False or Fraudulent Returns Page5

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¹² The debtor's arguments that the Service has violated United States criminal statutes by filing a false or fraudulent claim, see, e.g. 18 U.S.C.A. §152 (West Supp. 1994), 18 U.S.C.A. §1001 (West 1976), are likewise rejected. There has been absolutely no showing that the Proof is false or fraudulent.

¹³ I note that, if the debtor followed the most direct route to the courtroom to argue the instant contested matter, he walked past a Service information office.

¹⁴ The debtor does not suggest that the threat of civil penalties, see, e.g., 26 U.S.C.A. §6651 (West Supp. 1994), which are designed to provide a financial deterrent to late filing or payment, prevented him from meeting his obligations.

¹⁵ While not raised by the debtor, I note that $30,394.88 of the Service's priority claim relates to 1992 taxes which became due after the petition date. Section 1305(a)(1) nevertheless authorizes the Service to file a proof of claim for those taxes, and §1305(b) directs me to allow or disallow that claim as though it had arisen prepetition. See Matravers v. United States (In re Matravers), 149 B.R. 204, 206 (Bankr. D. Utah 1993).

¹⁶ 11 U.S.C.A. §109(e) (West 1993) provides in relevant part:

Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $100,000 and noncontingent, liquidated, secured debts of less than $350,000, or an individual with regular income and such individual's spouse . . . that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $100,000 and noncontingent, liquidated, secured debts of less than $350,000 may be a debtor under chapter 13 of this title.

¹⁷ The debtor raised no objection to the Service's allocation of its claim among these categories. The allocation in any event appears appropriate. See §507(a)(7)(A)(i). The debtor has also not objected specifically to the Service's calculations of interest and penalties. The Service is generally entitled to interest and penalties where taxes are not timely paid. See 26 U.S.C.A. §§6651(a)(1) , 6601(a) (West Supp. 1994). Penalties may be avoided if it is shown that the failure to pay is due to reasonable cause and not to willful neglect, but the taxpayer has the burden of proof on that issue outside of bankruptcy, Baasch v. United States, supra, 742 F. Supp. at 69, and would retain that burden in bankruptcy, because that defense to assessment of a penalty would be an affirmative defense. See infra, p.5. I also note but distinguish Capozzi v. United States [93-1 USTC ¶50,007 ], 980 F.2d 872, 875 (2d Cir. 1992), in which the Second Circuit stated that "[n]o legal liability arises until the IRS assesses the penalty." That statement was made in connection with a holding that a five year statute of limitations applicable to actions for the enforcement of penalties did not apply to assessment of penalties. That case involved a penalty for certain fraudulent statements in connection with a tax shelter under 26 U.S.C.A. §6700 (West Supp. 1994). Unlike penalties under §6700 , penalties under §6651(a) are automatically added to the amount of tax required to be shown on the return; a taxpayer is liable for them as they accrue unless the taxpayer can prove entitlement to the safe harbor.

 

 

 

[99-1 USTC ¶50,262] United States of America , Plaintiff-Appellee v. Vika Maopa Akaoula, Defendant-Appellant

(CA-10), U.S. Court of Appeals, 10th Circuit, 98-4028, 2/10/99 , Affirming and dismissing an unreported District Court decision

[Code Sec. 7206 ]

Penalties, crimes: Fraud or false statements: Joinder of claims: Forgery: Common plan or scheme.--Charges against a tax return preparer for forging endorsements and signatures on refund checks were properly joined with charges for preparing false returns. All of the conduct was part of a common scheme or plan to profit by the preparation of false tax returns.
[Code Sec. 7206 ]

Penalties, crimes: Preparation of false returns.--A tax return preparer who placed false information in her clients' returns was properly convicted of aiding and assisting in the preparation of false returns. The evidence supported the jury's conclusion that the clients did not provide the preparer with the information; rather, she herself made the false claims. The clients' signatures on the returns did not absolve her of liability for making the false claims.
[Code Sec. 7206 ]

Preparation of false returns: Sentencing guidelines: Downward departure from: Authority to depart.--Jurisdiction was lacking to review the trial court's refusal to depart downward from the Sentencing Guidelines where a tax preparer had been convicted of filing false client returns. The trial court did not base its decision on a purported lack of authority; rather, it examined the evidence and determined that a downward departure was inappropriate.

Before: PORFILIO, BALDOCK and EBEL, Circuit Judges. ^*

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

ORDER AND JUDGMENT ^**

BALDOCK, Circuit Judge:

A jury convicted Defendant Vika Maopa Akaoula on thirty-one counts of aiding and assisting in the preparation of false tax returns, in violation of 26 U.S.C. §7206(2), seven counts of making false statements to the IRS, in violation of 18 U.S.C. §1001, two counts of forging United States Treasury checks, in violation of 18 U.S.C. §510(a)(1), and two counts of uttering forged United States Treasury checks, in violation of 18 U.S.C. §510(a)(2). The district court sentenced Defendant to thirty-months imprisonment. Defendant appeals the convictions and sentence claiming that the district court erred by: (1) denying her a judgment of acquittal on counts one through thirty-eight of the indictment; (2) failing to sever counts thirty-nine and forty from the remaining counts of the indictment; and (3) refusing to depart downward from the applicable sentencing guideline range. As to Defendant's first two claims, we exercise jurisdiction under 28 U.S.C. §1291, and affirm. As to Defendant's third claim, we lack jurisdiction and dismiss.

Defendant first argues that the government's evidence was insufficient to establish that she violated 26 U.S.C. §7206(2) and 18 U.S.C. §1001. We will reverse a conviction based upon insufficient evidence only if no rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. United States v. Haslip, 160 F.3d 649, 652 (10th Cir. 1998). In reviewing the record, we view the evidence and the reasonable inferences to be drawn therefrom in a light most favorable to the government. Id. at 652-53. We do not weigh the evidence or consider the credibility of the witnesses. Id. at 653.

Counts one through thirty-one of the indictment charged Defendant with violating 26 U.S.C. §7206(2). To sustain a conviction under §7206(2), the government must prove that: (1) defendant aided, assisted, procured, counseled, advised or caused the preparation and presentation of a return; (2) the return was fraudulent or false as to a material matter; and (3) defendant acted willfully. United States v. Sassak [89-2 USTC ¶9455], 881 F.2d 276, 278 (6th Cir. 1989). In this case, Defendant does not dispute that the returns she prepared were false as to material matters. Instead, relying on 31 C.F.R. §10.34(a)(3), Defendant argues that as a return preparer she was entitled to rely upon her clients' return signatures verifying the correctness of the return information. ³ Defendant's argument is meritless.

Our review of the record reveals that Defendant willfully caused the presentation of false returns to the IRS. Section 10.34(a)(3) does not allow a return preparer to "ignore the implications of information furnished to, or actually known by, the practitioner." Indeed, a preparer must inquire if the information "appears to be incorrect, inconsistent, or incomplete." In this case, the tax returns, among other things, falsely claimed: (1) head of household status even though the taxpayer was married and living with his or her spouse; (2) exemptions for dependants who did not exist or who received no support from the taxpayer; (3) inflated deductions for medical and other expenses of the taxpayer; and (4) earned income credits to which the taxpayer was not entitled. Furthermore, the evidence clearly showed that Defendant's clients did not provide the false information. Instead, Defendant placed the false information in her clients' returns. Thus, Defendant cannot now hide behind her clients' signatures which purportedly verified the information contained in the returns. Based upon the evidence presented, the jury reasonably concluded that Defendant knew the returns she prepared contained false information when she submitted them to the government.

Counts thirty-two through thirty-eight of the indictment charged Defendant with violating 18 U.S.C. §1001. To sustain a conviction under §1001, the government must prove that: (1) defendant made a statement; (2) defendant knew the statement was fraudulent or false; (3) defendant made the statement willfully; (4) the statement was within the jurisdiction of a federal agency; and (5) the statement was material. United States v. Daily, 921 F.2d 994, 999 (10th Cir. 1990).

The indictment alleged that to support the information contained in her clients' tax returns, Defendant submitted seven different documents to the IRS which contained false statements. Defendant does not deny that those statements were within the jurisdiction of a federal agency and were material. Rather, Defendant argues she did not know the statements were false. Defendant's clients, however, testified at trial that they did not provide Defendant with false information and that Defendant herself made the false statements. While the jury could have accepted Defendant's assertion that she did not knowingly provide the government with false information, the evidence in the record is sufficient to support the jury's finding to the contrary. Accordingly, we reject Defendants challenge to the sufficiency of the evidence on counts one through thirty-eight of the indictment.

Defendant next argues that the district court should have severed counts thirty-nine and forty of the indictment, which charged her with forging endorsements and signatures on two tax refund checks, from the indictment's remaining counts. Because Defendant did not object to the joinder of the counts at trial, we review only for plain error. Fed. R. Crim. P. 52(b). We will not exercise our discretion to correct plain error unless the error "seriously affects the fairness, integrity or public reputation of judicial proceedings." United States v. Olano, 507 U.S. 725, 732 (1993) (internal quotations omitted). ⁴

Under Fed. R. Crim. P. 8(a), joinder of offenses is permitted if the offenses "are of the same or similar character or are based on the same act or transaction or on two or more acts or transactions connected together or constituting parts of a common scheme or plan." We construe Rule 8(a) broadly to allow liberal joinder to enhance the efficiency of the judicial system. United States v. Johnson, 130 F.3d 1420, 1427 (10th Cir. 1997), cert. denied, 119 S. Ct. 78 (1978).

We conclude that joinder of the offenses in this case was proper because the conduct alleged in all counts of the indictment was part of a common scheme or plan to enhance Defendant's business and profit by preparing false tax returns for her clients. The forgeries charged in counts thirty-nine and forty were directly linked with the false returns which were the subject of counts thirty and thirty-one. Moreover, the IRS issued the refund checks described in counts thirty-nine and forty to clients as a direct result of the false tax returns that Defendant filed on their behalf. Accordingly, we do not believe the district court's failure to sever counts thirty-nine and forty constituted plain error.

Lastly, Defendant argues that the district court abused its discretion by refusing to depart downward under the sentencing guidelines. In United States v. Castillo, 140 F.3d 874, 887 (10th Cir. 1998), we recently stated:

[C]ourts of appeals cannot exercise jurisdiction to review a sentencing court's refusal to depart from the sentencing guidelines except in the very rare circumstance that the district court states that it does not have authority to depart from the sentencing guideline range for the entire class of circumstances proffered by the defendant.

At Defendant's sentencing hearing, the court stated:

I do not believe that this is an appropriate case for departure. . . . I note that in tax cases deterrence is a very important aspect, and I also note that, . . . Ms. Akaoula did abuse a small group of people who--and I watched them testify--appeared very naive, quite trusting, and she truly abused her position of trust. For that reason I am not going to depart.

The district court did not base its decision to deny a downward departure on a lack of authority to depart. Rather, the court examined the particular circumstances before it and determined that no departure was in order. Accordingly, we have no jurisdiction to review the district court's refusal to depart downward in this case.

AFFIRMED IN PART; DISMISSED IN PART.

^* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2)(C); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument.

^** This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3

³ Section 10.34(a)(3) provides:

(3) Relying on information furnished by clients. A practitioner advising a client to take a position on a return, or preparing or signing a return, or preparing or signing a return as a preparer, generally may rely in good faith without verification upon information furnished by the client. However, the practitioner may not ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information furnished appears to be incorrect, inconsistent, or incomplete.

31 C.F.R. §10.34(a)(3)

⁴ In her brief, Defendant appears to argue that if we direct the district court to grant her a judgment of acquittal on counts one through thirty-eight based on insufficient evidence, we must grant her a new trial as to counts thirty-nine and forty because those counts were inextricably intertwined with counts one through thirty-eight, resulting in undue prejudice before the jury. Because we affirm Defendant as convictions on counts one through thirty-eight, however, we have no occasion to vacate her convictions as to counts thirty-nine and forty based on that argument. Out of an abundance of caution, we nevertheless proceed with a discussion of the propriety of joining counts thirty-nine and forty with counts one through thirty-eight.

 

 

 

 

 

[2000-1 USTC ¶50,272] United States of America, Plaintiff-Appellee v. Brenda Kay Scarberry, also known as Brenda Raymond, also known as Brenda Jordan, Defendant-Appellant

(CA-10), U.S. Court of Appeals, 10th Circuit, 99-6234, 3/2/2000, Affirming an unreported District Court decision

[Code Sec. 7206 ]

Tax crimes: False returns: Deductions exaggerated: Filing status: Materiality.--A return preparer was properly convicted of filing false returns after she overstated her husband's deductions on their joint return, and filed a second return in which she claimed married-filing-jointly status with another man. She deducted substantial business losses in connection with her husband's carpet business even though he worked only occasionally as an installer and did not own the business. Further, her husband was not involved in the preparation of the return and he provided no information or documentation concerning the claimed deductions. Regarding her second return, her improper filing status qualified as a material matter because filing status affects tax rates, dependency status and the earned income credit.
[Code Sec. 7206 ]

Tax crimes: False returns: Venue: Failure to raise issue: Residence in judicial district.--A return preparer was properly convicted of filing false returns after she claimed married-filing-jointly status with a man who was not her husband. Her claim that the trial court lacked venue over the charge was rejected because she failed to raise the issue at trial, and the evidence indicated that at the time she filed the return, she was living in the judicial district where her case was tried.

[Code Sec. 7206 ]

Tax crimes: Preparation of false returns: False deductions.--A return preparer was properly convicted of assisting in the preparation of a false return because she prepared a truck driver's return on which she claimed a false farming loss from cattle ranching. The truck driver never told her he owned a ranch, the only documentation he gave her was his W-2 statement, and it appeared that he lacked the education or reading ability to understand the return that she prepared.

[Code Sec. 7206 ]

Tax crimes: Filing false returns: Preparation of false returns: Evidence: Revenue agent's testimony: Conclusions of law: Evidence voluntarily surrendered: Misrepresentations: Duress.--Evidence was properly admitted and excluded from a return preparer's trial for filing false returns and assisting in the preparation of false returns. A revenue agent's testimony that the false information she provided was material to the computation of tax liability was admissible because it merely assisted the jury in understanding the facts. Documents that her mother voluntarily surrendered to an IRS agent were also admissible absent a showing that the agent made any misrepresentations to obtain them. Evidence that her husband once forced his former wife to sign a false return was properly excluded. While the husband may have forced her into the return preparation business and appropriated her proceeds, there was no evidence that he forced her to prepare any of the returns at issue.

[Code Sec. 7206 ]

Tax crimes: Filing false returns: Preparation of false returns: Duress: Jury instructions.--A return preparer who was convicted of filing and preparing false returns was not entitled to a jury instruction on her defense of duress. Evidence concerning her husband's threats in connection with her return preparation business was too far removed to establish that she was under duress in the preparation and signing of the returns at issue.

Before: BRORBY, KELLY and MURPHY, Circuit Judges. ^*

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

ORDER AND JUDGMENT ^**

KELLY, JR., Circuit Judge:

Brenda Scarberry appeals from her conviction of two counts of making and subscribing to false tax returns, 26 U.S.C. §7206(1) & 18 U.S.C. §2 and one count of aiding and assisting in the preparation of false tax returns in violation of 26 U.S.C. §7206(2). She was sentenced to 15 months imprisonment to be followed by two years of supervised release.

On appeal, Ms. Scarberry contends that (1) the evidence is insufficient to support the convictions; (2) the revenue agent testified as to the law; (3) the district court erred in excluding the testimony of another ex-wife of Tony Scarberry, Jr.; (4) the jury was not instructed as to the defense's theory of the case; and (5) her motion to suppress was denied in error. Our jurisdiction arises under 28 U.S.C. §1291 and we affirm.

Background

Ms. Scarberry was married to Tony Scarberry, Jr., from 1990 until 1996. During their marriage, the Scarberrys filed joint tax returns, including for the 1994 tax year. In 1994 Ms. Scarberry, using her maiden name of Brenda Jordan, filed a joint return with Tony Scarberry, Jr. claiming business losses associated with Mr. Scarberry's part-time employment as a carpet installer (count 2). Ms. Scarberry also filed a 1994 joint return with Craig Raymond, her current husband, claiming an incorrect marital status (count 3). Ms. Scarberry prepared tax returns for compensation, including one for Monte Hamman, reporting a $6,710 farm loss (count 8).

Discussion

A. Sufficiency of the Evidence

We review a sufficiency of the evidence claim de novo, viewing the evidence and its reasonable inferences in the light most favorable to the government. The issue is whether a rational jury could have found the elements of the offense beyond a reasonable doubt. See United States v. McSwain, 197 F.3d 472, 477 (10th Cir. 1999). To establish a violation of §7206(1), the government was required to prove that Ms. Scarberry (1) made and subscribed a return, (2) the return contained a written declaration that it was being signed subject to the penalties of perjury, (3) she did not believe the return to be true and correct as to every material matter contained in the indictment, and (4) she acted willfully in filing the return. See United States v. Winchell [97-2 USTC ¶50,890], 129 F.3d 1093, 1095-96 (10th Cir. 1997). To establish a violation of §7206(2), the government was required to prove that Ms. Scarberry (1) aided or assisted or otherwise caused the preparation and presentation of a return, (2) the return was false or fraudulent as to a material matter, and (3) she acted wilfully. See United States v. Aramony, 88 F.3d 1369, 1382 (4th Cir. 1996).

Ms. Scarberry argues that the government failed to prove she acted wilfully regarding the three counts of conviction, that the filing status of taxpayer is not material as a matter of law, and that venue was improper on count 3. Willfulness is the voluntary, intentional violation of a known legal duty. See Cheek v. United States [91-1 USTC ¶50,012], 498 U.S. 192, 201 (1991); United States v. Guidry [2000-1 USTC ¶50,118], 199 F.3d 1150, 1156 (10th Cir. 1999). Making false entries or documents or invoices may be circumstantial evidence of willfullness. See Guidry [2000-1 USTC ¶50,118], 199 F.3d at 1157.

1. Count 2--1994 Jordan/Scarberry Return

In challenging the proof of wilfulness, Ms. Scarberry argues that she cannot be presumed to have known that the information was false and that her husband theoretically may have been able to claim expenses in driving to a part-time work site. However, we reject this challenge after considering Mr. Scarberry's testimony as to his non-involvement with the preparation of the return and the nature of his part-time work. When she prepared the return, Ms. Scarberry had been married to him for over four years. The jury could reasonably infer that she knew he worked full-time as a sheet metal worker, and only occasionally as a carpet installer, the business for which a loss of $11,160 was claimed. Additionally, Ms. Scarberry almost certainly knew her husband did not own the carpet installation business, but only worked as a helper, and thus was not entitled to business loss deductions. Mr. and Ms. Scarberry were separated at the time she completed the tax forms; according to his testimony, he provided no information or documentation concerning any of the items that comprise the business expenses claimed, see Tr. at 437-41; he merely picked up the completed form to sign.

2. Count 3--1994 Jordan/Raymond Return

Ms. Scarberry, again using her maiden name of Brenda Jordan, also filed a 1994 income tax return with Craig Raymond, with the filing status of "married filing jointly." Given the obviousness of one's marital status in these circumstances, the jury certainly could infer that her conduct was willful. Ms. Scarberry also contends that the government failed to prove that the filing status, here, "married filing jointly," was material. Material information under §7206(1) is that information necessary to enable the correct determination of tax liability. See United States v. Clifton [97-2 USTC ¶50,832], 127 F.3d 969, 970 (10th Cir. 1997). She argues that the government offered no evidence to show that the false filing status had affected the tax calculation.

Ms. Scarberry understates the record when she suggests that the revenue agent stated that all discrepancies are material. Aplt. Br. at 27. The revenue agent specifically testified that filing status affects tax rates, dependency status for children, and computation of the earned income credit. Tr. at 446-47. A reasonable jury could certainly conclude that incorrect filing status is material.

Ms. Scarberry also contends that venue for this count was improper. Venue for the trial of a defendant charged with violating 26 U.S.C. §7206(1) is proper in the district where the return was made and subscribed. Ms. Scarberry claims that the government did not prove that the return was made or subscribed in the Western District of Oklahoma.

Ms. Scarberry waived this claim by failing to object to venue at trial or requesting an instruction on venue. See United States v. Miller, 111 F.3d 747, 750 (10th Cir. 1997). Additionally, she signed the return on March 20, 1995 , and record evidence suggests that she was residing in Oklahoma at that time. See Tr. at 140. Allowing this count to be heard in the Western District of Oklahoma was not plain error.

3. Count 8--1993 Monty Hamman Return

Ms. Scarberry's claim of insufficient evidence on this count is similarly unpersuasive. She assisted in the preparation of a 1993 income tax return for Monte Hamman that falsely claimed a $6,710 farming loss on a cattle ranch. Testimony at trial indicated that Mr. Hamman was a truck driver rather than a rancher and did not have the education or reading ability to understand what was claimed on his return. He merely signed where he was told. Additional testimony established that the only documentation he gave Ms. Scarberry was his W-2 form, and he never mentioned having a cattle ranch. A reasonable jury could believe that any false information was attributable to Ms. Scarberry and that her conduct was willful. Courts have sustained §7206(2) convictions on similar facts. See United States v. Conlin [77-1 USTC ¶9291], 551 F.2d 534, 536 (2d Cir. 1977); United States v. Miller [76-1 USTC ¶9228], 529 F.2d 1125, 1127, 1129 (9th Cir. 1976); Amos v. United States [74-1 USTC ¶9447], 496 F.2d 1269, 1271, 1273-74 (8th Cir. 1974).

B. Expert Testimony on Materiality

For the first time on appeal, Ms. Scarberry objects to the testimony of the revenue agent. He testified that certain line items the government claimed were false were material to computation of tax liability. Ms. Scarberry argues that the agent was impermissibly allowed to define the law of the case. She bases her argument on Specht v. Jensen, 853 F.2d 805 (10th Cir. 1988) (en banc), cert. denied, 488 U.S. 1008 (1989), where the court held that a legal expert could not testify as to the ultimate legal issues in the case.

Because she raises this issue for the first time on appeal, we review for plain error only. See United States v. Deters, 184 F.3d 1253, 1258 (10th Cir. 1999). No such error occurred here; the revenue agent's testimony merely assisted the jury in understanding the facts in evidence; in no way did it supplant the function of the court to define the law and the jury to apply it.

C. Exclusion of Ex-Wife's Testimony

Ms. Scarberry alleges that the district court erred in excluding the testimony of Linda Prestwich, an ex-wife of Tony Scarberry, Jr. Ms. Scarberry argued that Mr. Scarberry had a proclivity to force people to sign false returns when he would benefit. According to the offer of proof, Mr. Scarberry forced Ms. Prestwich to sign a false 1989 joint return when she was married to someone else. Tr. at 557. We review the exclusion of evidence for an abuse of discretion. See United States v. Beers, 189 F.3d 1297, 1300 (10th Cir. 1999). While there was other evidence that Mr. Scarberry forced Ms. Scarberry into the tax preparation business and took the proceeds, there simply was no foundation that Ms. Scarberry was forced by Mr. Scarberry to file the returns comprising the counts of conviction. The trial judge did not abuse his discretion.

D. Refusal to Instruct on Theory of Defense

Ms. Scarberry requested a type of duress instruction, claiming that she was not capable of acting willfully and with the requisite intent because of the abuse she had suffered at the hands of her ex-husband. ¹ We review a district court's decision to deny a particular instruction for an abuse of discretion. See Davoll v. Webb, 194 F.3d 1116, 1131 (10th Cir. 1999).

A defendant is entitled to an instruction on her theory of defense if the instruction is a correct statement of law and supported by sufficient evidence. See United States v. Bindley, 157 F.3d 1235, 1241 (10th Cir. 1998). In this case, Ms. Scarberry did not show " '(1) an immediate threat of death or serious bodily injury, (2) a well-grounded fear that the threat will be carried out, and (3) no reasonable opportunity to escape the threatened harm.' " United States v. Merchant, 992 F.2d 1091, 1096 (10th Cir. 1993) (citation omitted). While some evidence may have indicated that Ms. Scarberry was threatened by Mr. Scarberry in connection with her tax return activities, it is too far removed from establishing duress in the preparation and signing of the returns described in the indictment.

E. Motion to Suppress Evidence

Ms. Scarberry argues that her mother was tricked into turning over a box of papers when a revenue agent told her that he was authorized by Ms. Scarberry to collect the box. See United States v. Tweel [77-1 USTC ¶9330], 550 F.2d 297, 299 (5th Cir. 1977). "A consensual search is unreasonable under the Fourth Amendment or violative of due process under the Fifth Amendment if the consent was induced by fraud, deceit, trickery, or misrepresentation by the revenue agent." United States v. Peters [98-2 USTC ¶50,650], 153 F.3d 445, 451 (7th Cir. 1998). The burden is on a defendant to prove agent misconduct by clear and convincing evidence. See United States v. Powell [88-1 USTC ¶9140], 835 F.2d 1095, 1098 (5th Cir. 1988).

The district court declined to suppress evidence from the box after hearing the testimony of both Ms. Scarberry's mother and the revenue agent, finding that the agent "did not make the statement that he had the permission of the Defendant and that these documents were turned over voluntarily by the Defendant's mother and not based upon any representations about the willingness of the Defendant to have them turned over." Tr. at 345-46. Having carefully reviewed the record, we hold that the trial court's findings are not clearly erroneous.

AFFIRMED.

^* After examining the briefs and the appellate record, this three-judge panel has determined unanimously that oral argument would not be of material assistance in the determination of this appeal. See Fed.R.App.P. 34(a); 10th Cir. R. 34.1(G). The cause is therefore ordered submitted without oral argument.

^** This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. This court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

¹ The transcript of the jury instructions conference indicates that counsel tendered the instruction, and that the court denied it. However, the exact form of the requested instruction does not appear in the record.

 

 

 

[2003-1 USTC ¶50,235] United States of America , Plaintiff-Appellee v. Charles James Payton, Defendant-Appellant.

U.S. Court of Appeals, 4th Circuit; 02-4273, 59 FedAppx 517, February 10, 2003 .

Unpublished opinion affirming, per curiam, an unreported DC N.C. decision.

[ Code Sec. 7206]

Penalties, crimes: Preparation of false returns: Sentencing guidelines. --

A tax return preparer who inflated deductions in his clients' returns was properly convicted of conspiracy and assisting in the preparation of false returns. Claims made by the individual that the district court committed several procedural errors were rejected. Moreover, the taxpayer unsuccessfully claimed that the district court improperly applied a two-level specific offense increase and an additional four-level increase under the U.S. Sentencing Guidelines to his sentence. Evidence established that the taxpayer was "in the business of preparing or assisting in the preparation of tax returns" and that he had a leadership role in "a criminal activity that involved five or more participants or was otherwise extensive."

Frank D. Whitney, United States Attorney, Christine Witcover Dean, Anne M. Hayes, Assistant United States Attorneys, for plaintiff-appellee. Thomas Kieran Maher, Rudolf, Maher, Widen-House & Fialko, for defendant-appellant.

Before: Williams and Motz, Circuit Judges, and Hamilton, Senior Circuit Judge.

¬ Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.®

OPINION
PER CURIAM: Charles Payton, convicted of conspiracy and assisting in the preparation of false tax returns, appeals his conviction and sentence. Finding no reversible error, we affirm.

I.

Payton is not an accountant or lawyer. In 1996, however, he left his job at an automobile manufacturing company and opened a convenience store, in the back of which he started a tax preparation business. Payton developed a reputation in the community for obtaining refunds through amended tax returns, and this case arises out of seven of those amended returns.

At trial, several taxpayers recounted a similar story: Payton prepared amended tax returns for them, which yielded substantial refunds, and for his services, Payton charged the taxpayers a percentage (usually between ten and twenty-five percent) of the amount refunded. The amended returns reflected increased deductions for medical and employment expenses and charitable contributions; but the taxpayers testified that they provided Payton with no basis for increasing the deductions, almost invariably only giving him their original returns.

Payton's co-defendant, Ollie Maye, testifying pursuant to a plea agreement, explained how Payton came up with the figures for the increased deductions. Maye recounted that Payton directed him to use percentages of a taxpayer's adjusted gross income, such as twenty percent for medical expenses and ten percent for charitable contributions. This practice often resulted in identical figures for a given deduction for multiple taxpayers and for individual taxpayers for multiple years. For example, the IRS agent in charge of the investigation explained that he reviewed over 500 amended returns from Payton's tax service, and many returns used the figures $6998 and $8998 for medical expenses.

According to the taxpayers, to alleviate their concerns about the legitimacy of the deductions, Payton often told them that he had previously worked for the IRS. At trial, Payton denied making such statements; he also denied preparing amended returns without proper documentation or consultation. He suggested that any errors in the returns were due to false information from the taxpayers.

The jury convicted Payton of one count of conspiracy, in violation of 18 U.S.C.A. §371 (2000), and seven counts of assisting in the preparation of a false tax return, in violation of 26 U.S.C.A. §7206(2) (2002). The district court sentenced him to 78 months imprisonment, three years of supervised release, and restitution.

II.

Payton attacks his convictions on three grounds.

A.

First, Payton contends that the district court committed plain error by interrupting defense counsel's cross-examination of Maye and the direct examination of Payton himself. The Federal Rules of Evidence provide that a court "shall exercise reasonable control over the mode and order of interrogating witnesses and presenting evidence so as to ... make the interrogation and presentation effective for the ascertainment of the truth," Fed. R. Evid. 611(a), and "may interrogate witnesses, whether called by itself or by a party." Fed. R. Evid. 614(b).

In this case, the two isolated statements made by the district court fall well within the province of its authority under these rules. In response to defense counsel's cross-examination of Maye, the district court reasonably explained the complex nature of sentencing under the Sentencing Guidelines, so as to correct the potential misimpression left by defense counsel regarding the effect of Maye's plea agreement on his sentence. The court also acted reasonably in directing defense counsel to ask Payton how he arrived at medical expenses for one taxpayer in excess of $10,000 for three years in a row, in light of the fact that the taxpayer had health insurance through his employer.

A district court has a "duty to ensure that the facts are properly developed and that their bearing upon the question at issue are clearly understood by the jury." United States v. Castner, 50 F.3d 1267, 1272 (4th Cir. 1995) (internal quotation marks omitted). The district court properly carried out that duty here, and we find no error.

B.

Second, Payton argues that the district court abused its discretion, under Federal Rule of Evidence 608, in permitting the government to cross-examine him about his failure to file his own tax returns from 1997 through 2000. Payton contends that failure to file tax returns, without additional proof of dishonest intent or willfulness, is not probative of truthfulness. Even if the district court erred in permitting the cross-examination, we find the error harmless. See Fed. R. Crim. P. 52(a). We do so both because Payton was permitted to explain to the jury that he failed to file his taxes for an innocent reason, namely the destruction of his documentation in a flood, and because of the overwhelming evidence of Payton's guilt. See United States v. Weaver, 282 F.3d 302, 314 (4th Cir. 2002) ("[E]vidence was harmless in light of the overwhelming evidence against the defendant.").

C.

Finally, Payton contends that the district court erred in excluding proffered defense witnesses who would have testified that "defendant acted in a professional manner in preparing their [tax] returns"; Payton maintains on appeal that this testimony constituted proper habit evidence admissible under Federal Rule of Evidence 406. We review this claim for plain error, because Payton only argued to the district court that these witnesses should be admitted under Federal Rule of Evidence 404(b) and did not seek their admission under Rule 406. See United States v. Parodi, 703 F.2d 768, 783 (4th Cir. 1983).

In deciding whether to admit evidence under Rule 406, "courts consider three factors: (1) the degree to which the conduct is reflexive or semi-automatic as opposed to volitional; (2) the specificity or particularity of the conduct; and (3) the regularity or numerosity of the examples of the conduct." United States v. Angwin, 271 F.3d 786, 799 (9th Cir. 2001); cf. Wilson v. Volkswagen of Am., Inc., 561 F.2d 494, 511 (4th Cir. 1977) ("It has been repeatedly stated that habit or pattern of conduct is never to be lightly established, and evidence of examples, for purpose of establishing such habit, is to be carefully scrutinized before admission.").

In this case, Payton's proffered habit evidence was not reflexive or semi-automatic. Rather, he had complete freedom to decide the manner in which he prepared returns, including the amount of documentation he required and how much attention he paid to any available documentation. Moreover, the conduct of preparing tax returns can be quite general --covering a wide range of practices and routines. Accordingly, we find no error.

III.

Payton also challenges his sentence on three grounds.

A.

Payton initially contends that the district court erred when it took "the position that a defendant who objects" to a Sentencing Guidelines adjustment or enhancement "runs the risk of receiving a higher increase, while one who does not object does not run this risk." Once again, we review for plain error because Payton never raised this objection before the district court.

Payton bases this argument on the following statements made by the district court at the sentencing hearing. The court stated at the outset of the sentencing hearing:

I'll go ahead and advise you on objections that involve calculations and so forth, once the objection is made and I begin to hear the objection, if the matter goes higher than what's there [in the presentence report (PSR)], that's your problem, not mine.

Payton objected to the recommendation in the PSR that he receive a two-level adjustment for a leadership role in the offense, pursuant to U.S.S.G. §3B1.1(c), based on his leadership of Maye; the court then asked the government whether it viewed the people who used the tax service as participants. The government responded that "that would have been something that [it] wish[ed] [it] had pressed further." The court responded:

It's now on the floor; Mr. Maher [defense counsel] opened it up.... You [defense counsel] brought this matter out about role in the offense.

After hearing argument from both sides, the court concluded:

The court, by virtue of it being brought to its attention, believes the probation officer incorrectly assigned this.

The court then assigned a four-level increase under §3B1.1(a) rather than the recommended two-level increase under §3B1.1(c).

Regardless of whether or not the defendant or the government objects to the proposed findings in a PSR, the district court has a "separate obligation" to make "independent factual findings" and Guidelines calculations. United States v. Love, 134 F.3d 595, 605 (4th Cir. 1998); cf. Fed. R. Crim. P. 32(i)(3)(A) (2002) ("At sentencing, the court may accept any undisputed portion of the presentence report as a finding of fact[.]" (emphasis added)).

In this case, although the district court's choice of words was unfortunate, the record does not establish that the court intended to convey to Payton that if he did not object to the PSR, the court would accept the recommendations, but if he did object, the court would consider increased calculations or adjustments. Of course, such a practice would improperly chill a defendant's right to object to PSR recommendations. See Fed. R. Crim. P. 32(f), (i). Because Payton did not advise the district court of his present challenge to the court's comments and the record does not offer any clear support for this challenge, we find no plain error here.

B.

Payton also challenges the district court's application of the four-level leadership adjustment under U.S.S.G. §3B1.1(a).

He argues that the district court erroneously counted the taxpayers as "participants" in the offense in applying §3B1.1(a)'s four-level adjustment. Under §3B1.1(a), the offense level should be increased by four levels if "the defendant was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive." Application note 1 to §3B1.1 provides that a "`participant' is a person who is criminally responsible for the commission of the offense, but need not have been convicted." Moreover, application note 3 provides that in "assessing whether an organization is `otherwise extensive,' all persons involved during the course of the entire offense are to be considered. Thus, a fraud that involved only three participants but used the unknowing services of many outsiders could be considered extensive."

The district court found that "300 plus people were participants" and the criminal activity "was extensive." The court also noted that the government gave some of the taxpayers immunity from prosecution. Indeed, in opening statements, defense counsel characterized the taxpayers and Payton as equally culpable: "The first thing you need to realize is these taxpayers do not have clean hands. If Mr. Payton is guilty of anything, these taxpayers are just as guilty. But the government in getting them to testify has granted them immunity." Given this evidence, the district court did not clearly err in finding five or more "participants" in the criminal activity and that this activity, which Payton led, was "otherwise extensive."

C.

Alternatively, Payton contends that the court engaged in impermissible "double counting" in applying both a specific offense two-level increase under §2T1.4(b)(1)(B) and the leadership adjustment under §3B1.1(a). We review this claim for plain error because Payton did not object below. ¹

The district court applied a two-level specific offense increase, under §2T1.4(b)(1)(B), because Payton was "in the business of preparing or assisting in the preparation of tax returns." As discussed supra, Payton also received a four-level increase under §3B1.1(a), for his leadership role in "a criminal activity that involved five or more participants or was otherwise extensive." Payton argues that virtually every person in the business of preparing tax returns will have more than five customers, so those receiving the specific offense characteristic of §2T1.4(b)(1)(B) will also always receive the adjustment under §3B1.1(a). ²

The guidelines do not expressly prohibit application of both §2T1.4(b)(1)(B) and §3B1.1(a). We have "emphasized repeatedly that the sentencing guidelines should be applied as written.... To effectuate this principle, double counting is permissible under the sentencing guidelines except where it is expressly prohibited." See United States v. Wilson , 198 F.3d 467, 472 n.* (4th Cir. 1999) (internal quotation marks and citations omitted). Thus, we find no error.

IV.

For the foregoing reasons, the judgment of the district court is

AFFIRMED.

¹ Payton did not raise his "double counting" argument in his written objections to the PSR or in regard to the adjustment under §3B1.1. In asking the district court to sentence him to the bottom of the guidelines range, he stated that the two-level enhancement under §2T1.4(b)(1)(B) and the four-level adjustment under §3B1.1(a) "may or may not be technically double counting." This equivocal statement, made not in the form of an objection but in the form of an argument for sentencing at the bottom of the guidelines range, did not adequately preserve Payton's present objection.

² As the government notes, however, Maye qualified for the specific offense characteristic of being in the tax preparation business but not for any leadership role adjustment.

 

 

 

 

[2003-1 USTC ¶50,336] United States of America , Plaintiff-Appellee v. Kenneth T. Embry, Defendant-Appellant.

U.S. Court of Appeals, 6th Circuit; 02-3735, 61 FedAppx 166, March 19, 2003 .

Unpublished opinion affirming an unreported DC Ky. decision.

[ Code Sec. 7206]

Crimes: Preparation of false or fraudulent returns: Sentencing Guidelines: Enhancement.  

A federal district court did not err in finding a tax return preparer to be the leader of extensive criminal activity where his secretary participated in his tax-protest scheme to file false zero-income returns on behalf of clients. While the clients were deemed nonparticipants, the secretary, who was also a client, was determined to be a participant because she previously failed to report a substantial amount of income, despite being aware of her obligation to report such income. As such, the preparer's sentence was appropriately enhanced four levels.

Before: Clay and Rogers, Circuit Judges, and Coffman, District Judge.

¬ Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.®

ORDER

Kenneth T. Embry appeals the sentence imposed upon his conviction for aiding and assisting in the preparation of false tax returns in violation of 26 U.S.C. §7206(2). The parties have expressly waived oral argument and upon examination, this panel unanimously agrees that oral argument is not needed. Fed.R.App.P. 34(a).

On May 16, 2001 , a grand jury indicted Embry on 113 counts of violating §7206(2). Pursuant to a written plea agreement, Embry entered a conditional guilty plea to Counts 94, 95, and 96, in exchange for the dismissal of the other counts. The district court accepted the plea and sentenced Embry to 8 months in prison, 1 year of supervised release, and a $300 special assessment.

In his timely appeal, Embry argues that the district court erred by finding him to be a leader of a criminal activity that "was otherwise extensive," under USSG §3B1.1(a).

This court reviews the district court's interpretation and application of §3B1.1(a) de novo. United States v. Anthony, 280 F.3d 694, 698 (6th Cir. 2002).

Section 3B1.1(a) provides for a four level enhancement to the offense level "[i]f the defendant was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive." At a minimum, the defendant must have been the leader or organizer of at least one participant. See USSG §3B1.1, comment. (n.2). Participants include those persons "who were (i) aware of the criminal objective, and (ii) knowingly offered their assistance." Anthony, 280 F.3d at 698. A criminal activity is otherwise extensive "when the combination of knowing participants and non-participants in the offense is the functional equivalent of an activity involving five criminally responsible participants." Id. at 699. To determine functional equivalence, a sentencing court should consider:

(i) the number of knowing participants;

(ii) the number of unknowing participants whose activities were organized or led by the defendant with specific criminal intent; and

(iii) the extent to which the services of the unknowing participants were peculiar and necessary to the criminal scheme.

Id. at 701 (quoting United States v. Carrozzella, 105 F.3d 796, 805 (2d Cir. 1997)).

The district court properly enhanced Embry's offense level by four pursuant to §3B1.1(a) for the reasons stated at sentencing. Embry had been a self-employed tax preparer for many years. In 1996, while on supervised release following a prior tax fraud conviction, Embry began preparing numerous "protest-type" income tax returns in which he falsely reported that his clients had no income and no tax liability. In total, Embry prepared over 353 fraudulent returns involving 150 different taxpayers. Among those taxpayers were his previous defense counsel as well as an employee, Ms. Tommye Anderson, who had performed secretarial duties for Embry part-time during tax season for several years. The district court found Ms. Anderson to be a participant "in light of the scope of the income that she failed to state in the relevant years" and because she "had understood her obligation to report in previous years." In 1993, Ms. Anderson had over $66,000 in income from another job. The other nearly 150 taxpayers were properly deemed to be non-participants whose signing of the false tax returns was peculiar and necessary to Embry's criminal scheme.

Counsel also contends the enhancement should not apply because the falsified tax returns constituted unrelated, individual crimes, rather than an organized criminal scheme. This argument is without merit as counsel cites to no case holding that "criminal activity" as used in §3B1.1 cannot refer to a series of individual crimes.

Accordingly, the district court's judgment is affirmed.

 

 

 

 

 

[2002-2 USTC ¶50,776] United States of America , Plaintiff-Appellee v. Nelson Lee Jennings, Defendant-Appellant

(CA-4), U.S. Court of Appeals, 4th Circuit, 00-4331, 11/14/2002, Affirming an unreported District Court decision

[Code Sec. 7206 ]

Crimes: Fraud and false statements: Preparation of false or fraudulent returns.--The district court properly refused to set aside the verdict and grant a new trial to a tax preparer who had been convicted of willfully aiding or assisting in the preparation and presentation of false and fraudulent tax returns. The preparer unsuccessfully contended that the government's knowing use of perjured testimony at trial violated his right to due process. The weight of the evidence pointed strongly to the preparer's guilt, even aside from the testimony of witnesses for whom he had prepared returns. The jury could have readily found that the returns were fraudulent or false on their face due to the frequency and similarity of the overstated deductions. Moreover, it could have inferred willfulness from the preparer's repeated pattern of failing to obtain sufficient documentation to justify the deductions claimed on the returns.
[Code Sec. 7206 ]

Crimes: Fraud and false statements: Preparation of false or fraudulent returns: Perjury.--The district court properly refused to set aside the verdict and grant a new trial to a tax preparer who had been convicted of willfully aiding or assisting in the preparation and presentation of false and fraudulent tax returns. Even if the government had knowingly submitted perjured testimony, as the tax preparer contended, he conceded at oral argument that he failed to demonstrate that the taxpayer witnesses lied about any material fact. Even if the witnesses' testimony denying knowledge of the claimed deductions was perjured, such testimony was not material because it was relevant to their credibility, not the preparer's liability under Code Sec. 7206(2) .
[Code Sec. 7206 ]

Crimes: Fraud and false statements: Preparation of false or fraudulent returns: Due process: New trial denied.--The district court properly refused to set aside the verdict and grant a new trial to a tax preparer who had been convicted of willfully aiding or assisting in the preparation and presentation of false and fraudulent tax returns. To the extent the preparer claimed that his due process rights were violated by not being afforded an opportunity to impeach the credibility of witnesses, it was undisputed that the government turned over to the preparer both the tax returns and the witnesses' affidavits almost two months prior to trial. The preparer's counsel pointed out inconsistencies in the witnesses' testimony at trial.

Helen F. Fahey, United States Attorney, Stephen Westley Haynie, Assistant United States Attorney, Norfolk, Va., for plaintiff-appellee. William P. Robinson, Jr., Robinson, Neeley & Anderson, Norfolk , Va. , for defendant-appellant.

Before: LUTTIG, MOTZ and GREGORY, Circuit Judges.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

OPINION

Per Curiam"

EC: Nelson Jennings, a tax preparer, was convicted of 12 counts of willfully aiding or assisting in the preparation and presentation of false and fraudulent returns in violation of 26 U.S.C. §7206(2). For the reasons that follow, we affirm.

I.

A computer program developed by the Internal Revenue Service ("IRS") uncovered an unusual pattern in a number of the tax returns prepared by Jennings . J.A. 34-35. The IRS reviewed approximately 90 returns, discovering that the itemized deductions on the returns were disproportionately high in relation to the adjusted gross income of the taxpayers. J.A. 36-37.

The IRS thereafter designated 23 returns for full investigation, including interviews with the taxpayers whose returns were selected. During the interviews, the taxpayers signed affidavits stating that they were not eligible for many of the deductions listed on the returns, that they did not review the returns carefully or provide Jennings with documentation to support the claimed deductions, and that they relied on Jennings ' expertise in preparing the returns. Thus, contrary to the signed statement in their tax returns, ¹ the taxpayers essentially denied any knowledge of the fraudulent deductions, explaining that they were interested only in the amount of the refund.

The government subsequently indicted Jennings on 23 counts of willfully aiding and assisting in the preparation and presentation of false and fraudulent returns in violation of 26 U.S.C. §7206(2). ² At trial, the government called the taxpayer witnesses, who, "[f]or the most part[ ]," testified consistently with their signed affidavits. S.J.A. 175. In addition to the taxpayer testimony, the district court also admitted the fraudulent returns into evidence. J.A. 29-30.

The jury returned a guilty verdict on 12 of the 23 counts of the indictment. J.A. 1034-35. The district court subsequently denied Jennings ' motion to set aside the jury verdict and for a new trial, S.J.A. 173-78, and sentenced him to 27 months imprisonment, J.A. 1158-59. This appeal followed.

II.

Jennings argues that the district court erred in refusing to grant him a new trial because the government's knowing use of perjured taxpayer testimony violated his right to due process, thereby depriving him of a fair trial. We disagree.

In denying Jennings' motion for a new trial, the district court held that "the taxpayer witnesses committed perjury either (1) when they signed their returns stating that they had examined the figures on the returns and that those figures were correct; or (2) when they signed the affidavits and testified in Court that they did not examine the deductions contained in the return." S.J.A. 176. Nevertheless, the district court concluded that even "the presentation of [such] inherently incredible . . . testimony" did not prejudice Jennings "by depriving him of a fair trial." S.J.A. 177. We express no view regarding whether the government knowingly used perjured testimony against Jennings at the trial because, even if we assume that it did, there is no "reasonable likelihood that the false testimony could have affected the judgment of the jury." United States v. White, 238 F.3d 537, 540-41 (4th Cir. 2001) (quoting Kyles v. Whitley, 514 U.S. 419, 433 n.7 (1995)).

First, the weight of the evidence in this case, even aside from the taxpayers' testimony, pointed heavily toward Jennings ' guilt. As the district court observed in reaching this conclusion, "a simple comparison of the amounts the taxpayers claimed to have paid in medical expenses and charitable contributions with the amount of income earned by the taxpayers reveals the grossly disproportionate amount of itemized deductions claimed on the returns." S.J.A. 177. Indeed, the jury could have readily found that the returns were "fraudulent" or "false" on their face since the total itemized deductions as a percentage of adjusted gross income on the 23 returns ranged from a low of 45% to a high of 99%, with 22 of the 23 returns containing total itemized deductions that were greater than 60% of adjusted gross income. S.J.A. 172. See United States v. Conlin [77-1 USTC ¶9291 ], 551 F.2d 534, 536 (2d Cir. 1977) (holding that the jury's finding that a tax preparer acted willfully was supported "by both the frequency and similarity of" the overstated deductions in the returns that he prepared). Furthermore, as the district court noted, the jury could have inferred guilt, especially as to willfulness, from Jennings ' repeated pattern of failing to obtain "sufficient documentation despite the obvious disproportion between the deductions and available income" on the returns. S.J.A. 177.

Second, even assuming arguendo that the government knowingly submitted perjured testimony, Jennings conceded at oral argument that he "ha[d] failed to demonstrate that [the taxpayers] lied about any material fact." Knox v. Johnson, 224 F.3d 470, 478 (5th Cir. 2000). Section 7206(2) expressly provides that a person may be convicted "whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim or document." Thus, even if the taxpayers' testimony at trial denying any knowledge of the claimed deductions was perjurious, such testimony was not material since "the innocence or guilty knowledge of a taxpayer is irrelevant to [a section 7206 prosecution]." United States v. Jackson [71-2 USTC ¶9739 ], 452 F.2d 144, 147 (7th Cir. 1971) (emphasis added); see also United States v. Rowlee [90-1 USTC ¶50,189 ], 899 F.2d 1275, 1279 (2d Cir. 1990) ("In fact, the guilt or innocence of the taxpayer for whom the return was filed is irrelevant to the question of the adviser's guilt."). As a result, any perjured testimony in this case was relevant only to the credibility of the taxpayer witnesses, not to establishing a section 7206(2) violation by Jennings .

Finally, to the extent Jennings contends that his due process rights were violated by not being afforded an opportunity to impeach the credibility of the taxpayer witnesses, we disagree, for it is undisputed that the government turned over to Jennings both the tax returns and the affidavits almost two months prior to trial. Indeed, having been made aware of the discrepancies in the various taxpayer statements, defense counsel actually highlighted some of the inconsistencies during his examination of the taxpayer witnesses at trial.

Accordingly, we hold that the district court did not abuse its discretion in denying Jennings' motion to set aside the verdict and for a new trial because even if the government knowingly presented perjured testimony, there is no "reasonable likelihood that the false testimony could have affected the judgment of the jury." ³

CONCLUSION

For the reasons stated herein, the judgment of the district court is affirmed.

AFFIRMED.

¹ In the tax returns, the taxpayers signed the following statement: "Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete." S.J.A. 148.

² Section 7206(2) provides as follows:

Any person who . . . willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document . . . shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

³ In a related claim, Jennings also argues that the district court erred when it failed to instruct the jury that it was entitled to completely disregard the taxpayer testimony because the taxpayer witnesses committed perjury either in their returns or in their affidavits. J.A. 1009. Even assuming arguendo that the taxpayer testimony was, in fact, perjurious, the district court did not abuse its discretion in refusing Jennings ' proffered instruction because the court appropriately administered a "broad range of instructions on credibility." United States v. Gray, 137 F.3d 765, 773-74 (4th Cir. 1998).

 

 

[2005-2 USTC ¶50,565] United States of America , Plaintiff-Appellee v. David L. Smith, Defendant-Appellant. United States of America , Plaintiff-Appellee v. Herbert A. Bates, Defendant-Appellant.

U.S. Court of Appeals, 9th Circuit; 03-10548, 03-10604, September 13, 2005 .

Affirming in part and remanded in part an unreported DC Calif. decision.

[ Code Sec. 7206]

Procedure and administration: Tax shelters: Fraud and false statements: Aiding and abetting.

Tax shelter promoters (the "promoters") willfully aided clients in filing false or fraudulent tax returns in violation of Code Sec. 7206(2). The promoters charged hundreds of clients to set up and manage trusts known as Unincorporated Business Organizations (UBOs), which purportedly avoided taxes on income streamed into them. The government sufficiently proved the three elements of a Code Sec. 7206 violation. First, the IRS proved that the promoters aided, assisted or otherwise caused the preparation and presentation of a false or fraudulent return. Code Sec. 7206 does not require that the promoter actually prepare the offending tax returns. Second, the returns at issue were fraudulent or false as to a material matter because they omitted reportable income. While the income could have been reported elsewhere, it was not and, therefore, the failure to report the income on the clients' personal returns made those returns false and fraudulent. Finally, the promoters willfully acted to defraud the government. It did not matter that the promoters also intended to steal money from their clients.

John Balazs, for defendant-appellant Smith; Victor S. Haltom, for defendant-appellant Bates; Samantha S. Spangler, Assistant United States Attorney, for plaintiff-appellee.

Before: Kleinfeld, Hawkins and Graber, Circuit Judges.

OPINION

HAWKINS, Circuit Judge: Defendants David Larry Smith ("Smith") and Herbert Arthur Bates ("Bates") appeal their convictions on multiple counts of tax fraud, mail and wire fraud, money laundering, and conspiracy, as well as their sentences. Defendants challenge: (1) arraignment by a magistrate judge, (2) multiplicity of the indictment resulting in a multiplicitous sentence on the three conspiracy counts, (3) an indictment passed on by grand jurors not questioned about their feeling towards the IRS, (4) denial of a suppression motion based on alleged defects in the arrest and search warrants, (5) sufficiency of the evidence on the tax counts, (6) denial of a motion for a new trial based on alleged petit juror bias, and (7) denial of a multiple conspiracy instruction. In addition to disputing the district court's application of various sentencing guidelines, Smith and Bates make a United States v. Booker, 125 S.Ct. 738 (2005), challenge to sentencing based on facts not found by a jury, and an ex post facto challenge to application of an advisory guideline system to their sentences. We have jurisdiction under 28 U.S.C. §1291 and affirm the convictions in all respects and remand on sentencing pursuant to United States v. Ameline, 409 F.3d 1073 (9th Cir. 2005) (en banc).

FACTS AND PROCEDURAL HISTORY

The government brought Smith and Bates ¹ to trial for enlisting hundreds of clients to set up trusts known as Unincorporated Business Organizations, or "UBOs," which purportedly avoided taxes on income streamed into them; the defendants charged their clients to set up and conduct transactions for the UBOs, only to later steal their clients' money.

The defendants advised their clients to transfer all of their income and assets --including their businesses, homes, relative's homes, furniture, jewelry, cars, and even pets --into the UBO. Defendants also advised clients to ask their employers to issue pay checks, commission checks, or other income sources in the names of their UBOs instead of in their names.

Moreover, the defendants assured clients that they could use the UBOs to pay a variety of expenses, to be deducted as "business expenses" from the UBO's income. These business expenses included everything from mortgage and utility payments to business equipment to haircuts, pet needs, laundry, clothes, and lawn care. As one client testified, "practically everything we did could be seen as a legitimate deduction." Another client echoed that "pretty much everything could be deducted or be used as legitimate business expenses. ... Probably certain personal items were not exempt, so to speak. Like toothpaste."

Numerous clients testified at trial how defendants (usually Smith ² ) advised them that they did not have to pay taxes once they paid the defendants to establish a UBO. For example, Phyllis Ellen Denby testified that Bates advised her to establish a UBO to distribute stock profits in a way the IRS would not be aware of them. Bates told Denby and her husband that no taxes need be paid on "any money" that was in the UBO. Charles Michael Stoker testified that Smith told him and his wife that by placing their home into the UBO, the home could be sold and yet he could withhold the proceeds from tax filing. David Vette testified that Smith informed him that "as long as the UBO did not have a profit at the end of the year, there was no taxable consequence. I did not have to file a tax return." Ronald J. Herrema testified that Smith told him that UBOs are never audited and do not have any filing requirements. Smith strongly recommended that Herrema "get rid of any cash" in the UBO at the end of the year to "not raise a flag to the Internal Revenue Service," and thus "never [be] subject to filing requirements or IRS audit inspections." And, Smith "highly suggested" that he and his wife kept their income below $10,500, the ceiling below which married couples were not required to file tax returns.

Similarly, James Allen Herrema testified that Smith told him that the benefit of the UBO receiving his income is that he "would not have to file personal income tax on that income." Smith plainly stated that income into the UBO "fell into a category of not being taxable." When Herrema specifically asked whether he had to continue filing personal tax returns, Smith said "it was not necessary." Sharon Ludders testified that she was told that everything she owned could be transferred into the UBO, and that the trust would "take care" of her obligations to pay personal income taxes. Judith Reitz testified that Smith told her that "it wasn't necessary" for her UBO to file a tax return; "[i]n fact, it was really not desirable." When Ms. Reitz said she planned to continue filing personal income tax returns, Smith explicitly told her not to file.

Michael Joseph Young was told by Smith that trust expenses would be deducted from the income into the trust, to achieve a zero balance at the end of the year. "You didn't have to worry about filing a return or anything like that on it." Young understood from Smith that the money that went into the UBO did not need to be reflected on his personal income tax return, either. Lawrence Newton Craig testified that Smith said that UBOs did not have to file any tax returns. Smith said UBOs were "basically a tax shelter."

In addition to the above advice, Smith had a "particular way" at "particular bank[s]" to set up the UBO accounts, which he did in person. Smith established non-interest-bearing accounts for the UBOs, which the government argued kept the banks from filing with the IRS to report interest income.

Smith told clients not to discuss their UBOs with qualified accountants or attorneys. Bates told one set of clients to not even tell their closest relatives about their UBO. Smith told another client that she did not have the authority to provide UBO-related documents to the IRS because a vote of the trustees was needed. Bates and Smith also insisted on handling correspondence with the IRS. For example, Bates would write the IRS requesting legal authority for reporting certain income to the IRS, as well as asking the IRS to review certain portions of the Constitution regarding the power to collect taxes. The letters attempted to avoid paying taxes. Indeed, with or without such letters, most of the defendants' clients did not file tax returns and/or filed tax returns that omitted substantial income.

In order to make the UBO scheme work, many clients were told that they had to make "distributions" out of their UBOs to avoid filing taxable income within them. As one client put it, "if there was a [UBO] profit, we would do a distribution, and that would eliminate any of the profit, and there would be no taxable occurrence." Clients were told that their "distribution" was "going offshore into an investment program ... and it would earn a profit ... and [they] would have access to it down the road." Smith offered several ways to get the distribution money back, including an out-of-country credit card account or a direct payment to Smith to move the money offshore for an eleven percent charge. Although clients could access their distribution or investment money for a while, Smith eventually transferred the money to another bank, and the clients could no longer access their money. Client losses ranged from $20,000 to $400,000.

Agent Bridgette O'Keeffe ("Agent O'Keeffe"), the government's summary witness, testified, among other things, regarding (1) each of the tax returns charged in the counts pertaining to aiding and assisting false or fraudulent returns, and (2) the numerous mail fraud and wire fraud counts, explaining the monies she traced that clients had invested with the defendants that ended up in Cayman Islands accounts.

The jury found Bates guilty of: (1) conspiracy to defraud the United States in the ascertainment, computation, or assessment of taxes, in violation of 18 U.S.C. §371; (2) multiple counts of aiding and assisting in the preparation and presentation of false and fraudulent tax returns, in violation of 26 U.S.C. §7206(2); (3) conspiracy to engage in mail or wire fraud, in violation of 18 U.S.C. §371; and (4) conspiracy to launder money, in violation of 18 U.S.C. §371. The jury also found Smith guilty of the above charges, as well as multiple counts of each of the following: (1) mail fraud, in violation of 18 U.S.C. §1341; (2) wire fraud, in violation of 18 U.S.C. §1343; (3) money laundering, in violation of 18 U.S.C. §§1956(a)(1)(A) 1956(a)(1)(B); and (4) engaging in financial proceeds of unlawful activity, in violation of 18 U.S.C. §1957.

Bates and Smith moved for a new trial based on the alleged lack of impartiality of Jurors #9 and #1. Juror #9 wrote Agent O'Keeffe after the trial suggesting they "get acquainted." Juror #9 did not converse with Agent O'Keeffe during the trial, at most exchanging a smile across elevators. The district court considered allegations of Juror #9's bias, and found "absolutely no tangible evidence that there was any extraneous information or extraneous influence on this juror by anyone."

During deliberations, Juror #1 wrote that she was criticized by the foreperson and felt intimidated. The district court questioned Juror #1 outside the presence of other jurors, whereupon Juror #1 told the court she felt able to return to deliberations and make future decisions based on her own conscience and belief. After considering the evidence as to Jurors #1 and #9, the district court denied the motion for a new trial.

At the close of the evidence, Smith moved for judgment of acquittal on the counts charging him with aiding and assisting in the preparation and presentation of false tax returns and conspiracy to commit tax fraud. The district court denied the motion as to both Smith and Bates, and denied the renewed motion after the verdict as to all defendants.

Smith was sentenced to 151 months' imprisonment; Bates to 136 months' imprisonment. The district court also ordered three defendants, including Smith and Bates, to forfeit $1 million, pursuant to the parties' stipulation.

DISCUSSION

I. Magistrate Judge's Authority to Conduct Arraignment

Magistrate Judge John F. Moulds presided over Smith's hearing for the entry of a plea. The magistrate judge asked Smith's counsel, Scott Tedmon, for the entry of the plea to the indictment. Smith's counsel had no objection and stated that his client was prepared to enter a plea of not guilty and requested a jury trial. The magistrate judge then scheduled a status conference before District Judge Lawrence Karlton.

Smith now argues that the magistrate judge had no authority to arraign Smith under Rules 5 and 10 of Criminal Procedure, and that Judge Karlton erroneously denied his motion to dismiss the indictment on this ground. We review de novo the district court's refusal to dismiss an indictment for lack of jurisdiction. United States v. Phillips, 367 F.3d 846, 854 (9th Cir.), cert. denied, 125 S.Ct. 479 (2004).

Rule 5 pertains to initial appearances before a magistrate judge for "arrest[s] under a warrant issued upon a complaint or any person making an arrest without a warrant." Fed. R. Crim. P. 5(a) (2000). Thus, Rule 5(c)'s provision that a magistrate judge may not accept a plea in a felony case is inapposite.

Nor does Smith cite any violations of Rule 10 (stating the requirements for an arraignment in open court) either, except to say that magistrate judges are not authorized to conduct a Rule 10 arraignment. Smith is mistaken. Rule 72-302(b)(1) of the Local Rules of the United States District Court for the Eastern District of California grants authority to magistrate judges to handle pretrial matters in felony cases, and does not exclude the arraignment process for a not guilty plea. Thus, the magistrate judge had authority to arraign Smith.

II. Multiplicity of Conspiracy Counts & Plain Error

The three conspiracy counts are: (1) conspiracy to defraud the United States in the ascertainment, computation, or assessment of taxes, in violation of 18 U.S.C. §371; (2) conspiracy to engage in mail or wire fraud, in violation of 18 U.S.C. §371; and (3) conspiracy to launder money, in violation of 18 U.S.C. §§371 and 1956(h). Bates and Smith ³ argue that these three conspiracy counts are multiplicitous because there was only one combined scheme, i.e., one conspiracy. Bates asserts that the convictions and consecutive sentences on these counts violate the Double Jeopardy Clause and separation of powers principles. Bates bases these claims not on the multiplicity of the indictment, but rather the multiplicity of sentences imposed by the district court.

Typically, whether a defendant's double jeopardy rights have been violated is reviewed de novo. United States v. Stoddard [ 97-2 USTC ¶50,574], 111 F.3d 1450, 1454 (9th Cir. 1997). However, Bates did not clearly raise the multiplicity of sentences issue below. Though Bates claims that he raised the issue when his counsel argued at the sentencing hearing that "the Government's case against [Bates] was one set of acts done for a common purpose, and that he, therefore, should be sentenced accordingly rather than for multiple reasons," this one sentence is insufficient to raise a double jeopardy objection with respect to the three conspiracy counts.

Nevertheless, a multiplicious sentence cannot be waived. ⁴ See Launius v. United States , 575 F.2d 770, 772 (9th Cir. 1978) ( per curiam) ("[I]f sentences are imposed on each count of [a] multiplicious indictment the defendant is not forced to serve the erroneous sentence because of any waiver.") (internal quotations and citation omitted). Because Bates failed to raise this issue before the district court, plain error review applies. See United States v. Freeman, 6 F.3d 586, 600-01 (9th Cir. 1993) (consecutive sentences for duplicitous charges subject to plain error review); United States v. Hernandez-Guardado, 228 F.3d 1017, 1028-29 (9th Cir. 2000) (failure to raise double jeopardy claim based on a second trial not waived absent evidence of a voluntary and knowing relinquishment of right against double jeopardy).

For Bates to prevail under plain error review, he must show (1) an error, (2) that is plain, (3) that affects substantial rights, and (4) that seriously affects the fairness, integrity, or public reputation of judicial proceedings. Johnson v. United States , 520 U.S. 461, 467 (1997).

[1] "The Double Jeopardy Clause prohibits subdivision of a single criminal conspiracy into multiple violations of one conspiracy statute." United States v. Montgomery, 150 F.3d 983, 989 (9th Cir. 1998) (internal quotations and citation omitted). Because all three conspiracy counts in this case violate the same statute --18 U.S.C. §371 ⁵ --this court uses the five-factor test adopted in Arnold v. United States, 336 F.2d 347, 350 (9th Cir. 1964), rather than the test articulated in Blockburger v. United States, 284 U.S. 299, 304 (1932). See United States v. Luong, 393 F.3d 913, 916 (9th Cir. 2004), cert. denied, 125 S.Ct. 1953 and 1963 (2005); Montgomery , 150 F.3d at 990.

[2] The Arnold analysis has been summarized by Stoddard:

To determine whether two conspiracy counts charge the same offense and so place the defendant in double jeopardy, we consider five factors: (1) the differences in the periods of time covered by the alleged conspiracies; (2) the places where the conspiracies were alleged to occur; (3) the persons charged as coconspirators; (4) the overt acts alleged to have been committed; and (5) the statutes alleged to have been violated.

[ 97-2 USTC ¶50,574], 111 F.3d at 1454 (internal quotations and citation omitted). Rather than focus on any one factor, the court considers all the factors together to determine if there was more than one agreement. "'The fact that there is some interrelationship between conspiracies does not necessarily make them the same criminal enterprise,' where one conspiracy involves unlawful transactions 'quite distinct in their means of execution and their objects.'" United States v. Guzman, 852 F.2d 1117, 1121 (9th Cir. 1988) (quoting United States v. Ingman, 541 F.2d 1329, 1331 (9th Cir. 1976) ( per curiam).

On appeal, the defendant has the burden of showing that the multiple conspiracies charged are based on a single agreement, i.e., that the conspiracies are "indistinguishable in law and in fact." Montgomery , 150 F.3d at 990 (citing Guzman, 852 F.2d at 1119-20). This issue is based on sufficiency of the evidence, examining the evidence "in the light most favorable to the prosecution to determine if any rational trier of fact could have found that more than one conspiracy existed." Id.

A. Time Frame

[3] The government alleged that the Count 1 conspiracy spanned from August 14, 1981 to June 13, 1997 , the Count 25 conspiracy from August 14, 1981 to February 1, 1998 , and the Count 64 conspiracy from January 1, 1987 to June 13, 1997 . Thus, there is substantial overlap in timing. It is worth noting here that the government argued that "from the very beginning" of the Count 1 agreement, there was a plan to steal the clients' money, which would involve mail and wire fraud (Count 25) and money laundering (Count 64). ("From the very beginning of the agreement between the parties, the agreement was to engage in tax crimes together with mail and wire fraud crimes together with money laundering crimes.")

B. Geographic Locations

[4] Bates contends that the vast majority of activities relevant to all three counts occurred in Sacramento , California , and the Cayman Islands . The government does not dispute this contention. The indictment and the evidence at trial support Bates's contention that the overt acts for all three counts occurred in the same geographic locations.

C. Participants

All four defendants were charged in Count 1, and all defendants except Charlotte Wadsworth were charged in Counts 25 and 64. However, the third factor depends not only on overlap in membership, but also the roles of the overlapping members. Stoddard [ 97-2 USTC ¶50,574], 111 F.3d at 1455. Bates contends that the roles were the same in all three counts.

[5] The government argued at trial that the defendants each played different roles in the various schemes. However, that many overt acts are incorporated by reference between the conspiracy counts supports the defendants' argument that the (different) role of each defendant was similar across the three alleged conspiracies.

D. Overt Acts

[6] Although the overt acts for three counts are not identical, they substantially overlap. For Count 1, the government alleged 166 overt acts; for Count 25, 151 of the 166 overt acts are incorporated by reference, and 23 new overt acts are added; for Count 64, overt acts are incorporated by reference from Counts 1 and 25.

The overt acts in Count 1 generally relate to defendants: (1) forming various UBOs, (2) accepting fees (in the form of checks or wire transfers) for the UBOs, (3) depositing fees, (4) serving as agents or trustees for the UBOs, (5) advising clients they need not file taxes, (6) writing letters to clients and the IRS, (7) forming corporations and bank accounts in the Cayman Islands, (8) opening bank accounts in California, and (9) authorizing wire transfers between various accounts. Count 25 adds overt acts pertaining to specific fraudulent investments defendants persuaded the UBO clients to pursue.

E. Statutes Violated

[7] The three conspiracy counts allege a violation of the same statute --18 U.S.C. §371 --although Count 64 also alleges a violation of 18 U.S.C. §1956(h). However, the fifth factor considers not only the violation of the same statute, but also whether the goals of the conspiracies were similar. Stoddard [ 97-2 USTC ¶50,574], 111 F.3d at 1456.

The government specifically addressed in closing argument how 18 U.S.C. §371 can relate to three separate crimes. In arguing that "the conspiracy counts are very different," the government first pointed to the two distinct types of crimes covered by §371: (1) conspiracy to defraud the United States in the exercise of its lawful governmental functions, and (2) conspiracy to violate a specific section of the United States Code. The government further explained that Count 1, the first type of conspiracy, related to defrauding the IRS in the assessment of taxes, whereas Counts 25 and 64 related to violations of different code sections (mail or wire fraud sections, and money laundering sections, respectively).

However, the government argued to the jury that the goals of defrauding the government, and engaging in mail and wire fraud and money laundering, were all inter-related:

This case is a situation where the defendants had a single unified plan from the very beginning. This is not a situation where the defendants that engaged in one type of activity and then did that for a while and then decided to get into some other type of activity which might be fraudulent and then to launder money at the end of day.

The defendants had a single, unified plan from, as I say, the very get-go in this case. From the very beginning of the agreement between the parties, the agreement was to engage in tax crimes together with mail and wire fraud crimes together with money laundering crimes. That's the only way the defendants' actions and their activities make any sense at all is to look at all the actions as pieces of a bigger essentially three-dimension, circular-type of a scheme.

The tax scheme was set up in a certain way specifically for the purpose to create the ability to engage in mail and wire fraud. ... And the defendants could not engage in mail and wire fraud if they did not launder money. ... So from the very beginning, the defendants had it in their mind the aspect of stealing --effectively stealing, to use a generic term, money from the investors and use the promotion of the tax vehicle as a way to accomplish that fraud.

The government concluded closing arguments with the point that all the counts were fraud crimes to enrich the defendants --with respect to the tax crimes, to collect fees on the UBOs; with respect to money laundering, "to move the money around and get what [defendants] need without being caught"; and with respect to mail and wire fraud, more monetary motives.

[8] Given the government's contention that the goal for all three conspiracies was one and the same --to steal money --it appears under Stoddard that they should be treated as one conspiracy, at least for the purpose of sentencing. Considering all five Arnold factors, it was arguably error for Bates and Smith to be sentenced to consecutive terms on the three conspiracy counts.

[9] However, an error is not plain unless it is "clear" or "obvious." United States v. Olano, 507 U.S. 725, 734 (1993). Plain error "is so clear-cut, so obvious, a competent district judge should be able to avoid it without benefit of objection." United States v. Turman, 122 F.3d 1167, 1170 (9th Cir. 1997) (citing United States v. Frady, 456 U.S. 152, 163 (1982)). In this complex case, with hundreds of overt acts, multiple defendants, and weeks of trial, it was not plain or obvious that only one conspiracy transpired. Indeed, the government convinced the jury that the defendants engaged in three separate conspiracies.

[10] To muddle the multiplicity issue further, defendants did not merely fail to argue that there was one overarching conspiracy for double jeopardy purposes; they argued the opposite position: that each of the three conspiracy counts were themselves duplicitous, encompassing multiple agreements and conspiracies in each one. That is, they asserted that there were even more conspiracies. As to Count 1, Smith disputed one overarching conspiracy to defraud the United States because the overt acts covered six alleged UBOs, with differing (1) time periods, (2) identity of defendants involved, (3) identity of taxpayers involved, and (4) specific transactional facts. Smith posed the "same argument and analysis" from Count 1 to Counts 25 and 64. Thus, it was not clear or obvious that the three conspiracies were multiplicitous, even at the sentencing stage. The defendants have failed to show plain error.

III. Dismissal of Indictment Based on Potentially Biased Grand Jury

Smith argues that the district court erred in denying his motion to dismiss the indictment because the grand jurors were not questioned about their contacts with the IRS to ensure that they could serve as impartial jurors.

We review de novo the district court's denial of a motion to dismiss an indictment. United States v. Rivera-Sillas, 376 F.3d 887, 889 (9th Cir. 2004). A district court may not dismiss an indictment for error in a grand jury proceeding unless the error prejudiced the defendant. Bank of N.S. v. United States [ 88-2 USTC ¶9547], 487 U.S. 250, 254 (1988). "Substantial proof of grand jury bias is required to overturn an indictment." United States v. Miller, 105 F.3d 552, 555 (9th Cir. 1997).

[11] Smith bases his grand juror (potential) bias claim on 28 U.S.C. §1866(c)(2), which states in part that "no person or class of persons shall be disqualified, excluded, excused, or exempt from service as jurors: Provided, That any person summoned for jury service may be ... (2) excluded by the court on the ground that such person may be unable to render impartial jury service." Not surprisingly, neither §1866(c)(2) nor any Ninth Circuit case ⁶ requires probing the grand jurors with questions about their feelings toward the IRS.

[12] Given that Smith makes no factual allegation of actual bias on the part of any grand juror in his case, he has not shown "[s]ubstantial proof of grand jury bias," see Miller, 105 F.3d at 555, let alone prejudice, see Bank of N.S. [ 88-2 USTC ¶9547], 487 U.S. at 254. Thus, the district court did not err in denying dismissal of the indictment on this ground.

IV. Search and Arrest Warrants

Smith argues that the district court erred by denying his motion to suppress evidence based on defects in the search and arrest warrants, alleging that: (1) the search warrant lacked particularity and was facially overbroad, (2) the government agents flagrantly seized items outside the scope of the warrant, (3) the agents failed to provide a complete copy of the warrant at the outset of the search, and (4) the search and arrest warrants were invalid because they lacked a court seal and the magistrate judge did not sign the arrest warrant.

We review de novo the district court's denial of a motion to suppress, and the factual findings supporting the denial for clear error. United States v. Mann, 389 F.3d 869, 874 (9th Cir. 2004), cert. denied, 125 S.Ct. 1719 (2005).

A. Particularity and Overbreadth

[13] "The Fourth Amendment requires that a warrant particularly describe both the place to be searched and the person or things to be seized." United States v. Spilotro, 800 F.2d 959, 963 (9th Cir. 1986). As Spilotro explained, "[t]he description must be specific enough to enable the person conducting the search reasonably to identify the things authorized to be seized." Id. The purpose of the breadth requirement is to limit the scope of the warrant "by the probable cause on which the warrant is based." In re Grand Jury Subpoenas, 926 F.2d 847, 856-57 (9th Cir. 1991). Both the particularity and breadth requirements prevent "general, exploratory rummaging in a person's belongings." Id. at 857 (quotation marks and citations omitted).

Smith argues the warrant in this case "failed to restrict government agents in any meaningful way, converting the warrant into the type of general, overbroad warrant prohibited by the Fourth Amendment." Specifically, Smith argues that paragraphs 1 through 11 of the search warrant's Attachment B "authorized the seizure of virtually all of Smith's personal and business records, electronic documents, photographs, films, and videotapes ... 'for the period of January 1990 through the current date.'"

Attachment B describes the items to be seized as follows:

For the period January 1990 through the current date:

 

1) The following documents relating to the promotion of UBOs: seminar tapes, presentation documents, video tapes, literature, flyers, advertising, and business cards.

2) UBO client files to include UBO names, individuals names, addresses, telephone numbers, and other identifying information; contracts of "UBO Organization"; copies of minutes; domestic and foreign bank account statements; wire transfer documents; canceled checks; deposit slips; copies of money orders; copies of cashier's checks; correspondence to, from, and on behalf of UBO clients including correspondence with the IRS; copies of Forms SS-4, Request for Employer Identification Number; records of payments from and to UBO clients reflecting dates and purpose of such payments; invoices; receipts; memoranda; copies of tax returns, and any documents used in the preparation of tax returns.

3) All documents relating to any alleged defense contractor loan investment program including literature, contracts, agreements, notes, financial statements and records, correspondence, memoranda, receipts, advertising, and other records; copies of letters and invoices or monthly statements to investors.

4) All documents pertaining to the purchase, and/or sale, and/or transfer of real property including escrow statements, deeds, deeds of trust, mortgages, notes, correspondence, closing statements, mortgage payments and down payments including documents reflecting the form, amount, and date of such payments. Documents pertaining to the purchase/sale of personal property including vehicles, furniture, and other items to include receipts, contracts, agreements, financial statements, purchase agreements, and correspondence.

5) All books and records of UBO businesses, including general journals, general ledgers, financial statements, balance sheets, income statements, cash receipts and disbursements journals[.]

6) All documents relating to the receipt and disbursement of income, by or from any UBO, including credit card receipts and statements, receipts, invoices, statements of accounts at domestic and foreign banks, check registers, cancelled check, money orders, cashier's checks, wire transfer documents, bank drafts, safety deposit box records, stocks, bonds, and other securities, investment records, loan applications, and other financial statements, promissory notes, telephone toll records and bills, personal calendars, address and telephone books, rolodex indices, records relating to domestic and international travel including tickets, reservations, hotel receipts, travel logs, itineraries, and receipts, Forms 1099 and other tax documents; any other records used to reconstruct income and expenses; records relating to safe deposit box rental.

7) All documents reflecting current ownership, occupancy, and use of premises including utility bills, receipts, correspondence, monthly statements, photographs, film, and video tapes.

8) All information and/or data stored in the form of magnetic or electronic coding on computer media or on media capable of being read by a computer or with the aid of computer-related equipment. This media includes, but is not limited to, floppy diskettes, fixed hard disks, removable hard disk cartridges, laser disks, video cassettes, and any other media which is capable of storing magnetic coding.

 

9) All electronic devices which are capable of analyzing, creating, displaying, converting, or transmitting electronic or magnetic computer impulses or data. These devices include, but are not limited to, computers, computer components, computer peripherals, word processing equipment, modems, monitors, printers, plotters, encryption circuit boards, optical scanners, external hard drives, and other computer related electronic devices.

10) All instructions or programs stored in the form of electronic or magnetic media which are capable of being interpreted by a computer or related components. The items to be seized include, but are not limited to, operating systems, application software, utility programs, compilers, interpreters, and any other programs or software used to communicate with computer hardware or peripherals either directly or indirectly via telephone lines, radio, or other means of transmission.

11) All written or printed material which provides instructions or examples concerning the operation of a computer system, computer software, and/or any related device which is present at the scene.

[14] The warrant's Attachment B describes with sufficient specificity the types of documents and property sought. Potentially problematic is its breadth: though limited in time period and subject matter (UBO businesses and loan investment program since 1990), the warrant is quite broad as it relates to those enterprises. However, even an "extraordinarily broad" warrant authorizing the seizure of essentially all business records may be justified when there is "probable cause to believe that fraud permeated the entire business operation." United States v. Offices Known as 50 State Distrib. Co. , 708 F.2d 1371, 1374 (9th Cir. 1983). This is just such a case. The magistrate judge reviewed Agent O'Keeffe's affidavit in support of the application for the search warrant, which detailed her comprehensive investigation of the UBO scheme. The affidavit concluded that "the entirety of the businesses operated by Bates, Smith and their associates are criminal in nature." Agent O'Keeffe's affidavit provided ample probable cause to meet the "permeated-with-fraud" exception to the particularity and breadth requirements.

B. Seizure Outside the Scope of Warrant

Smith claims that federal agents flagrantly seized innocuous personal items outside the scope of the warrant, such as Christmas gifts, computer monitors, and computer games. However, computer monitors and computer games (to the extent they were on computer diskettes) were within the scope of the warrant. The alleged Christmas gifts remain unidentified in the record. Thus, there is no evidence that there was any evidence seized outside the scope of the warrant.

C. Defects in Providing Warrant to the Smiths

The district court held that the warrant "was provided to the Smiths on a prompt basis." The district court further held that, although Agent O'Keeffe's affidavit was not attached to the warrant, the warrant was valid and served the purpose of providing notice to the Smiths that the officers were executing a search under the color of law. Smith argues that the search of his home violated Federal Rule of Criminal Procedure 41(d) (1997) ⁷ because (1) agents failed to provide a copy of the search warrant at the outset of the search, and (2) the warrant was incomplete without the affidavit that was incorporated by reference into the warrant.

1. Failure to Provide Search Warrant at Outset of Search

At the evidentiary hearing, there was some discrepancy as to the length of time after the search began before Smith and his wife received a copy of the warrant. It is clear that the search did not start as soon as the agents entered the home, as they initially conducted a safety sweep for approximately fifteen minutes. The district court established that a delay of thirty to forty-five minutes occurred before the Smiths received the warrant.

[15] Under United States v. Gantt, 194 F.3d 987, 1001 (9th Cir. 1999), "[a]bsent exigent circumstances, Rule 41(d) requires service of the warrant at the outset of the search on persons present at the search of their premises." While the court recognized that "'technical' violations of Rule 41(d) require suppression only if there was a 'deliberate disregard of the rule' or if the defendant was prejudiced," it held that suppression was justified due to the deliberate violation in Gantt's case. Id. at 1005. Gantt was not served with the search warrant until after she was arrested, hours after the search and hours after she requested to see the warrant. Id. at 1000.

[16] In Smith's case, there is neither deliberate disregard of Rule 41(d) nor any prejudice. Gantt's interpretation of Rule 41(d) to require service of the warrant at the outset of the search was issued in 1999, whereas the search of Smith's home took place in 1997. Agent Adams's testimony reveals he did not know of an obligation to show the warrant at the outset of the search -- Adams "never" before had presented a warrant at the time of entry. Instead, his team typically did a safety sweep first, as was done in the Smith home.

Furthermore, unlike in Gantt, after Mrs. Smith asked for the warrant, she got one. The timing may be disputed --ten minutes after the request or half an hour later --but regardless, she and her husband received the warrant near the outset of the search. As the district court found, the delay was not unreasonable.

[17] Nor was the delay prejudicial. Upon receiving the warrant, Mrs. Smith "just kind of glanced at it" and believes that her husband "might have looked at it" more than she did. She admits that she chose not to review the warrant. Neither of the Smiths disputed the warrant after having access to it, and the search went on for another several hours. Thus, under Gantt, there was only a technical violation of Rule 41(d), which does not require suppression.

2. Warrant Missing Affidavit

[18] That the Smiths were given the search warrant without the affidavit of Agent O'Keeffe, though incorporated by reference in the warrant, does not require suppression. Smith argues that Gantt held that "when a warrant incorporates by reference the supporting affidavit, the affidavit comprises part of the warrant itself and must be provided with the rest of the warrant. 194 F.3d 987, 1001 n.7." The cited footnote 7 states: "Showing Gantt the face of the warrant without Attachment A certainly did not satisfy Rule 41(d). Without Attachment A, the warrant violated the Fourth Amendment's particularity requirement and for purposes of Rule 41(d) was not a valid warrant."

What Smith leaves out is the content of Attachment A in Gantt's case, which is substantively different from the O'Keeffe affidavit. In Gantt, "[i]nstead of describing the items to be seized, the warrant stated 'see Attachment A.' Attachment A was a two-page, typed list of items to be seized." Id. at 996. In Smith's warrant, Attachment B, which described the items to be seized, was attached. It was Agent O'Keeffe's affidavit, admittedly important in the magistrate judge's probable cause determination, that was missing. Agent O'Keeffe's affidavit was not related to the particularity requirement, which was satisfied by Attachment B.

Smith confuses the "well-settled principle that a warrant's overbreadth can be cured by an accompanying affidavit that more particularly describes the items to be seized," United States v. Luk, 859 F.2d 667, 676 (9th Cir. 1988), with the contention, unsupported by case law, that an affidavit incorporated by reference must always be attached for the search warrant to be valid --even if the warrant is not overbroad without the attachment. For example, in United States v. Hayes, 794 F.2d 1348, 1355 (9th Cir. 1986), the court held that the affidavit could not be considered because it did not accompany the warrant; nevertheless, the court went on to examine the warrant "on its face" for overbreadth, determining it met the breadth requirement and did not require suppression, id. at 1355-56.

[19] Thus, here, the warrant without the affidavit was facially valid standing alone. The failure to attach the affidavit does not require suppression.

D. No Court Seal on Search and Arrest Warrants; No Magistrate Judge's Signature on Arrest Warrant

Smith argues that the search and arrest warrants are void because (1) the arrest warrant was initialed only by the court clerk, but not signed by the magistrate, in violation of Rule 4(c)(1) of Criminal Procedure, and (2) neither warrant contained the seal of the court. The district court found that neither alleged defect invalidated the warrants.

First, Rule 9, rather than Rule 4(c)(1), governs arrest warrants on an indictment. Rule 9(b)(1), pertaining to the form of the warrant, states it must be signed "by the clerk," not the magistrate judge.

Smith's second argument that the court seal must be affixed to both the search and arrest warrants also fails. The argument relies on 28 U.S.C. §1691, which states: "All writs and process issuing from a court of the United States shall be under the seal of the court and signed by the clerk thereof." However, the Federal Rules of Criminal Procedure for arrest warrants on an indictment (Rule 9) and search warrants (Rule 41) make no mention of the requirement for a court seal. The arrest warrant and search warrant follow the stated dictates of Rules 9 and 41, respectively. The magistrate judge unquestionably issued a bench warrant without bail on Smith, and a deputy clerk signed an arrest warrant, as required by Rule 9. The search warrant was issued and signed by a magistrate judge on January 3, 1997.

[20] Thus, there appears to be only a technical violation of 28 U.S.C. §1691. None of this circuit's cases has suppressed evidence for lack of a court seal. Cf. Ystrom v. Handel, 252 Cal. Rptr. 110, 114 (Ct. App. 1988) (lack of court's seal "is a mere technicality and does not render [a summons] 'substantially defective'").

[21] We have refused to suppress evidence or reverse convictions based on technical rule violations. In a similar context, "'technical' violations of Rule 41(d) require suppression only if there was a 'deliberate disregard of the rule' or if the defendant was prejudiced." Gantt, 194 F.3d at 1005. Here, there is no evidence in the record that officers executing either warrant relied in bad faith on them because they lacked the court seal, and certainly no evidence of deliberate disregard of 28 U.S.C. §1691. Neither is there a scintilla of prejudice to the defendant: if the warrants did have the court seal, Smith's home would still have been searched, and his person still arrested. Thus, neither suppression nor reversal of Smith's conviction is warranted by this technical violation of 28 U.S.C. §1691.

V. Sufficiency of the Evidence

Smith and Bates argue that the evidence is insufficient to sustain their convictions for: (1) multiple counts of aiding and assisting in the preparation and presentation of false tax returns, under 26 U.S.C. §7206(2); and (2) conspiracy to defraud the United States in the ascertainment, computation, or assessment of taxes, under 18 U.S.C. §371.

After the jury verdict, the district judge denied a Federal Rules of Criminal Procedure 29 motion for judgment of acquittal as to all defendants. We review de novo the district court's ruling on a motion for acquittal. United States v. Johnson, 357 F.3d 980, 983 (9th Cir. 2004). The evidence is reviewed in the light most favorable to the prosecution to determine "whether any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Id. (internal quotations and citations omitted).

Section 7206(2) pertains to any person who:

Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document[.]

[22] Under §7206(2), the government must prove that "(1) the defendant aided, assisted, or otherwise caused the preparation and presentation of a return; (2) that the return was fraudulent or false as to a material matter; and (3) the act of the defendant was willful." United States v. Salerno [ 90-1 USTC ¶50,261], 902 F.2d 1429, 1432 (9th Cir. 1990). Defendants argue that the government presented insufficient evidence on all three elements.

A. Aid, Assist In, Procure, Counsel, or Advise

[23] Although Smith and Bates did not actually prepare their clients' tax returns, the plain language of §7206(2) is satisfied by aid, assistance, procurement, counsel, or advice in the preparation or presentation of a false or fraudulent return --there need not be actual preparation of the return at issue. Unsurprisingly, we do not require defendants engaged in tax schemes to physically "prepare" the tax returns to be found guilty of §7206(2). See, e.g., United States v. Crum [ 76-1 USTC ¶9214], 529 F.2d 1380, 1382 (9th Cir. 1976) ("[T]he reach of Section 7206(2) is clearly not limited to acts of tax return 'preparers[.]'").

[24] A review of the record reveals ample evidence of aid, assistance and advice in the preparation of the defendants' clients' false tax returns. To promote their tax shelter scheme, the defendants explicitly advised their clients to transfer all of their income and assets to the UBO, and then not to file any tax returns (for the business trust, personal income, or otherwise). Smith advised UBO clients to have their employers issue pay checks, commission checks, or other income sources in the name of the UBO instead of the clients' names. Further, defendants established mechanisms for the UBO income to go undetected by the IRS, such as keeping end-of-the-year income below a certain threshold through "distributions," false "business deductions," and non-interest-bearing accounts. These actions directly caused clients to file false and fraudulent returns. ⁸

B. Fraudulent or False Return

Smith argues that the particular 1040 personal returns or 1065 partnership tax returns were not false for omitting income or revenue that should have been reported on a separate 1041 trust return. However, IRS Agent Brown testified that although revenue in a business trust such as a UBO would typically be reported on a form 1041, as a default the income could also be reported on a 1040 personal income tax return. In any event, the income had to be reported on some IRS form. Thus, the under-reporting of income on the clients' personal returns, that could have been but was not reported elsewhere, made the personal returns "false" or "fraudulent."

[25] Agent O'Keeffe methodically went through each allegedly false or fraudulent return, and testified to the substantial understatement of income on each one. Viewing the evidence in the light most favorable to the prosecution, there is sufficient evidence from which a rational juror could find that the returns were false or fraudulent.

C. Willfulness

Smith argues that the evidence was insufficient to show that he acted willfully "with specific intent to defraud the government in the enforcement of its tax laws." Salerno [ 90-1 USTC ¶50,261], 902 F.2d at 1432. While there is nothing "inherently unlawful with an UBO," and the government told the jury during closing argument to assume UBOs are "legitimate," the government provided ample evidence that Smith gave advice to unlawfully use UBOs to file false or fraudulent tax returns (or not to file at all).

Smith further argues that there was no evidence presented that Smith was advised by the IRS that UBOs must file a tax return or that his actions were illegal. However, Smith worked in concert with Bates, who kept busy drafting "response" letters to the IRS disputing the IRS's contention that taxes needed to be paid.

Finally, Smith argues that "even under the government's own theory, Smith's purpose was to steal money or defraud the persons who purchased UBOs from him; he did not have the specific intent to defraud the government in the enforcement of its tax laws." Smith ignores that stealing from clients and defrauding the government are not mutually exclusive --and that the evidence is sufficient to establish both purposes.

Smith argues that this case is analogous to Salerno , where this court reversed the defendants' §7206(2) convictions because, although they were guilty for implementing a scheme to embezzle millions from the casino, "the government failed to prove the scheme had as a purpose the violation of the federal tax laws." [ 90-1 USTC ¶50,261], 902 F.2d at 1430. The government had to show that the defendants engaged in the scheme "not merely for their own benefit but with a specific intent to cause the casino to file false tax returns." Id. at 1432. However, there was neither evidence that the defendants had anything to do with preparation of tax returns, nor "evidence that the defendants had any motive for conducting a scheme to defraud the government, [n]or that they ever mentioned their own taxes, much less the tax returns of the casino." Id.

Unlike in Salerno , Smith and Bates had as "a purpose," although not their sole purpose, the violation of tax laws. They specifically advised clients that the UBO income need not be reported on any kind of tax return, and told them not to consult friends, family, or accountants about their UBOs. The evidence was sufficient to prove that the defendants had a "specific intent to cause" their clients to file false returns.

[26] Further unlike Salerno , Smith and Bates had a "motive" for conducting a scheme to defraud the government: to hook the clients into giving them control over the clients' money so they could steal it. Finally, unlike in Salerno , here there was ample mention of the clients' tax returns within the scheme. Thus, there was sufficient evidence, viewing the evidence in the light most favorable to the prosecution, to find that the defendants willfully intended to cause false or fraudulent returns to be filed.

D. Conspiracy Count 1

Smith argues that the reasons for the insufficiency of the §7206(2) counts apply to invalidate the Count 1 conspiracy conviction. Because his arguments with respect to the §7206(2) counts fail, they fail equally with respect to the conspiracy count.

VI. Alleged Juror Bias & Misconduct

Smith and Bates argue that they are entitled to a new trial because of two instances of alleged juror misconduct and bias. We review a district court's denial of a post-verdict evidentiary hearing for an abuse of discretion, United States v. Saya, 247 F.3d 929, 934 (9th Cir. 2001), and its denial of a new trial on the assertion of juror misconduct or bias for abuse of discretion as well, United States v. Hanley, 190 F.3d 1017, 1031 (9th Cir. 1999). "Because of the trial judge's unique opportunity to observe the jurors during trial, to hear the defenses asserted, and to hear the evidence, the judge's conclusion about the effect of the alleged misconduct deserves substantial weight." Saya, 247 F.3d at 937 (quotations and citations omitted).

A. Juror #9's Alleged Bias

[27] "The Sixth Amendment guarantees criminal defendants a verdict by impartial, indifferent jurors." Dyer v. Calderon, 151 F.3d 970, 973 (9th Cir. 1998) (en banc). "A court confronted with a colorable claim of juror bias must undertake an investigation of the relevant facts and circumstances." Id. at 974. However, "[a]n evidentiary hearing is not mandated every time there is an allegation of jury misconduct or bias. Rather, in determining whether a hearing must be held, the court must consider the content of the allegations, the seriousness of the alleged misconduct or bias, and the credibility of the source." Hanley, 190 F.3d at 1031 (quotations and citation omitted). An evidentiary hearing is not necessary where the court knows "the exact scope and nature" of the bias allegation. Saya, 247 F.3d at 935 (internal quotations and citations omitted).

About a month after the jury returned the verdicts in this case, Juror #9 wrote the following letter to Agent O'Keeffe:

Dear Bridget,

My name is Brandt Mayer and I was juror #9 in the Bates/Smith/Wadsworth trial in Sacramento recently. As a sworn in juror as you know, we were not allowed to converse with anyone on the case.

Now that it's over and forgotten by me (thank god) I would like the opportunity to be able to talk with you. Not about the case of course, or your profession or mine, but in a casual way.

I was deprived not being allowed to just walk up and start a conversation with you, which normally for me is completilly [sic] out of character, as I am a bit timid.

After listening to you on the stand [you] showed a very "kind" aura about you. You're [sic] sofistication [sic] also impressed me. You're [sic] introduction led me to believe that you are a single woman and has given me the comfort and insentive [sic] to write you.

I am hoping that you remember who I was: You were getting off the elevator one day on the 10th floor and I leaned out of the elevator accross [sic] from you as we (the jurors) were heading down. I purposly [sic] gave you a smile. It appeared that you returned a smile back to me. In fact the jurors teased me about that for days afterward, but that's ok, I told them that the smile was for me and not them.

Could it be possable [sic] to send an e-mail to me? A "get aquianted" [sic] type. I will surely respond.

But if you are finding this type of approach odd, tastless [sic], or in anyway [sic] out of line, or that you're simply not interested, I will surely understand and appollogize [sic]. I couldn't think of any other way to give it a try and I thought it couldn't hurt. Take care.

Agent O'Keeffe promptly reported the letter to prosecutors who in turn reported the letter to the court and opposing counsel. Thereafter, Smith and Bates moved for a new trial based on Juror #9's claimed bias; Bates also requested an evidentiary hearing. Both sides submitted briefs on the issue and argued the motion before the district court ruled. After considering the evidence, the district court denied the motion without conducting an evidentiary hearing.

With Juror #9's letter in hand, the district court understood the exact nature and scope of the bias allegation. Cf. Saya, 247 F.3d at 935. The district court examined the content of the allegations from the letter and never doubted the credibility of the source to which defendants pointed --Juror #9 himself. Cf. Hanley, 190 F.3d at 1031. In analyzing the seriousness of the allegations, the district court took into account that (1) Agent O'Keeffe was one of the last witnesses to take the stand after six weeks of trial (thereby limiting her influence on Juror #9), (2) Agent O'Keeffe was a summary witness who presented no new evidence, (3) other than the "kind aura" statement, there was "absolutely no tangible evidence that there was any extraneous information or extraneous influence on this juror by anyone," (4) there was "absolutely no evidence that Juror Number 9 did anything inappropriate during the trial" (noting at most a smile was exchanged), and (5) there was no evidence filed by defendants or declarations from any of the jurors that there was extraneous information or influence.

The district court logically reasoned it was unlikely that this juror was attempting to impress Agent O'Keeffe by finding defendants guilty, since he voted to acquit Charlotte Wadsworth, to acquit Bates of 88 out of 111 counts against him, and to acquit Smith on three counts. Furthermore, Juror #9 explicitly wrote Agent O'Keeffe that he had no desire to discuss the case with her, making the argument that he was trying to impress her with guilty verdicts even more attenuated.

An evidentiary hearing to listen to Juror #9's testimony regarding the trial would likely not have produced any valuable information. When inquiring into the validity of a verdict, pursuant to Federal Rule of Evidence 606(b),

a juror may not testify as to any matter or statement occurring during the course of the jury's deliberations or to the effect of anything upon that or any other juror's mind or emotions as influencing the juror to assent to or dissent from the verdict or indictment or concerning the juror's mental processes in connection therewith, except that a juror may testify on the question whether extraneous prejudicial information was improperly brought to the jury's attention or whether any outside influence was improperly brought to bear upon any juror.

(emphasis added). Thus, even if the juror's thought process was biased with his alleged "infatuation" with Agent O'Keeffe, the court was not free to hear evidence in this regard. Further, it was clear from Juror #9's letter that there was neither extraneous prejudicial information from Agent O'Keeffe (a smile can hardly be so deemed), nor "outside influence [that] was improperly brought to bear."

[28] The district court did not abuse its discretion in denying the evidentiary hearing and a new trial. Even if this juror had something of a crush on Agent O'Keeffe, his letter made clear that he diligently performed his duty as a juror, never speaking to Agent O'Keeffe during the trial, and at most exchanging a smile with her. It is unlikely that any trial goes by without one juror finding one witness nice or attractive. The only unusual thing about this case is that Juror #9 put his feelings in writing. The district court was well within its discretion in finding no evidence of juror misconduct and no extraneous influences on the juror, such that an evidentiary hearing was not required.

B. Juror #1's Alleged Intimidation

The district court also denied defendants' motion for a new trial based on the alleged intimidation of Juror #1. During the trial, Juror #1 wrote an e-mail explaining her disagreement with the foreperson regarding her approach to analyzing the mail and wire fraud counts without first considering the basis of the conspiracy charges. She explained:

I have been criticized by the foreperson and consequently have felt intimidated into proceeding on a ruling on more than two dozen counts without having first established the underlying business relationship of the defendants. She criticized me for wanting to review my notes; she criticized me for wanting to look at the evidence, and specifically she criticized me for wanting to look at evidence relative to count one. At one point she accused me of having already made up my mind because I suggested that we consider the prosecution's foundation for the case. The foreperson then threatened to throw me off the jury.

The district court questioned Juror #1 outside the presence of the other jurors about her feelings of intimidation. After the juror reiterated her concerns from the e-mail, the judge told her:

Each of you [jurors] must decide the case for yourself, but you should do so only after you have considered all the evidence, discussed it fully with the other jurors, and listened to the views of your fellow jurors.

Do not be afraid to change your opinion if the discussion persuades you that you should. But do not come to a decision simply because other jurors think it is right. It is important that you attempt to reach a unanimous verdict, but, of course, only if each of you can do so after having made your own conscientious decision. Do not change an honest belief about the weight and effect of the evidence simply to reach a verdict.

Although Juror #1 told the judge that she did not believe her decisions were made based upon her own beliefs up to that point, after hearing the above instruction, she felt able to return to deliberations and make future decisions (including those on verdicts that may have been rendered previously) based on her own conscience and belief.

The attorneys for defendants and the government then had a long discussion about whether the jury should be instructed to start deliberations anew or be instructed again on their role as jurors, and whether to keep Juror #1 on the jury. The court then brought Juror #1 back in, and asked more questions regarding whether she still felt intimidated, to which she answered she did not. The court was convinced that Juror #1 made "very clear that she is not intimidated at this point, that she understands her duty as a juror, and that she is ready to continue her deliberations in this case after the entire jury is reinstructed as to 34 and 39" (which had been reread to Juror #1).

[29] Smith argues that the foreperson's bullying of Juror #1 "demonstrates that the jury was not impartial and that the jury deliberation process was not functioning properly." However, if anything, the foreperson's misconduct ran to the defendants' favor by discounting the prosecution's theories. This alleged misconduct was thoroughly investigated by the district court, and its effect cured by ensuring that Juror #1 no longer felt intimidated. The district court did not abuse its discretion in refusing a new trial on this ground.

VII. Duplicity and Multiple Conspiracies Jury Instruction

Before trial, Smith moved to dismiss Counts 1, 25, and 64, the three conspiracy charges of the indictment, arguing that each one encompassed multiple conspiracies (and thus that each one was duplicitous). Bates joined this motion. Defendants disputed that there was one overarching conspiracy within any of these counts because the overt acts covered six alleged UBOs, with differing: (1) time periods, (2) identity of defendants involved, (3) identity of taxpayers involved, and (4) specific transactional facts.

The government opposed the motion, arguing that Counts 1, 25, and 64 each contained a singular conspiracy. As to Count 1, the government asserted that defendants entered into an agreement to impair and impede the IRS through the use of UBOs "in a fashion which knowingly and intentionally understated income and overstated legitimate deductible expenses." Although the UBOs were marketed to 249 or more taxpayers, the government argued that the Count 1 conspiracy was not "taxpayer specific"; it involved "one agreement, regardless of the number of taxpayers whose income tax return[s] were involved." As to Count 25, the government argued that there was one agreement to use the mail and interstate wire communications in furtherance of a scheme to defraud. Finally, Count 64, though involving different money laundering sections (18 U.S.C. §§1956(a)(1)(A), 1956(a) (1)(B), and 1957), encompassed only one agreement to engage in money laundering. The government summarized its argument as "[o]ne agreement; one count."

After considering the pre-trial briefs and supplemental briefs of all the parties on this issue, the district court found the indictment not duplicitous as to Counts 1, 25, and 64. After the trial, during the jury instruction conference, Smith renewed the motion to dismiss these counts, claiming that the government had "not been able to show an overarching conspiracy but rather ha[d] shown individual conspiracies." The district court denied the motion, and sustained the government's objection to a multiple conspiracy instruction.

The district court's ruling that there were no duplicitous counts appears correct, and defendants do not dispute it on appeal. Instead, defendants now argue that the district court erred in denying the request for the multiple conspiracy instruction. However, this argument is not based on any of the pretrial briefing arguments or post-trial jury instruction conference arguments that each conspiracy count encompassed multiple conspiracies. Rather, defendants argue (based on their multiplicitous sentence argument) that three conspiracy counts inherently require a multiple conspiracy instruction.

This argument was never made below, and thus was waived. Even if it were not waived, the argument misconstrues the nature of a multiple conspiracy instruction, which pertains to multiple conspiracies within a conspiracy count. The district court correctly denied the multiple conspiracy instruction.

VIII. Application of Sentencing Guidelines

Smith and Bates argue that the district court erred in enhancing their sentences under the Sentencing Guidelines. "Even though the Guidelines are no longer mandatory after the Supreme Court's decision earlier this year in United States v. Booker, 125 S.Ct. 738 (2005), the district court should still consult them for advice as to the appropriate sentence, id. at 767." United States v. Kimbrew, 406 F.3d 1149, 1152 (9th Cir. 2005). We review "the district court's interpretation of the Sentencing Guidelines de novo, the district court's application of the Sentencing Guidelines to the facts of this case for abuse of discretion, and the district court's factual findings for clear error." Id. at 1151 (citation omitted).

A. U.S.S.G. §3D1.2

[30] Smith and Bates argue the district court erred by grouping the tax counts separately from the money laundering and mail and wire fraud counts, which resulted in a two-point increase in each of their offense levels. The Guidelines provide that "[a]ll counts involving substantially the same harm shall be grouped together into a single Group." U.S.S.G. §3D1.2. In part, "same harm" means the counts involve the "same victim." Id. §3D1.2(a), (b).

The government argued at sentencing that the counts in question encompassed different harms and different victims. The Presentence Investigation Reports ("PSRs") for Bates and Smith both found that the victim as to the tax fraud counts is the United States government, whereas the victims as to the mail fraud and wire fraud counts "are the clients who had their money stolen by the defendants." The district court adopted the PSRs' findings and declined to group all counts together.

[31] The district court's factual finding that multiple victims were involved is not clearly erroneous, and the district court did not abuse its discretion in applying U.S.S.G. §3D1.2.

B. U.S.S.G. §3B1.1(c)

The U.S.S.G. §3B1.1(c) aggravating role two-level enhancement applies "[i]f the defendant was an organizer, leader, manager, or supervisor in any criminal activity" involving less than five participants and that was not otherwise extensive. Smith's PSR recommended this enhancement because Smith managed the activities of Christopher Bates and Charlotte Wadsworth. The district court's adoption of this factual finding was not clearly erroneous.

IX. Increasing Smith's Sentence Based on Allocution

Near the end of Smith's sentencing hearing, the district court stated its intention "to depart somewhat from the Probation Officer's recommendations and to sentence Mr. Smith to the low end of [the] guideline range of 121 months imprisonment." Defense counsel and the prosecution presented nothing further. Then, the district court asked whether Smith wished to address the court; Smith did.

Smith made a lengthy speech, denying (1) the jurisdiction of the district court, (2) that he had any connection to any state or the United States, (3) the existence of the United States, California, Sacramento, the district court, the prosecutor, defense counsel, Judge England, a list of UBOs, and even himself, and (4) that he is a Fourteenth Amendment "person." Smith contested that the offenses he was charged with were committed by anyone, and argued that the prosecution had "failed to show any actual or threatened injury as a result of the challenged conduct." Smith demanded that the court "reconsider and withdraw the proposed sentence, reverse the conviction, enter judgment of acquittal, vacate the charges against [him], quash the indictment, dismiss the complaint and otherwise ... set [him] free."

The district court responded to Smith's speech:

The defendant's statements to the Court that were just read have made it abundantly clear to this Court that Mr. Smith has absolutely no remorse for his actions. And further, he has directly challenged this Court and its ultimate authority. Accordingly, I find that this defendant is appropriate to be sentenced not at the lower end of the guideline range but at the upper end.

Mr. Smith apparently just simply does not get it. He is a direct and continuing threat to the financial safety of the public. And this Court has the belief, well-founded belief that if he were to be released from custody at any earlier time, he would immediately resume the criminal activity for which he was on trial here in this court.

The district court then sentenced Smith to 151 months instead of 121 months. Smith's counsel made no objection to the increased sentence.

[32] Smith argues that his First Amendment free speech and Fifth Amendment due process rights were violated because he was punished with a higher sentence for expressing his views on the district court's lack of jurisdiction. But the district court made it clear that it was increasing the sentence based on Smith's lack of remorse, and his threat to the financial safety of the public when released. These are legitimate sentencing factors under 18 U.S.C. §3553(a), which include considering the "characteristics of the defendant" and the need for the sentence "to promote respect for the law," "to afford adequate deterrence to criminal conduct," and "to protect the public from further crimes of the defendant."

[33] The district court may indicate a tentative sentence and then hear from the defendant before making a final sentencing determination. See United States v. Laverne, 963 F.2d 235, 236 (9th Cir. 1992). The district court here "was able to consider the defendant's statement and was free to alter its view of the sentence if the defendant offered a sufficient reason for changing its view." Id. at 237. That the district court considered Smith's lack of remorse in sentencing him is by no means a novel concept. See United States v. Malquist [ 86-2 USTC ¶9484], 791 F.2d 1399, 1402-03 (9th Cir. 1986) ("inclusion of [defendant's] lack of repentance in the court's sentencing calculus was permissible"). The district court did not err in taking Smith's statement into consideration for sentencing. The Sentencing Guidelines, in either their mandatory or advisory status, do not insulate a defendant from his or her own foolishness.
X. Reconsideration of Bates's sentence

At sentencing, the district court stated its tentative intention to sentence Bates at the low end of the guideline range (121 months) because of Bates's medical condition. The government made "another pitch for the mid-range of 136 months" because "the defendant's criminal history is actually substantially understated." Although Bates was found not criminally liable, he was found civilly liable for fraud in the amount of $4,687,984.71.

The district court sentenced Bates to 136 months, explaining: "I have reconsidered my initial decision, and I am going to follow the recommendation of Probation for 136 months." The court further stated:

The Court wants to make it clear that the reconsideration of the sentencing is based upon not only the words that Mr. Twiss [AUSA] stated here today in open court, but also a further review of the Presentence Report and also the Court's own recollection of the magnitude of the scheme in which Mr. Bates was involved, which led to the losses of substantial sums of money, upwards of 1.8 million dollars, from varying individuals and ages, some who have lost their entire retirement system under this scheme of unincorporated business organizations.

And I want the record to reflect that as being the basis for the Court following the mid-term recommendation of 136 months.

Thus, the district court relied at least in part on proper factors, such as the magnitude of the scheme and the loss incurred by victims, in determining placement in the sentencing range. See 18 U.S.C. §3553(a)(2)(A) (sentence "to reflect the seriousness of the offense"). Furthermore, the Guidelines state that the "history" of the defendant may be considered. Id. §3553(a)(1). A civil judgment against a defendant could be a factor in the defendant's history. Thus, it does not appear that the district court relied on improper factors in sentencing Bates to the middle of the Guidelines range.

XI. Booker Issue

[34] Both Smith and Bates argue that they must be resentenced under Booker because their sentences are based on facts not found by a jury beyond a reasonable doubt. Because the defendants did not challenge their sentences on Sixth Amendment grounds in the district court, and because the record in this case does not "provide a reliable answer to the question of whether the judge would have imposed a different sentence had the Guidelines been viewed as advisory," we grant a limited remand to the district court to answer this question. United States v. Ameline, 409 F.3d 1073 (9th Cir. 2005) (en banc).

XII. Ex Post Facto Issue

Smith and Bates argue that upon resentencing, their sentences must be capped by the maximum terms of imprisonment authorized by the unenhanced base offense levels, under ex post facto principles. We have rejected that argument in United States v. Dupas, 2005 U.S. App. LEXIS 15938 (9th Cir. 2005).

CONCLUSION

For the foregoing reasons, the judgments of conviction are affirmed and the cases are remanded pursuant to Ameline.

¹ Smith and Bates were tried as co-defendants with another alleged participant in the conspiracy, Charlotte Wadsworth. Wadsworth was acquitted by the jury.

² Bates told clients that he took care of dealings with the IRS and legal advice, while Smith provided investment advice.

³ It appears from the joint reply brief that Smith joins Bates in this argument. ( "[A]ppellants' consecutive sentences on the three conspiracy counts in this case are multiplicitous and constitutionally infirm.")

⁴ Multiplicity of sentences is unlike the issue of the multiplicity of an indictment, which can be waived if not raised below. United States v. Klinger, 128 F.3d 705, 708 (9th Cir. 1997).

⁵ Title 18 U.S.C. §371 states, in part:

If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.

⁶ Smith mischaracterizes United States v. Hashimoto [ 89-2 USTC ¶9432], 878 F.2d 1126, 1134 n.9 (9th Cir. 1989), as determining that "general questions that did not delve into a juror's attitudes and dealings with the IRS are inadequate to expose bias of petit jurors in criminal tax cases." In Hashimoto, the trial court refused defendant's request for a jury panel list to investigate whether the jurors had been audited by the IRS, as he was entitled to do under 26 U.S.C. §6103(h)(5). [ 89-2 USTC ¶9432], 878 F.2d at 1129-33. Because of the specificity of the §6103(h)(5) inquiry, general questions on juror impartiality did not overcome the presumption of prejudice from the denial of the list. Id. at 1134 n.9. However, the court found that the presumption of prejudice could be overcome by juror voire dire on past audits and attitudes toward the IRS. Id. at 1134. Hashimoto does not hold that grand jurors in tax cases must be asked such questions.

⁷ Rule 41(d) stated, in relevant part: "The officer taking property under the warrant shall give to the person from whom or from whose premises the property was taken a copy of the warrant and a receipt for the property taken or shall leave the copy and receipt at the place from which the property was taken."

⁸ Defendants mistakenly argue that this case is "indistinguishable" from United States v. Dahlstrom [ 83-2 USTC ¶9557], 713 F.2d 1423, 1429 (9th Cir. 1983), which held that "[p]rosecution for advocacy of a tax shelter program in the absence of any evidence of a specific intent to violate the law is offensive to the first and fifth amendments of the United States Constitution." Dahlstrom's holding is limited to pure advocacy or speech cases. See United States v. Schulman [ 87-1 USTC ¶9334], 817 F.2d 1355, 1359 (9th Cir. 1987) ( Dahlstrom is properly read as an advocacy case); United States v. Russell [ 86-2 USTC ¶9801], 804 F.2d 571, 576 (9th Cir. 1986) (Ferguson, J., concurring) (as a member of the Dahlstrom panel, describing the case as "primarily a First Amendment case involving pure advocacy").

 

 

 

 

[2005-2 USTC ¶50,569] United States of America , Plaintiff-Appellee v. Ralph N. Whistler, Defendant-Appellant.

U.S. Court of Appeals, 9th Circuit; 03-10667, July 5, 2005 .

Unpublished opinion affirming in part and remanding in part an unreported DC Ariz. decision.

[ Code Sec. 7206]

Procedure and administration: Crimes: Fraud and false statements. --

An individual who prepared and filed tax returns containing false information was properly convicted for aiding and assisting in the preparation of fraudulent income tax returns in violation of Code Sec. 7206(2). The term "willful" was not too vague to allege that the individual intended to violate a known legal duty. "Willfulness" is a term of art with a known meaning for tax defendants of knowing one's duty and intentionally and voluntarily violating it. Furthermore, the indictment properly alleged the statutory element of willfulness; therefore, the court's decision to not release grand jury transcripts was not an abuse of discretion. The case was, however, remanded for review of any Sixth Amendment issues.

Before: Rymer and Hawkins, Circuit Judges, and Brewster ^* , Senior District Judge.

¬ Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.®

MEMORANDUM ^**

Appellant Ralph N. Whistler challenges the sufficiency of the grand jury indictment, the failure of the district court to disclose grand jury transcripts, evidentiary rulings by the district court, and the term of his sentence. We affirm Whistler's conviction. We address the sentencing issues Whistler raised on appeal before us, but we remand in accordance with United States v. Ameline, 409 F.3d 1073 (9th Cir. 2005) (en banc).

Whistler was an experienced CPA who established trusts to reduce his clients' tax liability. However, when establishing the trusts, Whistler backdated or had employees backdate documents to allow clients to claim deductions for years prior to the establishment of the trusts, deducted for expenses that never occurred, and misstated ownership of assets. Whistler then prepared and filed tax returns containing these misrepresentations. Following trial, Whistler was convicted of aiding and assisting in the preparation of fraudulent income tax returns in violation of 26 U.S.C. §7206(2) and was sentenced to 39 months imprisonment.

Whistler contends his conviction should be reversed because the grand jury indictment failed to properly allege the statutory element of willfulness. We review the sufficiency of an indictment de novo. See United States v. James, 980 F.2d 1314, 1316 (9th Cir. 1992). "[A]n indictment is 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. Morrison, 536 F.2d 286, 288 (9th Cir. 1976) (quoting Hamling v. United States, 418 U.S. 87, 117 (1974)).

According to Whistler, the word "willful" is too vague to allege that he intended to violate a known legal duty. We disagree. In the tax context, willfulness means a voluntary, intentional violation of a known legal duty, but does not require malice, bad faith, or an evil motive. Cheek v. United States [ 91-1 USTC ¶50,012], 498 U.S. 192, 200-201 (1991). By alleging that Whistler's actions were voluntary and intentional and were conducted with his knowledge or belief that each return was fraudulent ( i.e. illegal), the indictment charges willfulness. The term "willfulness" is not vague but is a term of art with a known meaning for tax defendants of knowing one's duty and voluntarily and intentionally violating it. Because the term "willfulness" has a known meaning, the indictment sufficiently apprised Whistler of the charges raised against him. Thus, the district court properly denied Whistler's motion to dismiss the indictment.

Whistler also challenges the failure of the district court to disclose grand jury transcripts. We review the district court's decision to release or not release grand jury transcripts for abuse of discretion. United States v. Plummer, 941 F.2d 799, 806 (9th Cir. 1991). "A party seeking disclosure of grand jury transcripts must demonstrate a particularized need for the disclosure." United States v. Perez, 67 F.3d 1371, 1381 (9th Cir. 1995), withdrawn in part on other grounds, 116 F.3d 840 (9th Cir. 1997) (en banc). Whistler claims a particularized need existed because the grand jury indictment failed to allege he violated a known legal duty. Whistler's argument is based on his proposition that the grand jury indictment is insufficient. But, as explained supra, the indictment properly alleged the statutory element of willfulness. As such, there is no particularized need for the disclosure of grand jury transcripts. Therefore, the district court did not abuse its discretion in failing to disclose the grand jury transcripts.

In addition, Whistler challenges several evidentiary rulings by the district court. We review evidentiary rulings by a district court for an abuse of discretion. See United States v. Sua, 307 F.3d 1150, 1152 (9th Cir. 2002); United States v. Soulard [ 84-1 USTC ¶9386], 730 F.2d 1292, 1296 (9th Cir. 1984). According to Whistler, the district court erred when it (1) excluded evidence of litigation brought by the government against National Trust Services (a separate entity whose trusts Whistler modeled his own trusts after), (2) allowed the government's expert witness to testify, and (3) admitted summary charts offered by the government as substantive evidence. We hold the district court did not abuse its discretion or commit reversible error.

First, the National Trust Service litigation evidence had no bearing on Whistler's misrepresentations --backdated documents, phantom deductions, and misstated assets. Since this evidence was irrelevant to the conduct at issue, the district court did not abuse its discretion when excluding it. See Fed. R. Evid. 401.

Second, under the Federal Rules of Evidence, an expert can testify on an ultimate issue to be decided by the trier of fact, as long as the expert does not testify about "whether the defendant did or did not have the mental state or condition constituting an element of the crime charged or of a defense thereto." See Fed. R. Evid. 704(a)-(b); United States v. Clardy [ 80-2 USTC ¶9721], 612 F.2d 1139, 1153 (9th Cir. 1980). Here, the testimony was not improper opinion evidence because the government's expert did not express an opinion as to Whistler's state of mind. Accordingly, the district court did not abuse its discretion when it allowed this testimony.

Third, the district court did not commit reversible error in admitting summary charts into evidence or allowing their use during jury deliberations. See United States v. Abbas [ 74-2 USTC ¶9755], 504 F.2d 123, 124-126 (9th Cir. 1974). The district court provided the jury limiting instructions regarding the charts and summaries. Id. at 125. Furthermore, the defense had an opportunity to cross examine the government's expert and to challenge the factual basis of the charts. See id.; United States v. Krasn, 614 F.2d 1229, 1238 (9th Cir. 1980). Thus, any error in how the district court treated the summary charts was harmless.

Finally, the district court did not commit clear error by including tax loss attributable to false returns filed by Hunt's True Value Lumber and John and Teresa Vail in its tax loss calculation to determine Whistler's base offense level. The government submitted sufficient evidence to show that these returns were part of Whistler's illegal scheme. Nor did the district court misapply the Guidelines in taking account of the filing of false state tax returns as relevant conduct to determine Whistler's sentence. See U.S.S.G. §2T1.1, cmt. n. 2 (1995) ("In determining the total tax loss attributable to the offense, all conduct violating the tax laws should be considered as part of the conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated.") (emphasis added); United States v. Newbert, 952 F.2d 281, 284 (9th Cir. 1991) (holding that conduct in violation of state rather than federal law was relevant conduct under U.S.S.G. §1B1.3(a)(2)).

However, because Whistler did not challenge his sentence on Sixth Amendment grounds in the district court, we grant a limited remand pursuant to Ameline, 409 F.3d 1073.

AFFIRMED IN PART, REMANDED IN PART.

^* The Honorable Rudi M. Brewster, Senior United States District Judge for the Southern District of California, sitting by designation.

^** This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Circuit Rule 36-3.