an offense and was
unconstitutionally vague. The conspiracy count alleged that Turkish and
others conspired to "defraud the
United States
by impeding, impairing, obstructing and defeating the lawful functions
of the Department of the Treasury in the collection of income
taxes." The crime of conspiring to defraud the United States, 18 U.
S. C. 371, includes acts that "interfere with or obstruct one of
its lawful governmental functions by deceit, craft or trickery," Hammerschmidt
v. United States, 265 U. S. 182, 188 (1924). The creation of
artificial tax losses for a business by fraudulent manipulation of
prices in a commodity market qualifies as such an act. Turkish contends
that there would have been no crime had the oil company not taken the
resulting losses as tax deductions. Even if the manipulation of prices
was not, by itself, a federal offense, it became evidence of a federal
offense when it was done to avoid federal taxes. The Government alleged
that Turkish's activities on the Crude Oil Futures market were part of a
conspiracy that involved other acts, not that these activities
constituted the entirety of the crime.
The
indictment is also sufficiently precise to meet the requirements of the
Constitution and the Federal Rules of Criminal Procedure. Fed. R. Crim.
P. 7(c) states, in part: "The indictment or the information shall
be a plain, concise and definite written statement of the essential
facts constituting the offense charged." Count One specified
Turkish's alleged efforts to manipulate the Crude Oil Market in order to
create tax losses for his co-defendant's client. This was sufficient to
inform him of the charges against him, and to enable him to prepare his
plea and his defense accordingly. See Hamling v.
United States
, 418
U. S.
87, 117 (1974).
II.
Defense Witness Immunity
The
claim for defense witness immunity arose in the following circumstances.
The Government presented its case by calling a number of witnesses
involved in the fraudulent transactions, several of whom were
co-conspirators. Of these, three had pleaded guilty to participation in
the conspiracy and had received letter agreements that they would not be
prosecuted for any other commodity market crimes or related tax offenses
if they testified truthfully. Two other prosecution witnesses who had
not been indicted received similar letters, one of which was sufficient
to persuade its recipient to return from
Switzerland
for the trial. In addition, one prosecution witness was formally granted
"use" immunity under 18
U. S.
C. 6002.
During
the trial, and after the Government had concluded its case, Turkish and
his co-defendants moved that seventeen of the prospective defense
witnesses be granted "use" immunity and required to testify
under 6002. They argued that these witnesses could provide exculpatory
testimony, but would invoke their Fifth Amendment privilege and decline
to testify unless compelled to do so. Judge Broderick invited the
Government to consider granting "use" immunity to these
witnesses pursuant to 6002. The Government did consider the matter, but
decided not to grant immunity. Judge Broderick then reserved decision on
defendant's motion until after the trial, at which time the defendants
moved for a new trial or acquittal. On August 23, 1979, Judge Broderick
denied the defendants' motion.
In
a subsequent opinion, United States v. Turkish.--F. Supp. -- (S.
D. N. Y. 1979), Judge Broderick set forth his analysis of the issue and
his reasons for denying the motion. Judge Broderick concluded that the
Compulsory Process Clause of the Sixth Amendment does not give a
defendant the right to require immunization of a witness, but that such
a right is "probably" contained in the Due Process Clause of
the Fifth Amendment.
Id.
at --. However, he declined to accord the defendants the benefit of this
"probable" Fifth Amendment right to defense witness immunity
for two reasons. First, he ruled that the defendants' motion was
untimely, since it should properly have been made at the beginning of
the trial. Second, he concluded that defense witness immunity would be
available only to secure testimony that was material and exculpatory and
that the defendants had not shown that any of the witnesses for whom
they sought immunity would give material, exculpatory testimony.
To
assess Turkish's challenges to these rulings we deem it appropriate to
explore the concept of defense witness immunity, a matter arising with
increasing frequency before this and other courts. See, e.g., United
States v. De Palma, 476 F. Supp. 775 (S. D. N. Y. 1979), appeal
pending sub nom. United States v. Horwitz, No. 79-1315 (2d Cir.);
Government of the Virgin Islands v. Smith, -- F. 2d -- (3d Cir.
Feb. 5, 1980).
Granting
immunity to a defense witness at the defendant's request seems to have
been considered for the first time, in a reported decision, by Chief
Justice Burger, then a Circuit Judge, as dictum in Earl v. United
States, 361 F. 2d 531, 534 n. 1 (D. C. Cir. 1966), cert. denied, 388
U. S. 921 (1967). Since then, it has been much discussed by courts and
commentators. 1
Interest in defense witness immunity was considerably heightened after
Congress enacted the "use" immunity statute, 18 U. S. C.
6001-6005, in 1970, and the Supreme Court subsequently upheld its
constitutionality, Kastigar v. United States, 406 U. S. 441
(1972). No longer did an immunity grant forbid prosecution of the
witness for crimes referred to in his testimony
("transactional" immunity). Now the Government could still
prosecute the witness; it was barred only from making any use of his
immunized testimony, either directly by putting the testimony in
evidence at the witness's trial, or indirectly by obtaining other
evidence from leads that the testimony supplied.
Claims
for defense witness use immunity have been uniformly rejected by this
Court, United States v. Gleason, -- F. 2d -- (2d Cir. Dec. 19,
1979); United States v. Praetorius, -- F. 2d -- (2d Cir. Dec. 10,
1979), modified on rehearing, -- F. 2d -- (2d Cir. May 7, 1980); United
States v. Lang, 589 F. 2d 92, 96 n. 1 (2d Cir. 1978); United
States v. Wright, 588 F. 2d 31, 33-37 (2d Cir. 1978), cert. denied,
440 U. S. 917 (1979); United States v. Stofsky, 527 F. 2d 237,
249 (2d Cir. 1975), cert. denied, 429 U. S. 819 (1976); see also United
States v. Housand, 550 F. 2d 818, 823-824 (2d Cir.), cert. denied,
431 U. S. 970 (1977), and by almost all circuits to consider the matter,
United States v. Lenz, -- F. 2d -- (6th Cir. Mar. 10, 1980); United
States v. Smith, 542 F. 2d 711, 715 (7th Cir. 1976); United
States v. Alessio, 528 F. 2d 1079, 1081-82 (9th Cir.), cert. denied,
426 U. S. 948 (1976); Thompson v. Garrison, 516 F. 2d 986, 988
(4th Cir.), cert denied, 423 U. S. 933 (1975); see Earl v. United
States, 361 F. 2d 531 (D. C. Cir. 1966), cert. denied, 388 U. S. 921
(1967) (transactional immunity). The claim is a matter of divided
opinion in the Third Circuit, compare United States v. Rocco, 587
F. 2d 144 (3d Cir. 1978); United States v. Berrigan, 482 F. 2d
171 (3d Cir. 1973), with Government of the Virgin Islands v. Smith,
supra; United States v. Herman, 589 F. 2d 1191, 1203-04 (3d Cir.
1978), cert. denied, 442 U. S. 913 (1979); United States v. Morrison,
535 F. 2d 223 (3d Cir. 1976). Additional support for the claim has been
expressed by the former Chief Judge of the District of Columbia Circuit,
see United States v. Gaither, 539 F. 2d 753 (D. C. Cir.)
(Bazelon, C. J., concurring in denial of rehearing en banc); cert.
denied, 429 U. S. 961 (1976), United States v. Leonard, 494 F. 2d
955, 985 n. 79 (D. C. Cir. 1974) (Bazelon, C. J., concurring and
dissenting), and by two District Courts, United States v. De Palma,
supra, and United States v. La Duca, 447 F. Supp. 779 (D. N.
J. 1978), aff'd on other grounds sub nom. United States v. Rocco,
supra, in addition to Judge Broderick in this case.
The
only federal appellate decisions ruling in favor of defense witness
immunity appear to be the Third Circuit decisions in Morrison and
Smith. In Morrison a divided panel of the Third Circuit
reversed a conviction on the ground that prosecutorial misconduct had
caused a defense witness to withhold testimony out of fear of
self-incrimination. As a remedy for the misconduct, the Court ordered
that upon a retrial, the Government face the choice of either granting
the witness use immunity or having the defendant acquitted.
Smith
involved a totally bizarre situation. A juvenile defendant sought use
immunity for a juvenile defense witness. The office of the Virgin
Islands Attorney General, who had exclusive jurisdiction to prosecute
both the defendant and the witness, was agreeable to use immunity for
the witness. However, this local prosecuting office, as a matter of
"prosecutorial courtesy," -- F. 2d --, conditioned its
approval upon the consent of the United States Attorney, who
inexplicably declined to consent. In a thoughtful opinion Judge Garth
reversed the conviction and remanded for determination of whether use
immunity should have been conferred under standards explicated in the
Court's decision.
These
standards rest on two different concepts. First, Judge Garth considered
the power of a court to order the prosecutor to grant statutory use
immunity pursuant to 18
U. S.
C. 6002. Such "statutory" immunity was held to be available
for a defense witness with relevant testimony, -- F. 2d at -- n. 7, when
the defendant could show that the prosecutor's decision not to confer
immunity was made "with the deliberate intention of distorting the
judicial fact finding process," id. at --, a standard the
Third Circuit had previously articulated in United States v. Herman,
supra, 589 F. 2d at 1204. Secondly, Judge Garth considered what he
called "judicial" immunity, the power of a court, unaided by
statute, to order that a witness's testimony cannot be used against him.
Again applying a standard earlier announced in
United States
v. Herman, supra, Judge Garth held that judicial immunity, i.
e., court-ordered use immunity, was available for a witness
"capable of providing clearly exculpatory evidence" when the
Government can present no "strong countervailing interest." --
F. 2d at --.
Though
Morrison and Smith stand in sharp contrast to the uniform
holdings of other federal appellate decisions that have rejected defense
witness immunity, some of these decisions have been careful to deny the
claim only with respect to the precise facts presented, e.g., United
States v. Wright, supra; United States v. Alessio, supra.
Furthermore, two of our decisions have explicitly left open the
possibility that defense witness immunity might be required if grants of
use immunity to prosecution witnesses resulted in an "unfair
advantage." United States v. Gleason, supra, -- F. 2d at --;
United States v. Lang, supra, 589 F. 2d at 96-97. In light of
this state of the case law, further consideration of the constitutional
bases for defense witness immunity is warranted. Resort is usually made
to the Sixth and Fifth Amendments.
The
established content of the Sixth Amendment does not support a claim for
defense witness immunity. Traditionally, the Sixth Amendment's
Compulsory Process Clause gives the defendant the right to bring his
witness to court and have the witness's non-privileged testimony heard,
but does not carry with it the additional right to displace a proper
claim of privilege, including the privilege against self-incrimination. United
States v. Lacouture, 495 F. 2d 1237 (5th Cir.), cert. denied,
419 U. S. 1053 (1974); Myers v. Frye, 401 F. 2d 18 (7th Cir.
1968); Johnson v. Johnson, 375 F. Supp. 872 (W. D. Mich. 1974); Holloway
v. Wolff, 351 F. Supp. 1033 (D. Neb. 1972); see Royal v.
Maryland, 529 F. 2d 1280, 1283 (4th Cir. 1976) (Winter, J.,
dissenting). While the prosecutor may not prevent or discourage a
defense witness from testifying, Washington v. Texas, 388 U. S.
14 (1967); United States v. Morrison, supra, it is difficult to
see how the Sixth Amendment of its own force places upon either the
prosecutor or the court any affirmative obligation to secure testimony
from a defense witness by replacing the protection of the
self-incrimination privilege with a grant of use immunity.
Arguably
there is a more plausible basis for defense witness immunity in the more
general and perhaps developing requirement of basic fairness protected
by the Fifth Amendment's Due Process Clause. 2
The appeal to constitutionally protected fairness proceeds from two
basic arguments. First, as this Circuit hinted in Gleason and Lang,
unfairness may inhere in some situations because the Government's grant
of use immunity to its witnesses affords it an advantage over the
defendant's ability to present a defense. Secondly, to the extent that a
trial is viewed as a search for the truth, denial of defense witness
immunity may in some circumstances unfairly thwart that objective. 3
The
first contention, based on equalizing the powers of the prosecution and
the defense, is entirely unpersuasive. A criminal prosecution, unlike a
civil trial, is in no sense a symmetrical proceeding. The prosecution
assumes substantial affirmative obligations and accepts numerous
restrictions, neither of which are imposed on the defendant. The
prosecution must prove the defendant's guilt beyond a reasonable doubt
to the satisfaction of all the jurors; it may not obtain the defendant's
testimony, suppress exculpatory evidence, nor retry the defendant after
acquittal, even though errors prejudicial to the Government occurred.
The defendant, by contrast, may prevail without offering any proof at
all; he need not disclose whatever inculpatory evidence he discovers,
may avoid conviction by persuading a single juror that reasonable doubt
exists, and may challenge a conviction by direct appeal and subsequent
collateral attack.
The
system of criminal law
admin
istration involves not only this procedural imbalance in favor of the
defendant, but also important aspects of the Government's law
enforcement power that are not available to the defendant. Subject to
constitutional and statutory limits, the Government may arrest suspects,
search private premises, wiretap telephones, and deploy the
investigative resources of large public agencies. Few would seriously
argue that the public interest would be well served either by extending
all of these powers to those accused of crime or by equalizing the
procedural burdens and restrictions of prosecution and defendant at
trial. Viewed in isolation, there is a surface appeal to the equal
availability of use immunity for prosecution and defense witnesses. But
in the context of criminal investigation and criminal trials, where
accuser and accused have inherently different roles, with entirely
different powers and rights, equalization is not a sound principle on
which to extend any particular procedural device. At a minimum, such a
principle will not support a constitutional interpretation of Fifth
Amendment fairness.
The
second argument, based on the need to pursue the truth, has somewhat
greater force. As a general rule the Government is properly obliged to
divulge exculpatory evidence. Brady v.
Maryland
, 373
U. S.
83 (1963). That principle, however, has heretofore been limited to
evidence in the Government's possession and has not been extended to
create a Government obligation to assist the defense in extracting from
others evidence the Government does not have. Moreover the concept of a
trial as a search for the truth has always failed of full realization
whenever important facts are shielded from disclosure because of a
lawful privilege. The key fact needed to prove a defendant's innocence
may be contained in a client's privileged admission to his attorney, or
a husband's privileged admission to his wife, as well as in the
testimony of a witness protected by the privilege against
self-incrimination. Nevertheless, it must be acknowledged that since the
advent of immunity statutes, the self-incrimination privilege, unlike
any other, can be displaced without any impairment of the legally
protected rights of the holder of the privilege. And unlike
transactional immunity, use immunity does not improve the legal position
of the holder of the privilege; it leaves his legal rights precisely as
they were before he testified. However, the grant of use immunity does
implicate public interests, and any assessment of a claim for defense
witness use immunity must reckon with those public concerns.
In
the first place, while the prosecution remains theoretically free under Kastigar
to prosecute a witness granted use immunity, the obstacles to a
successful prosecution can be substantial. The Government has a
"heavy burden" to prove that its evidence against the
immunized witness has not been obtained as a result of his immunized
testimony. Kastigar v. United States, supra, 406
U. S.
at 461. While this burden can be met by cataloguing or
"freezing" the evidence known to the Government prior to the
immunized testimony, that technique is not available when continuing
investigations disclose vital evidence after, though not resulting from,
the immunized testimony. See SEC v. Stewart, 476 F. 2d 755, 762
(2d Cir. 1973) (Timbers, J., dissenting). Moreover, to meet its burden
of proving that prosecution of the immunized witness was not benefitted
in any way by his immunized testimony the prosecutors most knowledgeable
about an investigation may in some circumstances be obliged to forgo any
further contact with the witness and arrange for a new team of
investigators and prosecutors to pursue the case against him. See United
States v. Kurzer [76-1 USTC ¶9399], 534 F. 2d 511 (2d Cir. 1976).
Secondly,
awareness of the obstacles to successful prosecution of an immunized
witness may force the prosecution to curtail its cross-examination of
the witness in the case on trial to narrow the scope of the testimony
that the witness will later claim tainted his subsequent prosecution.
While the witness cannot prevent prosecution and secure an immunity
"bath" by broadening the scope of his answers, as he could if
testifying under a grant of transactional immunity, his fulsome answers
may substantially lessen the likelihood of any successful prosecution.
Finally,
there is considerable force to the Government's apprehension that
defense witness immunity could create opportunities for undermining the
admin
istration of justice by inviting cooperative perjury among law
violators. Co-defendants could secure use immunity for each other, and
each immunized witness could exonerate his co-defendant at a separate
trial by falsely accepting sole responsibility for the crime, secure in
the knowledge that his admission could not be used at his own trial for
the substantive offense. The threat of a perjury conviction, with
penalties frequently far below substantive offenses, could not be relied
upon to prevent such tactics. Moreover, this maneuver would
substantially undermine the opportunity for joint trials, with
consequent expense, delay, and burden upon disinterested witnesses and
the judicial system.
How
these substantial concerns are to be weighed against the defendant's
interest in securing truthful exculpatory testimony through defense
witness immunity turns in large part upon whether the balancing of these
interests is appropriately a judicial function. The Government suggests
it is not, contending that the granting of immunity is pre-eminently a
function of the Executive Branch. See Ullman v.
United States
, 350
U. S.
422 (1956). On the other hand, the judiciary has constitutional
responsibilities for the fairness of a trial. Moreover, as Judge Garth
has argued in Smith, the court can accord use immunity without
directly acting in the domain of either the Legislative or Executive
Branch. A court can rule that testimony may not be used against a
witness without adding any gloss to the use immunity statute or
directing the prosecutor to use his statutory authority. Judicially
created use immunity, albeit premised on constitutional considerations,
was fashioned by the Supreme Court in Murphy v. Waterfront Commission
of New York Harbor, 378 U. S. 52 (1964) (witness's compelled
testimony barred from use by another jurisdiction), and in Simmons v.
United States, 390 U. S. 377 (1968) (defendant's testimony at
suppression hearing barred from use at trial). See also In re Grand
Jury Investigation, 587 F. 2d 589 (3d Cir. 1978) (testimony given to
assert Speech and Debate Clause defense); United States v. Immon,
568 F. 2d 326 (3d Cir. 1977) (testimony given to assert Double Jeopardy
Clause defense).
However,
a court cannot determine whether any constitutional provision requires a
judicial grant of use immunity without assessing the implications upon
the Executive Branch, both those that flow from a grant of use immunity
and those that flow from an adjudication of whether such immunity might
be appropriate in a particular case. The concerns previously expressed
about the risk to other successful prosecutions are matters normally
better assessed by prosecutors than by judges. Surely a court is in no
position to weigh the public interest in the comparative worth of
prosecuting a defendant or his witness, although if a court decides that
immunity is required, it can always leave that ultimate assessment with
the prosecutor by advising that trial of the defendant will continue
only if the witness's testimony is immunized. But confronting the
prosecutor with a choice between terminating prosecution of the
defendant or jeopardizing prosecution of the witness is not a task
congenial to the judicial function. 4
Still
it may be contended, as Judge Garth did in Smith, that a court
ought to determine in each case whether the risks to the public interest
in conferring defense witness immunity outweigh the needs of the
defendant. Smith suggests two types of inquiry: whether the
prosecutor's opposition to defense witness immunity stems from "the
deliberate intention of distorting the fact finding process," -- F.
2d --, or whether the prosecutor can present "strong countervailing
interest," id. at --, to the defendant's need for clearly
exculpatory evidence. Either inquiry will propel a trial court into
unchartered waters. Focusing upon the prosecutor's intent will often
lead to exploration and premature disclosure of the pending status of an
investigation against the witness. Moreover, a prosecutor without enough
evidence to seek indictment of a witness may legitimately prefer to
maintain his option to prosecute on the basis of later information. It
cannot fairly be argued, where the prosecutor declines to consent to use
immunity, that the absence of present intention to prosecute is evidence
of intention to distort the fact-finding process. Alternatively,
weighing the "countervailing interest" in not granting defense
witness immunity will in all likelihood prove to be as elusive a task as
formulating any meaningful standards for the assessment. In the
extraordinary fact situation presented by the Smith case, where
the prosecutor opposing use immunity does not even have jurisdiction to
prosecute the witness, the public interest in not granting defense
witness immunity appears to be non-existent. But in most situations
where defense witness immunity is likely to be sought, some legitimate
opposing prosecution interest will exist, and constitutional fairness is
not a satisfactory standard against which to assess such interests.
When
any novel legal proposition is urged upon a court, there is a natural
judicial reluctance to say "never." Indeed, the extraordinary
fact situation presented by the Smith case illustrates a
situation where denial of defense witness immunity can be said to deny
the defendant the fair trial guaranteed by the Due Process Clause. Yet
it is important to recognize that Smith really does not involve a
use of the Due Process Clause to balance the public interest in
withholding immunity against the defense's need for it. In Smith
the prosecutor with jurisdiction over the witness was willing to grant
use immunity. Opposition came from a prosecutor without jurisdiction.
This was simply an instance of a prosecutor interfering, for no apparent
reason, to suppress evidence that was about to become available to the
accused. We have no dispute with the holding in Smith. However,
in light of all the considerations previously discussed, we find
ourselves in fundamental disagreement with the standards outlined in
that decision. Without precluding the possibility of some circumstances
not now anticipated, we simply do not find in the Due Process Clause a
general requirement that defense witness immunity must be ordered
whenever it seems fair to grant it. The essential fairness required by
the Fifth Amendment guards the defendant against overreaching by the
prosecutor, Giglio v. United States, 405 U. S. 150 (1972)
(failure to disclose promise not to prosecute government witness); Waley
v. Johnston, 316 U. S. 101 (1942) (threat to use manufactured
evidence); Taylor v. Lombard, 606 F. 2d 371 (2d Cir. 1979)
(knowing use of perjured testimony); United States v. Westbo, 576
F. 2d 285 (10th Cir. 1978) (disobedience of court ruling excluding
admission of other crimes evidence); cf. Santobello v.
New York
, 404
U. S.
257 (1971) (repudiation of plea bargain promise), and insulates him
against prejudice. See, e.g., Ward v. Village of Monroeville, 409
U. S. 57 (1972) (judge had pecuniary interest in result); Sheppard v.
Maxwell, 384 U. S. 333 (1966) (trial subject to excessive
publicity); Turner v. Louisiana, 379 U. S. 466 (1965)
(prosecution witnesses present in jury room during deliberations); In
re Murchison, 349 U. S. 133 (1955) (judge also served as one-person
grand jury); Moore v. Dempsey, 261 U. S. 86 (1923) (trial
occurred under threat of mob violence). It does not create general
obligations for prosecutors or courts to obtain evidence protected by
lawful privileges.
The
circumstances of this case do not remotely approach a situation where
lack of defense witness immunity could be found to deny constitutionally
protected fairness. In the first place, the demand for immunity was
initially made in the middle of the trial and properly found to be
untimely by Judge Broderick for reasons set out in the margin. 5
See United States v. Taylor, 562 F. 2d 1345, 1361 (2d Cir.), cert.
denied, 432
U. S.
909 (1977); United States v. Jones, 487 F. 2d 676, 679 (9th Cir.
1973); United States v. Grooms, 454 F. 2d 1308, 1311 (7th Cir.), cert.
denied, 409
U. S.
858 (1972). Secondly, Judge Broderick carefully considered the expected
testimony of the witnesses sought to be immunized and concluded that
none of them would provide material, exclupatory evidence. Their
testimony would either have been cumulative, immaterial, or impeaching
only on collateral matters. Thus, the trial court's refusal to order the
prosecutor to confer use immunity was plainly correct.
We
have expressed our thoughts on the issue at some length because we do
not agree with Judge Broderick's views on the general availability of
defense witness immunity, nor do we wish to see criminal trials
regularly interrupted by wide-ranging inquiries concerning the specific
pros and cons of defense witness immunity in a particular case. In fact,
we think trial judges should summarily reject claims for defense witness
immunity whenever the witness for whom immunity is sought is an actual
or potential target of prosecution. No hearing should be held to
establish such status. The prosecutor need only show that the witness
has been indicted or present to the court in camera and ex
parte affidavit setting forth the circumstances that support the
prosecutor's suspicion of the witness's criminal activity. No duty is
imposed upon the prosecutor; he simply has an option to rely upon the
witness's status as an actual or potential target of prosecution to
foreclose any inquiry concerning immunity for that witness. If a case
should arise where the witness is not an indicted defendant and the
prosecutor cannot or prefers not to present any claim that the witness
is a potential defendant, and if the defendant on trial demonstrates
that the witness's testimony will clearly be material, exculpatory, and
not cumulative, it will be time enough to decide whether in those
circumstances a court has any proper role with respect to defense
witness immunity. Of course, our limited interpretation of the Fifth
Amendment's application to this issue does not preclude broader action
by United States Attorneys under the existing authority of §6002 nor
legislative action to define circumstances in which defense witness
immunity should be granted.
Affirmed.
*
* *
1
The commentators have generally been favorable to the notion of reverse
immunity. See Westen, Compulsory Process, 73
Mich.
L. Rev. 71 (1974); Note, Right of the Criminal Defendant to the
Compelled Testimony of Witnesses, 67 Colum. L. Rev. 953 (1967);
Note, Separation of Powers and Defense Witness Immunity, 66 Geo.
L. J. 51 (1977); Note, The Sixth Amendment Right to Have Use Immunity
Granted to Defense Witnesses, 91 Harv. L. Rev. 1266 (1978); Note, A
Re-Examination of Defense Witness Immunity: A New Use for Kastigar,
10 Harv. J. Legis. 74 (1974); Note, The Public Has a Claim to Every
Man's Evidence: The Defendant's Constitutional Right to Witness
Immunity, 30 Stan. L. Rev. 1211 (1978).
2
Defense witness immunity, a concept first developed only in the 1960s,
and regarded as plausible only since the passage of the use immunity
statute, cannot qualify as a due process right on any theory that it is
part of the "compelling traditions of the legal profession." Rochin
v.
California
, 342
U. S.
165, 171 (1952).
3
We put to one side the situation, illustrated by
United States
v. Morrison, supra, where a court uses the option of defense
witness immunity a part of a remedy for prosecutorial misconduct
directed at the witness. There is no claim in this case of any such
misconduct.
4
We do not regard the limited immunity judicially created for the
defendant in Simmons v.
United States
, supra, to be analogous to use immunity for a witness. In Simmons
the Supreme Court ruled that a defendant's testimony at a suppression
hearing, presented to establish standing to assert a Fourth Amendment
claim, could not be introduced at trial. The Court focused on exclusion
of the defendant's testimony, and did not mention creation of formal use
immunity, i. e., prohibition against using testimony or any leads
from it. Perhaps that was the implicit result of the decision, but, even
if so, immunization of a statement concerning Fourth Amendment standing
carries very little risk of impeding presecution of the defendant for
the substantive offense. Furthermore, Simmons creates an immunity
to avoid the dilemma of a defendant's choosing between vindicating his
Fourth Amendment right or maintaining his self-incrimination privilege
at trial. Nothing comparable is presented when a defendant finds that
evidence he hoped to present is unavailable because other persons prefer
to assert their own privilege.
5
Judge Broderick's detailed findings were as follows:
Some
171 days elapsed between the first pre-trial conference herein and the
beginning of trial. Defendants were aware that the government's
investigation of the crude oil market was continuing during this period;
this very fact was argued to me by defense counsel in seeking a
substantial adjournment of the original date. Yet it was never drawn to
my attention during this period that defendants had any intention of
requesting immunization of witnesses. The crude oil investigation was
initiated in the New York County District Attorney's office, and the
investigation was conducted by Assistant District Attorney Michael F.
Baumeister of that office and by Assistant United States Attorney Paul
Vizcarrondo for the United States Attorney. These two men jointly
represented the government in all pre-trial proceedings in this case,
and they jointly presented the government's case at trial. The case was
a complicated one, involving the complex organization and operations of
the commodities futures market. Once trial began the full time of the
two government attorneys, Baumeister and Vizacrrondo, was fully absorbed
with the presentation of the case in the trial room.
The
demand that witnesses be immunized was made at the close of the
government's case, in the middle of the trial, when neither of the men
in charge of the investigation was in a captionposition--because of
their trial duties--either to make a meaningful recommendation to the
United States attorney that the testimony requested might be necessary
to the public interest, or to shoulder the "heavy burden" (Kastigar
v. United States, 406 U. S. 441, 461 (1972) of marshalling the
evidence then available with respect to any of the proposed witnesses
whom the government might indict in the future.
The
resourcefulness of defense counsel at trial, and their thorough
knowledge and understanding of the case, persuade me that they should
have been able to anticipate that many prospective witnesses would
invoke the Fifth Amendment, and in my judgment they should have
presented to the prosecutors and to myself prior to trial the substance
if not the details of the applications made at the close of the
government's case.
Thus
the applications by defendants were not timely. The effects of their
untimeliness were to introduce the element of double jeopardy into a
situation where it did not belong; and to force the government to
consider their applications for immunity to 17 persons involved in an
investigation at a time when the two government attorneys with the
requisite knowledge were engaged on a full time basis in the
presentation of a complex case on trial.
--F.
Supp. at --.
Concurring and Dissenting Opinion
LUMBARD,
Circuit Judge (concurring in part; dissenting in part):
I
concur in affirming the conviction. I dissent, however, from the
abservations in Judge Newman's opinion which imply that under certain
circumstances the district court would be under the duty inquiring into
whether or not the prosecution should grant use immunity to a
prospective defense witness. In my view it is not the proper business of
the trial judge to inquire into the propriety of the prosecution's
refusal to grant use immunity to a prospective witness.
In
our adversary system the judge best performs his function by remaining
completely impartial and objective and keeping entirely apart from the
decisions which govern the conduct of the Government's case and the
presentation of the defense. As Judge Newman's careful analysis shows,
the continuing investigation and the unexpected development of evidence,
and the willingness of co-conspirators to give evidence, all bear upon
the difficult and delicate decisions which prosecutors must make in
recommending indictments and in presenting evidence at trial. Even if it
were possible for the judge to be sufficiently informed of all the
pertinent facts and considerations--which he cannot be--it is highly
undesirable that the judge should be asked to bear a burden that is
fraught with the danger that his impartiality and objectivity may seem
to be, or may actually be, impaired. The judicial function exercised by
the judge should not be confused with the executive function to
determine how to prosecute defendants and present evidence against them.
This important distinction between government functions, which has the
firmest possible roots in the Constitution itself, is expressly
recognized in the immunity statute. This statute places the decision to
grant in the hands of the Department of Justice and they leave to the
court only the ministerial function of granting the order and thus
directing that the statute is observed.
I
see nothing in theory, or in practice, to be gained by any procedure
whereby the prosecutor may be called upon to state that he has reason to
believe that the intended witness is a possible defendant.
Theoretically, the response of the prosecutor is simply that his refusal
to agree to use immunity is justified by the mere claim of the witness.
The witness presumably knows more about his own involvement in the
allegedly illegal activities of the defendant. Consequently, the
government cannot be expected to forego the unrestricted use of the
witness' testimony, and cannot be required to undergo the difficulty of
managing separate staffs to ensure compliance with a restriction that no
use may be made of what the witness might say.
It
is not difficult to see what will happen if we suggest that trial judges
should examine claims of defendants that use immunity should be granted
to prospective witnesses who otherwise would refuse to testify under the
Fifth Amendment. Let us suppose the prosecutor has indicted five
defendants. Each one could claim that one or more of his co-defendants
would, if granted use immunity, give testimony favorable to his defense.
There would then be five separate trials, as it would be difficult for
the judge to find that the defendant's claim is groundless. To prosecute
five separate trials the prosecutor's office would have to create five
separate and completely different staffs of attorneys to insulate the
prosecutor from any later claim that some use had in fact been made of
testimony given by the defendant when he was a witness for a
co-defendant at an earlier trial.
In
many cases the witness will assert that his lawyer really cannot know
whether the witness (who may think himself to be an innocent bystander)
might, short of immunity, be providing a missing link in the chain of
circumstantial evidence. The prosecution can then ask that the proposed
witness be examined by counsel, in camera and under oath, to
determine whether there is in fact a good faith assertion that the
witness' testimony may tend to incriminate him. The knee-jerk use of the
Fifth Amendment by witnesses is usually a device to avoid the unpleasant
and embarrassing experience of testifying against a friend or someone
whose retaliation is feared. Although everyone knows this, the claim of
the Fifth Amendment privilege is hardly ever questioned even when
witnesses use it to avoid stating their address or occupation or whether
they know a person.
Thus,
if we are to open the door to collateral proceedings to determine the
propriety of the prosecution's refusal to give use immunity to intended
witnesses, the district courts should also be prepared to spend some
time inquiring into the good faith of Fifth Amendment claims which are
made as a ploy to get use immunity, or, if use immunity is denied, to
use the denial as a ground for appeal after conviction. The prosecutor's
request for such a hearing to test the good faith of the claim would
surely be entitled to as much consideration as would be the demand for
use immunity because experience teaches that it is far more likely than
not that there is no basis for the claim.
In
sum, I do not see how the prosecutor's refusal to grant use immunity to
a witness, who suggests by his claim of immunity that he might well be a
suitable target for investigation, can ever be considered improper
interference with the production of evidence.
Every
unnecessary disclosure of information by the prosecution increases the
difficulties of
admin
istering criminal justice: whether or not the prosecutor has any
evidence about the potential witness is information which may be of
value to the witness. A prosecutor may have an indication not rising to
the level of admissible evidence or even to the point where it could be
considered "persuasive" (albeit inadmissible) by a trial
judge. If the judge rejects the ex parte submission of the
prosecutor, then the potential witness may be relatively certain that
his activities are undiscovered. Clearly such a procedure may have great
value to the wrongdoer.
Indeed,
by suggesting that there may be cases where the court should inquire of
the prosecution about use immunity, we invite wrongdoers to come forward
as potential witnesses to ascertain if they have been discovered. It is
apparent that the district courts may expect an increasing number of
applications for use immunity inquiries.
Moreover,
the requirement that some record be made of the prosecutor's reponse
presents obvious dangers. Such material which may be of great value to
the wrongdoer-potential witness will necessarily be disclosed to others
beyond those who need to know--a typist, a clerk, a reporter or other
aide.
For
these reasons, I conclude that the potential harm to the
admin
istration of criminal justice which is involved in any inquiry into the
grant of use immunity to a witness so far outweighs any possible need
for such a procedure to ensure fair trials, that I would prohibit the
district court from entertaining such an application or conducting such
an inquiry.
[65-2
USTC ¶9493]
United States of America
v. Knox Coal Company,
Rob
ert L. Dougherty, August J. Lippi, Josephine Sciandra and Louis
Fabrizio. August J. Lippi, Appellant
(CA-3),
U. S. Court of Appeals, 3rd Circuit, No. 14803, 347 F2d 33, 6/21/65,
Affirming unreported District Court opinion
[1954 Code Sec. 7201]
Tax evasion: Conspiracy to evade corporate income taxes: Sufficiency
of indictment: Proof.--A count in an indictment charging an
individual with conspiring willfully to evade and defeat the payment of
corporate income taxes was sufficient, although it did not allege that a
tax in excess of that reported by the corporation was due. The count
stated that the Grand Jury charged that it was part of the conspiracy
that false payroll records would be created for the corporation, listing
as employees persons who were not in fact employees, and deductions
would be claimed for wages purportedly paid to them. It was not error to
admit in evidence statements made by an alleged co-conspirator. Nor
could the remarks of the prosecuting attorney and the trial judge be
construed as holding that the defendant's failure to testify was
evidence of guilt. Failure to give defense counsel a memorandum of prior
statements made by a witness was not reversible error.
John
P. Burke, Criminal Tax Division, Department of Justice, Washington, D.
C. 20530, for appellee. Jacob W. Friedman, 233 Broadway,
New York
, N. Y., for appellant.
Before
KALODNER, GANEY, and FREEDMAN, Circuit Judges.
Opinion
of the Court
GANEY,
Circuit Judge:
The
Knox Coal Company ("Company") was indicted on March 10, 1961,
along with four individuals named respectively
Rob
ert L. Dougherty, Josephine Sciandra, Louis Fabrizio and August J.
Lippi. The indictment contained seven counts. Six of them were based on
violations of 26 U. S. C. A. §7201 1;
the other on a transgression of 18 U. S. C. A. §371, the general
conspiracy section of the Criminal Code. Count I in substance charged
the Company alone with willfully attempting to evade and defeat a large
part of the taxes due and owing by it for the fiscal year ended June 30,
1957, by filing and causing to be filed a false income tax return for
that period when it knew that the tax due was understated therein by
$80,445.45. Count II accused the four individuals with having conspired
from on or about July 1, 1956, to September 12, 1957, (the date of the
filing of the return) to commit the offenses of willful attempts to
evade and defeat the corporate income taxes of the Company for the
fiscal year ended with June 30, 1957. Count III charged the same four
individuals with the substantive offense of willfully attempting to
evade and defeat the payment by the Company of $80,445.45 in income
taxes for the fiscal year ended June 30, 1957, by causing to be entered
on the payroll records of the Company the names of persons who were not
employees of the Company; causing funds of the Company to be paid in the
form of wages to or in the name of those persons; causing to be entered
on the books and records of the Company, and causing funds of the
Company to be paid in the form of costs and expenses which they knew
were not in fact costs and expenses of the Company; and causing the
Company to claim falsely in its Federal income tax return for the fiscal
year ended June 30, 1957, income tax deductions for those payments.
Counts IV and V averred that Sciandra did willfully attempt to evade and
defeat income taxes owed by her for the years 1956 and 1957. Counts VI
and VII claimed that Fabrizio did also willfully attempt to evade and
defeat a large part of his income taxes for the same years.
Lippi's
motion to dismiss the indictment for alleged insufficiency was denied by
the district court. Each of the defendants except Lippi filed a motion
for severance. These motions were denied. The Company, Dougherty,
Sciandra and Lippi plead not guilty to the charges against them.
Fabrizio plead guilty to Counts III and VI. Immediately prior to trial,
counsel for the Company withdrew from the case. Additionally, Counts II
and VII, against Fabrizio, with the consent of the Government, were
severed; and the Court, apprised of Dougherty's being hospitalized,
stated it would proceed without him with no objection from either the
Government or Dougherty's counsel. The Company, unrepresented by
counsel, went to trial under Count I, Sciandra and Lippi under Counts II
and III, and Sciandra under Counts IV and V. After a trial at
Lewisburg
,
Pa.
, which began on April 2, 1961 and ended on April 13, the jury found the
three defendants guilty on the counts under which they were tried. 2
Thereafter, Sciandra and Lippi filed motions for arrest of judgment, for
judgment of acquittal and for a new trial. These motions were denied on
December 20, 1962. 3
Lippi filed a motion for a new trial on the grounds of newly discovered
evidence. This motion was denied on October 10, 1963. 4
The
Company was fined $10,000. On Count II, Lippi was sentenced to pay a
fine of $5,000 and to serve three years in prison. On Count III,
imposition of sentence was suspended and he was placed on probation for
three years to begin on his release from prison under Count II, "A
condition of probation being that all delinquent taxes shall be
paid." Sciandra and Fabrizio also received fines and sentences.
With the consent of the district court, Counts II and VII were dismissed
as to Fabrizio. Only Lippi has appealed.
[Conspiracy
Charge]
I.
Lippi's first contention is that the district court erred in denying his
motion for arrest of judgment as to Count II because it failed to allege
a crime against the
United States
. That motion was based on the ground that the count fails to charge a
crime against the
United States
because it does not, excluding the last paragraph under the overt acts,
allege, as is asserted under Counts I and III, that a tax in excess of
that reported by the Company was due the
United States
.
Happily,
the rule that an indictment, to be sufficient, must contain all the
elements of a crime "and sufficiently apprise the defendant of what
he must be prepared to meet" is still a vital part of our Federal
criminal jurisprudence. Russell v.
United States
, 369
U. S.
749, 763-766 (1962);
United States
v. Deutsch, 243 F. 2d 435 (C. A. 3, 1957);
United States
v. Tornabene, 222 F. 2d 875, 878 (C. A. 8, 1955). At page 765 of
the Russell case, supra, the Supreme Court states:
".
. . 'In an indictment upon a statute, it is not sufficient to set forth
the offense in the words of the statute, unless those words of
themselves fully, directly, and expressly, without any uncertainty or
ambiguity, set forth all the elements necessary to constitute the
offense intended to be punished; . . .' United States v. Carll,
105 U. S. 611, 612. 'Undoubtedly the language of the statute may be used
in the general description of an offense, but it must be accompanied
with such a statement of the facts and circumstances as will inform the
accused of the specific offense, coming under the general description,
with which he is charged.'
United States
v. Hess, 124
U. S.
483, 487. See also Pettibone v. United States, 148
U. S.
197, 202-204; Blitz v. United States, 153
U. S.
308, 315; Keck v. United States, 172
U. S.
434, 437; Morisette v. United States, 342
U. S.
246, 270, n. 30. Cf.
United States
v. Petrillo, 332
U. S.
1, 10-11."
Section
7201 of the Internal Revenue Code of 1954 proclaims that any person who
willfully attempts to evade or defeat any tax imposed by Title 26 in any
manner shall be guilty of a felony. In Sansone v. United States
[65-1 USTC ¶9307], -- U. S. -- (March 29, 1965), the Court states (p.
--): "[T]he elements of §7201 are willfulness; the existence of a
tax deficiency, Lawn v. United States [58-1 USTC ¶9189], 335 U.
S. 339, 361; Spies v. United States, [[43-1 USTC ¶9243] 317 U.
S. 492 (1943)] supra, at 496; and an affirmative act constituting
an evasion or attempted evasion of the tax, Spies v. United States,
supra."
In
its introductory part, Count II names the Company as being a corporation
with its business office at Exeter, Pa.; it identifies Dougherty as
having been president of the Company during the conspiracy; Fabrizio as
secretary and treasurer; Sciandra as a stockholder; and Lippi as
president of District 1, United Mine Workers of America. It then goes on
to charge that these four individuals did unlawfully, knowingly and
willfully conspire together and with other persons unknown to commit
certain offenses against the United States, to wit:
"(a)
The offenses of wilful attempts to evade and defeat, corporate income
taxes of Knox Coal Company for the fiscal year ended June 30, 1957, a
felony, in violation of Section 7201 of Title 26 of the United States
Code."
This
quoted portion does not incorporate by reference or refer to any other
part of the count or indictment. Of course, unless the charging part of
a conspiracy count specifically refers to or incorporates by reference
allegations which appear under the heading of the overt acts, resort to
those allegations may not be had to supply the insufficiency in the
charging language itself. Joplin Mercantile Co. v. United States,
236
U. S.
531, 535 (1915); United States v. Deutsch, supra, at 436. Also
see United States v. Apex Distributing Co., 148 F. Supp. 365, 370
(D. C. R. I. 1957). However, the failure of the charging part to declare
that a tax in excess of that reported was due is not fatal. In a
conspiracy count, the conspiracy is the gist of the offense. Where, as
here, the purpose of the conspiracy is the performing of acts which are
made an offense by another section of the Criminal Code, every element
of that offense need not be set forth. A conspiracy count need not plead
the substantive offense letterperfect because the purpose of the
conspiracy may have been accomplished even though such activity fell
short of completing a substantive offense. United States v.
Rabinowich, 238
U. S.
78, 86 (1915).
Lippi
also claims that the count does not fully and clearly set forth the
purpose of the conspiracy. In Pettibone v. United States, 148
U. S.
197, the Supreme Court observes (p. 203):
"A
conspiracy is sufficiently described as a combination of two or more
persons, by concerted action, to accomplish a criminal or unlawful
purpose, or some purpose not in itself criminal or unlawful, by criminal
or unlawful means, and the rule is accepted . . . that when the
criminality of a conspiracy consists of an unlawful agreement of two or
more persons to compass or promote some criminal or illegal purpose,
that purpose must be fully and clearly stated in the indictment . .
.."
If
Count II stated no more than that quoted in paragraph (a), though it
restricts the charge to a single year, it would be insufficient. But the
count does not stop there. It goes on to state that the Grand Jury
further charges that the conspiracy was to be accomplished by the
"means and method and in the manner following:". It was a part
of the plan and conspiracy that false payroll records be created for the
Company which would list as "corporate employees persons who would
not, in fact, be employees of the corporation and who would perform no
services for the corporation," and that funds of the Company would
be "paid in the form of wages or salary payments to or in the
name" of those persons, and that the Company on its payroll records
and income tax returns for the fiscal year ended June 30, 1957, would
claim Federal income tax deductions for wages or salaries paid and to be
paid to or in the name of those persons. Then follows the listing of the
overt acts in thirteen numbered paragraphs. The first four state that
each of the four individual defendants respectively caused the name of a
certain person to be listed on the payroll records of the Company. The
next eight assert that Dougherty and Fabrizio disbursed funds of the
Company to or in the name of eight separate individuals. The last
paragraph avers that Dougherty filed or caused to be filed a knowingly
false Federal income tax return for the Company for the fiscal year
ended June 30, 1957, wherein the tax due was understated by $80,445.45.
What the Grand Jury further charges, Lippi argues, may not be considered
as a part of the charging part of the indictment. This argument is
without merit.
Another
important aspect, Lippi says, in which this count is fatally defective
is that it charges a conspiracy to commit "the offenses of wilful
attempts"--both terms being averred in the plural. Of course it was
not necessary for the count to assert an agreement to commit the offense
of willful attempt in the plural. But we fail to see how Lippi was
harmed by this form of assertion. A conspiracy count may allege a
purpose to commit multiple substantive offenses, and it is not
duplicitous if it does so. Braverman v. United States [42-2 USTC
¶9731], 317
U. S.
49, 54 (1942). As has been adverted to earlier, in a conspiracy count,
the conspiracy is the gist of the offense, and though the count charges
an agreement to commit several crimes or several acts, each one of which
may be the basis for an indictment, the count charges but one offense
under 18 U. S. C. §371.
The
indictment contains all the elements of a crime under 18 U. S. C. §371
and sufficiently apprised Lippi of what he was to meet; and in case any
other proceedings are taken against him for a similar offense, the
record shows with accuracy to what extent he may plead his conviction
under Count II. For example, see United States v. Jackson, 344 F.
2d 158 (C. A. 3, 1965). The trial court did not err in denying his
motion in arrest of judgment.
[Proof
of Conspiracy]
II.
Lippi complains on three grounds that the trial court committed
reversible error in denying his motion for a new trial. The first is the
court's failure to instruct the jury to disregard certain declarations
of an alleged co-conspirator made after the termination of the
conspiracy. A brief summary of the pertinent facts shown by the
Government in its case-in-chief, followed by some excerpts from the
trial court's admonition and instructions to the jury about the
statements in question will demonstrate, in our opinion, that they were
properly admitted into evidence as far as Lippi is concerned, and are
not to be considered as being prejudicial.
To
prove the conspiracy involving Lippi, among others, the Government
produced evidence to show that Lippi's relationship with the other three
individually named defendants was more than appeared on the surface, and
that he had received payments from the Company. This evidence showed the
following: The Company was in the business of mining and selling coal.
It maintained payroll and general fund checking accounts at The First
National Bank of
Exeter
("Bank"),
Exeter
,
Pennsylvania
, of which Lippi was either president or chairman of its board of
directors and Dougherty was vice-president and a director from 1955 to
about 1960. Checks issued by the Company were signed by Fabrizio and
Dougherty. Although the Company's stock-book, as of December 18, 1950,
showed Sciandra and Fabrizio as being the only stockholders and each
owning 495 shares of the Class A stock, a trust agreement of the same
date, signed by each of the individual defendants, lists the owners of
that class of stock and the number of shares owned by each as follows:
Sciandra, 280; Fabrizio, 330; and Lippi, 280. The trust agreement refers
to these three as "Shareholders", and to Dougherty as
"General Manager". It recited that the parties were desirous
of entering into an agreement concerning the disposition of their shares
on the respective deaths of any one of them, and securing the continued
services of Dougherty as general manager by granting him rights to
purchase shares of the Company. Upon the death of any shareholder, the
surviving shareholders and Dougherty, if he is in the employ of the
Company as general manager, agree to purchase in equal portions the
shares of the deceased shareholder to be applied to the purchase price.
No shareholder was to sell his shares without first offering them for
sale in equal portions to other shareholders. Thus, it can be seen that
Lippi was a substantial shareholder in the Knox Coal Company while, at
the same time, he was president of the unions in whose district the
Company was operating. Pursuant to the trust agreement, each of the
shareholders took out insurance in the amount of $25,000 on the life of
each of the other two shareholders; Dougherty also obtained insurance in
the same amount on each of the lives of the three shareholders. Up until
1957, the Company paid the cost of the annual premiums amounting to
$10,851.72 on these policies.
Upon
an examination of the Company's records for the years 1955 and 1956 by
an agent of the Internal Revenue Service, the payment of the cost of the
insurance premiums was declared by him to be actually a dividend payment
by the Company in the year 1956 to the three shareholders. In addition,
two recorded cash dividends were declared by the Company: $2,500 in
1956, and $4,000 in 1957. During his investigation, the agent came
across two checks, one for $2,500 dated October 16, 1956, and the other
for $4,000 dated January 16, 1957. Both of them were made out to cash
and canceled, without their having been endorsed, by the Bank. There was
no evidence that these checks had been previously negotiated before they
were presented to the Bank. One George J. Daileda, a former cashier at
the Bank for many years and close associate of Lippi, testified that the
latter had presented these checks to him for cashing at the Bank.
Additionally, Lippi's Federal income tax return for the calendar year
1956 lists $6,117.52, which happens to be equal to the total of $2,500,
the amount of the cash dividend just adverted to, and an amount equal to
one-third of the annual cost of the premium payment paid by the Company
in that year, $10,851.72 or $3,617.24. This further is indicative of the
fact that Lippi was no stranger to the Company. His return for 1957
shows $4,000 as dividends received by him, without giving the source. 5,
6
For
the fiscal year ending June 30, 1957, the Company included in its
deductions for Federal income tax purposes the following disbursements
totaling $161,702: 7
(a) Wages and vacation payments ..... $131,582
(b) Drainage expenses ............... 18,120
(c) Miscellaneous expenses .......... 12,000
[Payroll Sheets]
(a)
The amount of $131,582 had been distributed by payroll check payments
over the fiscal year to some 32 people, a majority of whom were female,
who performed no services for the Company. Some of them were children in
their early teens. One of them was an ex-miner on pension, another was
over seventy years of age. With one exception, those named had not been
entered in the timebook, the information from which, along with the rate
of pay, was the basis for making up the regular payroll. Some of the
payments were substantial and approximated those ordinarily paid to a
superintendent or foreman in the coal mining industry. The payroll
sheets issued semi-monthly and monthly containing the names of these
people were marked with four X's to distinguish them from the regular
payroll sheets or those actually working for the Company as miners,
clerks, etc. The names on these sheets were divided into four groups,
those of Lippi, Dougherty, Sciandra and Fabrizio. The grouping could be
easily observed from the location of the names on the records. Likewise,
vacation payments were made to each group in identical amounts even
though the number of persons in each group varied. When vacation
payments were increased, each group received an identical increment.
Some of the individuals received vacation payments even though their
names had not been listed previously in the payroll sheets. The
connection of each of the individual defendants with one of the four
groups could be ascertained by his or her blood relationship or
friendship to the people within that group. The persons in the group
attributed to Lippi consisted of his married daughter, nephew,
brother-in-law and personal secretary. Also, the wife of the latter, a
life-long acquaintance, Mary Friday, who was a school principal, and two
other persons who knew him. One of the latter was Carmelo Sciandra, no
relation to the defendant herein, Josephine Sciandra.
Daileda
testified that Lippi presented to him for cashing Company checks made
out to his brother-in-law and to Carmelo, and that he presented for
deposit to the account of Mary Friday, his life-long friend, twenty-one
out of twenty-four checks made out to her. He also stated that he did
not know Carmelo and that Lippi had given him a photograph of Carmelo so
that he would be able to identify him in the event he was questioned
about the checks made out to Carmelo. He also stated that when Lippi was
on vacation for approximately six weeks, his secretary brought in the
checks issued during that period and he (Daileda) set the cash aside in
the Bank until Lippi returned. This is only partial evidence in the
record showing an overwhelming amount of testimony connecting Lippi with
Count II, the conspiracy count in the case. Further vacation payments
were made to the various four groups and in all of the four groups the
Government's Exhibit No. 158, which was admitted into evidence as a
summary of the various payments made to alleged employees, showed for
the fiscal year ended June 30, 1957, that, with a few exceptions, each
one of them had been paid a total of $800, while the Company checks
representing these payments were in varying amounts. This is clearly
indicative that these payments were spurious, for it was highly
improbable that each one of them would have received vacation payments
in exact total amounts if they had been bona fide employees. Proof of
the vacation payments were relevant under Count II, as well as under the
other counts.
[Drainage
Expenses]
(b)
The $18,120 for "drainage" expenses was paid out in 48 checks
during the fiscal year ended June 30, 1957.
These
so-called expenses were set forth in the Company's purchase journal but
no corresponding invoices were found in the Company's records. The
checks were issued at the rate of two each semi-monthly and monthly
period. Each time, one of them was made out to "Joseph
Boccacini", and the other to "Louis J. Melosi". None of
the working personnel at the Company appeared to know who these persons
were. The Internal Revenue Service had no record of their having filed
income tax returns for the years 1956 or 1957. According to the
Company's records, Boccacini's address was the same as that of Lippi's
married daughter, and Melosi's was identical to that of Lippi's nephew.
Although the checks were in varying amounts, they invariably totaled
$755 semi-monthly and $1,150 monthly. They were prepared by the
Company's bookkeeper at the direction of Dougherty, and canceled by the
Bank without their having been previously negotiated. Daileda also
testified that it was Lippi who presented to him for cashing at the Bank
the Boccacini and Melosi checks without their having been endorsed, and
that he, Daileda, endorsed them by signing the payee's name.
[Miscellaneous
Expenses]
(c)
The disbursement of the $12,000 under the heading of
"miscellaneous" expenses was by means of twelve $1,000 checks,
each made out to "cash". They were issued monthly in the
fiscal year ended June 30, 1957. No invoices corresponding to these
expenses appeared in the Company's records, nor did they, unlike the
"drainage" expenses, appear in the purchase journal. The
checks, without endorsement or having been negotiated before, had been
canceled by the Bank. Proof of the same nature of the
"drainage" and "miscellaneous" expenses was
probative of the allegations under Counts I and III only, as
"drainage" and "miscellaneous" expense payments were
not included under the conspiracy charge in Count II.
Daileda
also testified that Lippi likewise presented the twelve $1,000 checks,
made out to "cash". His testimony was the only evidence in the
case from which it could be reasonably inferred that Lippi caused or
aided and abetted the disbursement of the twelve $1,000 checks under
Count III, and the only direct evidence implicating him with the
"drainage" expense checks. If the defense could have
effectively impeached Daileda in the eyes of the jury, the Government
would not have been able to prove its case against Lippi under Count
III. This witness was therefore subjected to broad, searing
cross-examination, during which the defense was not interrupted by the
court or by objections on the part of the prosecution. On
cross-examination, he admitted having given testimony at prior trials
and to the Grand Jury and information to agents of the Internal Revenue
Service which was either contradictory or did not correspond to the
testimony he was presently giving on the witness stand. He also admitted
that Lippi was instrumental in having him dismissed from his position at
the Bank--after he had been employed there for some thirty-three years.
A
Michael P. Malinak, an Internal Revenue Agent, testified that during his
investigation of the Company's records for the fiscal year ended June
30, 1957, he came across the Boccacini and Melosi checks and the twelve
$1,000 "cash" checks, and asked the Company's bookkeeper for
some information about them. The latter referred him to Dougherty.
Concerning his conversations with Dougherty, the agent testified:
"Mr.
Dougherty told me these checks were paid to Louis Melosi and Joseph
Boccacini but that these gentlemen did not perform drainage work for the
Knox Coal Company or any other services directly connected with the
operation of the mine. He stated that they did perform some services for
the corporation, and he also stated that they were connected with the
union in some manner." 8
Lippi's
counsel objected to this portion of the agent's testimony on the ground
that it involved hearsay statements by one of the co-conspirators after
the conspiracy had ended and therefore could only be considered against
Dougherty. However, these statements evinced knowledge by Dougherty of a
matter within the averments of Counts I and III, and, accordingly, in
his capacity as president of the defendant Company, they were admissible
against it under Count I since there was no objection on the part of the
Company, the only one who could properly object on its part. The
defendant, Lippi, has no cause for complaint concerning the admission
into evidence of these statements by Dougherty, for the most he could
have insisted upon is that they not be used against him. The trial judge
gave him that protection as shown by the following:
In
response to the objection by Lippi's counsel to Dougherty's statements
about the Boccacini and Melosi checks, the prosecuting attorney stated:
"Mr.
Dougherty, if the Court please, was at the time president of the Knox
Coal Company, and as such was acting for the Knox Coal Company in
dealing with the Government during an audit of the Knox Coal Company's
affairs. The Company, of course, could speak only through its president,
Mr. Dougherty, and we submit Mr. Dougherty's explanations are for
himself and the Company, and therefore they are admissible.
*
* *
"The
corporation is on trial, Your Honor, and Mr. Dougherty was its only
authorized agent to speak for it. He spoke while he was employed as an
officer and he spoke on a matter for the corporation."
When
Sciandra's counsel joined in the objection, the trial court made the
following admonition:
"The
jury will be instructed that this testimony has only application to the
Knox Coal Company, and will have no bearing, no relation at all to the
other two defendants."
Lippi
argues that the purpose of the Government in offering the Dougherty
statements quoted above into evidence was to implicate him under the
guise of showing a case against the phantom Company defendant which he
claims was not on trial but only nominally so. The Company, though
unrepresented by counsel, was very much on trial. When a corporation is
named as a defendant, it is always nominally so, because it can act only
through its officers and agents. 9
If those having an interest in the Company did not insist on obtaining
an attorney to represent it at the trial, it is no concern of the
courts.
Regarding
any claim of undue prejudice arising from the statements, we are not
unmindful that there was a risk that the jury might transfer their
knowledge of the statements received under Count I across the barrier of
exclusion and use it in determining the guilt of Lippi under Count III
as to which the statements were not admissible. See Blumenthal v.
United States
, 332
U. S.
539, 559 (1947). However, it is to be remembered that Lippi did not ask
that his trial be severed from that of the Company and, further, that
the Court reminded the jury at the time of the objection that the
testimony had "no relation at all to the other two
defendants." The only other two defendants on trial were Lippi and
Sciandra. Later, in the Court's charge to the jury, the Court instructed
the jury to the same effect. 10
Agent
Malinak also testified that in looking over the records of the Company
he was struck by the number of feminine names--seven of them alone had
the last name of Dougherty--on the payroll sheets. The bookkeeper told
him the explanation would have to come from Dougherty. To the
prosecuting attorney's question did Dougherty make any statement, the
agent replied:
"Yes,
I asked him if there is any women working on the premises of The Knox
Coal Company, and he stated there were no women working on the
premises."
Despite
the fact that this statement was about a matter involved in the first
three counts, no objection was interposed to the question, nor a request
made that the answer be restricted to the Company under Count I and
Dougherty under Count II, and the trial court gave none at the time. If
one is apprehensive that the admitting into evidence of the Dougherty
statement about no women working on the Company's premises might be
considered as error, it was harmless indeed in the face of other proof.
As pointed out in Lutwak v. United States, 344 U. S. 604, 619
(1953): "In view of the fact that this record fairly shrieks the
guilt of the parties, we cannot conceive how this one admission could
have possibly influenced this jury to reach an improper verdict. A
defendant is entitled to a fair trial but not a perfect one. This is a
proper case for the application of Rule 52(a) of the Federal Rules of
Criminal Procedure. We hold the error to be harmless." Also see Delli
Paoli v. United States [57-1 USTC ¶9356], 352
U. S.
232, 239-243 (1957). It seems obvious counsel's failure to object here
was that so much evidence had already been introduced into the record as
to the spuriousness of the wage and vacation payments to certain persons
under Counts II and III, that this statement was merely cumulative and
would have little or no effect on the determination of Lippi's guilt
under those counts. Moreover, it has been held that where, as here, no
objection is entered or instructions, cautionary or otherwise, are
requested, any post-trial objection to the admissibility of the
testimony is waived. See Rossetti v.
United States
, 315 F. 2d 86, (C. A. 2, 1963).
[Comment on Defendant's Failure to Testify]
III.
The second ground for his contention that the trial court committed
reversible error in refusing to grant him a new trial concerns
references in the presence of the jury of Lippi's failure to testify.
Section 3481 of Title 18 declares that a defendant's choice in not
asking to be a witness shall not create any presumption against him.
Comment, especially of the hostile variety, in the presence of a jury
upon a defendant's choice not to testify on his own behalf is forbidden.
Wilson v.
United States
, 149
U. S.
60, 65 (1893); Regan v.
United States
, 157
U. S.
301, 305 (1895). When comment is made upon defendant's election not to
take the witness stand, the trial court should condemn such references
and "express to the jury in emphatic terms that they should not
attach to the failure any importance whatever as a presumption against
the defendant." Wilson v. United States, supra, at 67. The
refusal of the trial court, after being requested by a defendant, to
charge that his failure to testify in his own behalf does not create any
presumption against him is plain error. Bruno v.
United States
, 308
U. S.
287 (1939); Helton v.
United States
, 221 F. 2d 338 (C. A. 5, 1955).
The
following concerns the facts:
(a)
Against the advice of her attorney, Sciandra testified on her own
behalf. In his summation, her attorney informed the jury as follows:
"Now
this defendant took the stand upon her own insistence. She says, 'I want
to tell these jurors what happened.' You saw her there . . ..
".
. . This woman does not know what questions she is going to be asked,
and believe me for a lawyer to [put] a defendant on the stand, unless
they themselves believe they are not guilty, don't do it, but she says
she wanted to tell these people, and she did."
And
a few minutes later he again mentioned the fact that she took the stand
in the following context:
"Now,
what did Mrs. Sciandra do? Why is she here? Did she hide anything? Now
she got on the stand. She admitted to you that she put these people, her
family, and she asked them to put them on the payroll . . .."
In
his entire summation, he did not mention Lippi's name nor make any
expressed or implied reference to him regarding his not taking the
stand. Lippi's counsel did not interpose any objections to the remarks
made by Sciandra's counsel at the time they were made or at the close of
the summation nor ask for a mistrial. As a matter of fact, in his
summation which preceded that of Sciandra's counsel, Lippi's counsel had
occasion to emphasize the fact that "Mrs. Sciandra took the
stand." Our denial of Mr. J. Tom Grimmett's petition for rehearing
in United States v. Grimmett, 331 F. 2d 703 (C. A. 3, 1964),
cert. denied, 377 U. S. 993, adequately disposes of Lippi's contention
that he was prejudiced by the remarks of co-defendant's counsel.
(b)
At the beginning of his rebuttal, the attorney for the prosecution
informed the jury that he was going to answer some statements made by
the attorneys for Lippi (Mr. Edwin M. Kosik) and Sciandra. At this
point, the trial court interrupted him with the following reminder
within the hearing of the jury: "I don't think there is any
rebuttal of Mr. Kosik's case. He [Lippi] didn't take the stand. Doesn't
that give him the final closing? You do have rebuttal as to Mrs.
Sciandra. Don't you agree?" To which he answered, "Yes, I
believe that is so because he didn't take the stand. What the judge has
just remarked, that since Mr. Lippi didn't take the stand that we will
be limited in our rebuttal remarks to what [Sciandra's attorney] had to
say. So I will be more brief than I planned." On the basis of these
remarks, Lippi's counsel did not seek a mistrial or request that
customary instructions be given to offset them.
If
a defendant may waive the protection of 18 U. S. C. §3481 by
testifying, he may do so by failing to object to the remarks made by the
prosecuting attorney concerning his not taking the stand. Such remarks
are not plain error, especially when the jury was adequately admonished
by the trial court: Jackson v. United States, 102 Fed. 473, 487
(9 Cir. 1900); and it was made aware that he did not testify by the fact
that one of the other defendants took the stand. Wright v.
United States
, 108 Fed. 805, 811-813 (5 Cir. 1901).
(c)
Without being requested to do so by Lippi, the trial court included the
following instruction in its charge to the jury:
"Now,
the defendant, Mr. Lippi, did not take the stand. You will draw no
inference from the fact that he did not take the stand. That is his
right and his privilege. There is no burden on him to prove his
innocence. By his plea of 'not guilty' he has made a complete denial of
the charge. As indicated before, the Government has the burden of
proving his guilt beyond any reasonable doubt.
"The
law does not compel a defendant to take the witness stand and testify,
and no presumption of guilt may be raised and no inference of any kind
may be drawn from the failure of a defendant to testify."
This
admonition was repeated by the court prior to his dismissal of the
alternate jurors. Lippi did not ask for a mistrial after these
instructions were given.
Under
the circumstances, the trial court did all it could short of declaring a
mistrial to offset the remarks in question. Nobile v.
United States
, 284 Fed. 253 (3 Cir. 1922), Poliafico v.
United States
, 237 F. 2d 97, 114-115 (C. A. 2, 1957), cert. den. 352
U. S.
1025;
United States
v. Aqueci, 310 F. 2d 817, 830-831 (C. A. 2, 1962);
United States
v. DiCarlo, 64 F. 2d 15, 18 (2 Cir. 1933);
Rob
ilio v.
United States
, 291 Fed. 975, 985-986 (6 Cir. 1923); 12 Cyc. of Fed. Proc. (3d
ed.) §48.181.
Moreover,
the remarks of the prosecuting attorney and the instructions by the
trial court could in no wise be construed as holding that Lippi's
silence was evidence of guilt. See
Griffin
v.
California
, --
U. S.
--, (April 28, 1965).
[Witness's
Former Statements]
IV.
At the close of the direct examination of Daileda, Lippi's counsel moved
the trial court, pursuant to 18 U. S. C. A. §3500(b) of the Jencks Act,
to instruct the prosecution to provide him with statements previously
made by Daileda to the United States. Special Agent Reuben A. Gershuni
of the Intelligence Division of the Internal Revenue Service had been
assigned to investigate the affairs of the Knox Coal Company. During
this investigation, he made a handwritten memorandum of an oral
interview with Daileda on October 15, 1958, regarding Company checks
presented to the Bank. This memorandum was given to defense counsel for
their inspection and use. The prosecution admitted that in other cases,
not pertinent to the one being tried, FBI agents had also taken
statements of Daileda. On the prosecution's assurance that these
statements had no pertinency to the subject matter of the testimony
given by Daileda on direct examination, the defense waived the
presentation of those statements for the in camera inspection by
the trial court.
According
to the Gershuni memorandum, Daileda stated that it was Carmelo Sciandra,
then deceased, who had presented the "drainage" and
"miscellaneous" expense checks and also the dividend checks
made out to "cash" to him at the Bank, and that Carmelo had
been introduced to him by one John Sciandra, also deceased.
Daileda
had testified at two previous trials in which Lippi was a defendant. One
in
Easton
,
Pennsylvania
, the other in
Wilmington
,
Delaware
. He also testified before the Federal Grand Jury for the Middle
District of Pennsylvania. At the previous trials, Daileda stated on the
witness stand that he could not remember who presented the dividend
checks to him for cashing. During the trial in question, the prosecuting
attorney assured the defense, who possessed the transcript of the prior
trials, that Daileda's testimony before the Grand Jury to the extent it
was germane to the subjects on which he had testified at the present
trial was essentially the same as his testimony at the
Wilmington
trial. With this assurance the defense waived the production and
inspection of the Grand Jury minutes.
On
cross-examination the defense elicited from Daileda without reservation
that he had lied at the prior trials and before the Grand Jury regarding
his knowledge of the identity of the person who presented the checks to
him at the Bank, and that the testimony given by him on direct
examination was true. He also admitted that the information that he gave
to Agent Gershuni on October 15, 1958, about Carmelo was false. Neither
the trial court nor the defense asked Daileda if he had given any other
statements relating to the subject matter as to which he had testified
on direct examination to agents of the Government. Nor did the defense
request the trial court to do so.
After
the trial of the present case had been concluded, a subsequent trial was
had in which Lippi was defendant but which involved the Newport
Excavating Company. There, the Government presented to Lippi's counsel a
memorandum dated May 8, 1959, and prepared by Special Agent Anatole G.
Richman during his investigation of the Newport Excavating Company.
Lippi's counsel did not know of the existence of that memorandum until
that time. It consisted of 231 questions put to Lippi and his answers to
them. Question No. 202, the only one having any pertinency to the
Daileda testimony, is as follows: "Did Mr. Lippi ever bring in
anyone else's check other than his personal check?" Daileda's
answer was recorded as "No." It is the Government's failure to
have produced this memorandum pursuant to his motion under 18 U. S. C.
§3500(b) at the trial involved here that Lippi claims was prejudicial
to him because he was prevented from using it to impeach Daileda at that
trial. This was the basis for his filing of his motion under Rule 33 of
the Federal Rules of Criminal Procedure for a new trial on the ground of
after-discovered evidence--such evidence being the May 8, 1959
memorandum. The memorandum was made available for the district court
which held there was no prejudice to the defendant and denied the motion
for a new trial.
When
the defense moves pursuant to the Jencks Act to have the prosecution
produce prior statements of a witness after he has testified, the burden
is on the trial court to ask the prosecution whether such statements
exist. If statements are produced, it is up to the trial court, not the
jury, to determine, subject to review on appeal, whether they come
within the definition of 18 U. S. C. §3500 and "relates to the
subject matter as to which the witness has testified." 11
Once this question has been determined, they should be given to the
defense for its "examination and use." "[W]hether the
statements may be useful for purposes of impeachment is a decision which
rests, of course, with the defendant himself." Scales v.
United States
, 367
U. S.
203, 258 (1961). Also see Killian v. United States, 368
U. S.
231, 243 (1961); United States v. Birnbaum, 337 F. 2d 490,
497-498 (C. A. 2, 1964). The Act "does not purport to affect or
modify the rules of evidence regarding admissibility and use of
statements once produced." Palermo v. United States [59-2
USTC ¶9532], 360
U. S.
343, 353 (1960); Clancy v. United States [61-1 USTC ¶15,333],
365
U. S.
312, 316 (1961); Campbell v. United States, 373
U. S.
487, 493, n. 7 (1963); United States v. Berry, 277 F. 2d 826 (C.
A. 7, 1960). When the statements are admitted into evidence, the
prosecution may not rehash the question of their relevancy before the
jury, but is free to argue within the bounds of reason the relative
weight which it thinks the jury should give to them. Of course the
defense may waive the production of all such documents or some of them.
Here, Lippi's counsel agreed not to ask for the production of any
statements as to which the prosecution assured him had no bearing on the
testimony given by Daileda on direct examination. There was no showing
that the United States Attorney knew of the existence of this statement
at the time of the trial of this case and since it was given to an Agent
of the Government in the investigation of a wholly different matter, we
cannot say that it came within the framework of the defendant's request
at the time of this trial. This for the reason that an examination of
the whole record indicates quite clearly that the checks presented to
Daileda by Lippi in the Newport Excavating case were those
involving that company and, further, at the very beginning of the
statement taken by Agent Richman, in which this question appears,
Richman told him he was requested to appear for the taking of testimony
in order to answer questions in connection with the Newport Excavating
Company. The question here posed upon which the defendant relies for a
reversal of the judgment of the lower court, when read in context shows
it was in relation not to the Knox Coal Company but to an entirely
different investigation concerning the Newport Excavating Company. To
hold the United States Attorney responsible for not handing over this
memorandum brought out in a case tried later than the one he was trying
and concerning a different subject matter, would be widening the ambit
of the Jencks Act out of all proportion to the ends it was sought to
protect.
The
district court in its opinion stated that it would be extremely doubtful
whether the question and answer about checks issued by the Newport
Excavating Company could be applied to those issued by the Knox Coal
Company. It also stated that if the statement were to be used by the
defense for impeaching the credibility of Daileda, the complete
memorandum would undoubtedly have been excluded because it "is of
such extremely cumulative nature and of doubtful applicability to the
issue of credibility that it is too trivial to justify a new
trial." It then went on to hold that the Supreme Court's comment in
Rosenberg v. United States, 360
U. S.
367, 371 (1959) is applicable to Lippi's request for a new trial. When
the Rosenberg case was in this court, we held that even though
the trial court's withholding from the defense a letter written to the
prosecutor by a witness just before trial was error, the defense
suffered no prejudice from that error. In affirming "the judgment
on which the Court of Appeals based its conclusion that the failure to
require production of the letter was empty of consequences", the
Supreme Court said: "Since the same information that would have
been afforded had the document been given to the defendant was already
in the possession of the defense by way of the witness' admission while
testifying, it would deny reason to entertain the belief that defendant
could have been prejudiced by not having had opportunity to inspect the
letter." Also see Killian v.
United States
, supra, 368
U. S.
at 243-244, and Ogden v. United States, 303 F. 2d 724, 737-738
(C. A. 9, 1962).
Therefore,
even if we give Lippi the benefit of the doubt and assume that the
district court erroneously held that the statement need not have been
given to the defense at the trial we agree on the authority of the Rosenberg
and Killian cases, supra, that it did not commit
reversible error in denying Lippi's second motion for a new trial.
Accordingly,
the judgment of conviction and sentence and the orders denying a new
trial of the District Court will be affirmed.
1
This section of the 1954 Internal Revenue Code provides: "Any
person who willfully attempts in any manner to evade or defeat any tax
imposed by this title or the payment thereof shall, in addition to the
other penalties provided by law, be guilty of a felony . . .."
2
No attorney made any opening or closing address for the Knox Coal
Company, no witnesses were examined for or called by the Company, nor
did anyone make any objections, trial or post-trial motions on its
behalf.
3
The opinion has not been published.
4
The opinion has not been published.
5
Substantially this same evidence, with the exception of George Daileda's
statements, was presented in a trial held at
Wilmington
,
Delaware
, in the United States District Court for the District of Delaware. See
United States
v. Lippi, 190 F. Supp. 640 (1961), and 193 F. Supp. 441 (1961).
6
Lippi's counsel made a number of requests for points for charge. One of
them, which the trial court adopted, contained the following sentence:
"No corporation can by violating the law make any one of its
stockholders who does not himself participate in that violation
criminally liable therefor."
7
This total was $200 more than the amount claimed to be overstated as
deductions in the indictment.
8
There was no evidence that either Lippi or Sciandra were present when
these statements of Dougherty were purportedly made, or that they
assented to or authorized them. Dougherty was not arrested until March
23, 1961, thirteen days after the return of the indictment.
9
See New York Central & H. R. R. Co. v. United States, 212 U.
S. 481 (1909); United States v. Dotterweich, 320 U. S. 277, 281
(1943); Egan v. United States, 137 F. 2d 369, 378-382 (9 Cir.,
1943); Steere Tank Line, Inc. v. United States, 330 F. 2d 719,
721-722 (C. A. 5, 1963).
10
On this point the trial court charged: "Declarations or admissions
of a defendant which are made after the conspiracy came to an end,
however, or after the defendant in question withdrew from it, may be
considered by you only in determining his guilt or innocence and are not
to be considered as against any defendant who was not present when they
were made."
11
It has been said that the district court's determination is subject to
the clearly erroneous rule. But see Williams v. United States,
338 F. 2d 286, 289 (C.A. D.C., 1964).