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7206- Fraud and False Statements: Venue

   

[77-2 USTC ¶9717] United States of America , Appellee v. Francis E. King, Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 77-1221, 563 F2d 559, 10/7/77 , Affirming unreported District Court decision

[Code Secs. 7201 and 7206--result unchanged by '76 Tax Reform Act]

Evasion or avoidance of tax: Failure to file return: Fraud and false statements: Appeal from conviction.--The U. S. Court of Appeals for the Second Circuit (New York) affirmed a taxpayer's convictions for willfully failing to file a return, making false statements on a return, attempting to evade taxes and making a false declaration on an application for an extension of time. The court held that: (1) certain evidence of the taxpayer's expenditures was properly admitted despite his claim of collateral estoppel, (2) the jury's verdict was sufficiently supported by the evidence, (3) venue was proper and (4) the taxpayer could not show that he had been a victim of selective prosecution.

David G. Trager, United States Attorney, Alvin A. Schall, Assistant United States Attorney, Brooklyn, N. Y. 11201, for appellee. Murray Appleman, New York , N. Y., for appellant.

Before: GURFEIN and VAN GRAAFEILAND, Circuit Judges, and COFFRIN, District Judge. ^*

GURFEIN, Circuit Judge:

Appellant Francis King, a former New York City policeman, was convicted after a jury trial on four counts of an indictment charging violations of federal income tax law, 26 U. S. C. §§ 7206(1) and 7201. ¹

King makes several contentions on appeal. The most substantial is an argument that certain evidence admitted against him should have been barred under the doctrine of collateral estoppel. He contends that the Government should not have been permitted to introduce evidence of illegal payments to him in this tax evasion case because the same alleged payments had been admitted in a prior criminal prosecution for conspiracy to violate the civil rights of victims by extortion and appellant had been acquitted on those charges.

The previous prosecution charged a conspiracy among members of the Special Investigation Unit (SIU) of the New York City Police Department from 1969 to 1972 to deprive citizens of their civil rights by subjecting them to illegal surveillance and by extorting payoffs from them in violation of 18 U. S. C. §241. Appellant was acquitted on the conspiracy charged. The Government had relied heavily on the testimony of a former SIU sergeant, John White, an admitted participant in the conspiracy who testified to the receipt of illegal payoffs by appellant. The Government in the earlier prosecution had also introduced documentary evidence concerning expenditures made by appellant in excess of his salary as a police officer. Substantially the same evidence was introduced in the tax trial to demonstrate that King had income on which he paid no tax.

Prior to the tax trial, appellant moved to have the White testimony and the expenditures proof barred on grounds of collateral estoppel. Judge Weinstein properly denied the motion.

Ashe v. Swenson, 397 U. S. 436 (1970), held that the Fifth Amendment guarantee against double jeopardy embodies collateral estoppel as a constitutional requirement. In United States v. Cala, 521 F. 2d 605, 608 (2d Cir. 1975), we held that the defendant has the burden of establishing that the issue which he seeks to foreclose from consideration was "necessarily" determined in his favor in a prior prosecution. When the prior proceeding was a jury trial, the burden is a heavy one, since "it usually cannot be determined with any certainty upon what basis the previous jury reached its general verdict," United States v. Gugliaro, 501 F. 2d 68, 70 (2d Cir. 1974); United States v. Seijo, 537 F. 2d 694, 697 (2d Cir. 1976), cert. denied, -- U. S. --, 97 S. Ct. 745 (1977).

In the instant case, appellant has failed to discharge the burden of showing that the issues he seeks to foreclose were necessarily determined in his favor in the conspiracy case. There are a number of plausible explanation for the jury's failure to convict King in 1976 aside from the possibility that it may have disbelieved White. The jury may reasonably have found, though they thought White to be credible, that although King committed certain extortionate acts, they were single spontaneous acts, not part of a conspiracy, or not part of a single conspiracy as the indictment charged. Or the jury may have accepted the argument made by King's counsel in his summation that no overt act in the conspiracy was committed after December 1970 and that, therefore, the prosecution was barred by the statute of limitations.

As to the evidence concerning expenditures, the jury in the 1976 conspiracy case could have believed that appellant did in fact make purchases substantially in excess of his reported income but that the Government failed to prove beyond a reasonable doubt that the purchases were subsidized by funds extorted through the conspiracy. That King made such expenditures was not even contested at the first trial. Thus, Judge Weinstein, who presided at both trials and was therefore familiar with the evidence adduced, could properly conclude that King failed to establish that the issue of White's credibility and the fact of King's unaccounted for sources of income were necessarily determined adversely to the Government in the 1976 conspiracy trial.

Appellant also urges that there was insufficient evidence to convict on each of the four counts on which he was convicted. We disagree.

Count One of the indictment alleged that King signed his 1970 income tax return knowing that it underestimated his adjusted gross income and hence contained a false statement as to a material matter. ² The Government employed the expenditures method to prove its case. It established the amount of King's purchases of goods and services not attributable to the resources at hand at the beginning of the year or to non-taxable receipts during the year. Calculated by that method, appellant's income was well in excess of $18,500, whereas appellant reported only $16,853 as adjusted gross income on his 1970 return. The term "well in excess" is used because the $18,500 figure that the Government documented did not include daily living expenses such as food, clothing and entertainment. Even if appellant is correct in his assertion that the IRS expert made certain small computational errors, this was an argument that could or should have been made to the jury. Based on the evidence presented, the jury could reasonably infer that there was a material discrepancy between appellant's actual and reported income.

Appellant also contends that the attribution to him of a zero net worth at the beginning of the taxable year 1970 is unsupportable because the Government knew from the earlier trial that White testified to his receipt of substantial illicit cash in the months of October through December 1969 which should have been carried over as an opening balance of cash.

Though the first jury, as we have seen, may have believed White, there was no record which would require the Internal Revenue Service to accept as fact the receipt of such sums by King or to assume that he did not spend the money before January 1. Since appellant was present when White first testified, there can be no question of concealment by the Government. Appellant could have offered the testimony in redacted form so as to keep from the jury the illicit character of the cash. No effort whatever was made to correct what is now said to be an erroneous base for the internal revenue agent's calculations.

In 1974 King failed to file a 1973 income tax return. The evidence showed that during 1973 he had total expenditures of $131,740.19, adjusted gross income of $93,275.93 and taxable income of $82,016.42. During that year he bought a house for $110,000, for which he made a down payment of $30,000 in cash and $25,500 by check, the cash being hidden at King's direction to reduce the purchase price from the true price of $110,000 to $80,000. In December, 1973, King learned that he was under investigation. He apparently determined to postpone filing a return on time, and a jury could infer that the delay was to enable appellant to discover how much the state investigators could prove before deciding how much income to report. In any event, he applied for an extension of time to file on April 15, 1974 and falsely declared that he had timely filed his federal income tax return for each of the preceding three years. Though his request for a two months' extension was granted, the 1973 return was not filed until the Spring of 1975. There was sufficient evidence for a jury to find that King had wilfully failed to file the 1973 return, that he had attempted to evade the tax by concealment and that the declaration in his application for an extension was wilfully false.

Appellant further asserts that the Government failed to establish venue in the Eastern District with respect to Count One, which charged him with filing a false statement in his 1970 return in violation of 26 U. S. C. §7206(1). Appellant concedes that the 1970 return listed Commack, New York (within the Eastern District), as his mailing address, but contends that the evidence adduced at trial showed that he actually resides in Yonkers, New York (within the Southern District), and filed his return in Andover, Massachusetts.

Although the indictment clearly showed what is now claimed to be the lack of venue, no motion was made based on insufficient venue. Appellant did not raise the point. Nor did he challenge the venue in Count One on the motion for a judgment of acquittal. This constitutes a waiver. United States v. Price, 447 F. 2d 23, 27 (2d Cir.), cert. denied, 404 U. S. 912 (1971). In any event, venue lies where a false statement is prepared and signed, as well as where it is received and filed. United States v. Slutsky, 487 F. 2d 832, 838-39 (2d Cir. 1973), cert. denied, 416 U. S. 937, rehearing denied, 416 U. S. 1000 (1974). Since appellant used his Commack address in the return, and his wife, who also signed the return, was at all relevant times a Commack resident, the jury could reasonably conclude that the return was prepared and/or signed in the Eastern District.

A final argument advanced by appellant is that the small amount of money involved in this case indicates that he is a victim of selective prosecution. Inasmuch as appellant has made no attempt to establish "impermissible considerations" or "invidious motive" on the part of the Government, his objection cannot prevail. United States v. Berrios, 501 F. 2d 1207, 1221 (2d Cir. 1974).

The conviction is affirmed.

^* Hon. Albert W. Coffrin, U. S. District Judge for the District of Vermont, sitting by designation.

¹ Two other counts were dismissed after the jury found lack of venue in the Eastern District.

Appellant was sentenced to three years imprisonment on Counts One and Six; five years on Count Five and one year on Count Four, each count to run concurrently. He was also fined $5,000 each on Counts One and Six, and $10,000 on each of Counts Four and Five, for a total of $30,000.

² Count One charged a violation of 26 U. S. C. §7206(1); Counts Four and Five charged, respectively, wilful failure to file a 1973 return and attempt to evade taxes by failing to file a return and by concealing income, 26 U. S. C. §§ 7203 and 7201. Count Six charged that King made a false statement in an application to extend his time for filing a return for 1973, 26 U. S. C. §7206(1).

 

 

 

[79-2 USTC ¶9701] United States of America , Plaintiffs v. Gerald I. Gruberg and Charles S. Ronder, Defendants

U. S. District Court, So. Dist. N. Y., 79 Crim. 447 (WCC), 493 FSupp 234, 10/29/79

[Code Sec. 7206]

Crimes: False returns: Conspiracy: Venue: Jury selection: Other matters.--In a prosecution for conspiring to make and subscribe false returns and aiding in the preparation of a false return, the court granted the defendant's motion for a change of venue to the Northern District of New York. This was near his home, the location of the alleged crime and the domicile of the possible witnesses. His motion to drop the conspiracy count was denied because it was not duplicative of the substantive charge and the conduct alleged in the conspiracy count was harmful to society in and of itself. The grand jury selection process did not unconstitutionally discriminate against members of any specific geographical group, any "rural" socioeconomic group or any racial group. A motion to inspect material connected with the grand jury selection process was granted. A number of other motions were denied. Decision on motions to discover certain material and to suppress evidence was deferred.

Robert B. Fiske, Jr., United States Attorney, David C. Patterson, Assistant United States Attorney, New York , New York 10007 , for plaintiffs. Stanley A. Teitler, Zane & Teitler, One Rockefeller Plaza, New York, New York 10020, for defendant Charles S. Ronder. Edward S. Rudofsky, Richard H. Levenson, for defendants.

Opinion and Order

CONNER, District Judge:

Defendant Ronder was indicted on June 18, 1979 on two counts. Count 1 of the indictment alleged that defendant, the independent accountant for the Ulster Electric Supply Company of Kingston, New York, had conspired with Gerald Gruberg, the president of that company and a named co-conspirator, and Grace Ede, the company's bookkeeper, an unindicted co-conspirator, to make and subscribe false tax returns on behalf of the company in violation of 26 U. S. C. §7206(1). Count 3 alleged that defendant Ronder knowingly aided and advised the preparation and filing of a false tax return on behalf of the Ulster Electric Supply Company, in violation of 26 U. S. C. §7206(2). Count 2 of the same indictment charged co-defendant Gruberg with a substantive violation of 26 U. S. C. §7206(1).

On June 28, 1979, defendants Ronder and Gruberg were arraigned. Each pleaded not guilty. On September 9, 1979, co-defendant Gruberg withdrew his plea of not guilty and pleaded guilty to Count 2 of the indictment. Defendant Ronder has now moved to transfer this case to the Northern District of New York under 18 U. S. C. §3240 or Rule 21(b), F. R. Crim. P. In addition, Ronder has moved to dismiss Count 1 of the indictment as being in violation of Wharton's Rule; to dismiss the entire indictment on grounds that residents of Columbia, Greene and Ulster counties were systematically excluded from the Grand Jury array, in violation of the Fifth and Sixth Amendments of the United States Constitution and of the Jury Selection and Service Act of 1968, 28 U. S. C. §1861 et seq.; that the Grand Jury was an unconstitutional "open-ended" referral of an investigation by the Internal Revenue Service to the Justice Department in violation of Rule 6(e), F. R. Crim. P.; that the prosecution improperly disclosed evidence to the Grand Jury, in violation of Rule 6, F. R. Crim. P.; and that the indictment was the result of prosecutorial misconduct; to inspect the Grand Jury minutes, pursuant to Rule 6, F. R. Crim. P.; for discovery; to suppress defendant Ronder's Grand Jury testimony, on the grounds that Ronder was a target of the Grand Jury investigation at the time that he was interviewed by the Assistant United States Attorney; to suppress statements made by Charles Simmons, an attorney who at one point apparently represented the Ulster Electric Supply Company; and to take the depositions of Gerald Gruberg, Charles Simmons and Grace Ede, the former bookkeeper for the Ulster Electric Supply Company, who was named as an unindicted co-conspirator in the indictment. The Government has opposed defendant's motions to transfer, to dismiss the indictment, to inspect the Grand Jury minutes, to suppress, and to take depositions, and has asserted that all material requested in defendant's motion to compel discovery has been provided to defendant.

For the reasons stated below, the Court will grant defendant Ronder's motion to transfer under Rule 21(b), F. R. Crim. P. The motion to dismiss Court 1 of the Indictment will be denied. The motion to dismiss the indictment under 28 U. S. C. §1867 will be denied without prejudice. The motions to dismiss due to he "openended" nature of the Grand Jury proceeding, improper disclosure of matters occurring before the Grand Jury, lack of competent evidence before the Grand Jury and prosecutorial misconduct will be denied. The motions to inspect the Grand Jury minutes and to take depositions will be denied. Decision on the discovery motion and on the motion to suppress will be deferred, pending transfer of the case to the Northern District of New York.

[Venue]

1. Motion to Transfer. A. 18 U. S. C. §3240 claim.--Defendant's first contention is that he should be granted a transfer to the Northern District of New York "as of right" pursuant to 18 U. S. C. §3240, covering venue in criminal cases where a new federal judicial district or division is transferred or where territory is transferred from one district or division to another district or division. The basis for defendant's claim is that Ulster County, the county in which the offices of the Ulster Electric Supply Company are located and where the acts alleged in the indictment are alleged to have take place, was transferred from the Southern District of New York to the Northern District of New York, effective March 31, 1979 , pursuant to P. L. No. 75-408, §4(c), 92 Stat. 885 (1978) (codified at 28 U. S. C. §112). Defendant asserts that §3240 requires the Court to transfer a prosecution for offenses committed within a transferred county, such as Ulster County, prior to the transfer to the new district, here the Northern District of New York, whenever the defendant so requests.

The defendant's construction of §3240 as conferring an automatic right to transfer on a defendant who so requests cannot be supported by the language of §3240, the case law construing the section, or the policy considerations underlying these venue provisions. §3240 states that:

"Whenever any new district or division is established, or any county or territory is transferred from one district or division to another district or division, prosecutions for offenses committed within such district, division, county, or territory prior to such transfer, shall be commenced and proceeded with the same as if such new district or division had not been created, or such county or territory had not been transferred, unless the court upon the application of the defendant, shall order the case to be removed to the new district or division for trial." (emphasis added.)

Defendant first argues that the Court should read the language of the last sentence as a mandatory "shall," requiring a transfer to the new district following application by the defendant. The use of the word "shall" in this context, however, is grammatically not in a mandatory sense, but rather, as a conditional subjunctive following "unless"; the statutory language is thus silent on the standards under which the Court should review the defendant's application to transfer.

Further the legislative history indicates that the Court should look to the Federal Rules of Criminal Procedure--in this case, Rule 21 on transfer from the district for trial--in implementing the final sentence of §3240. The section was initially enacted as part of §59 of the Judiciary Act of 1911, c. 231, §59, 36 Stat. 1103, formerly codified at 28 U. S. C. §121, (1940 ed.). Section 59 covered venue in both civil and criminal actions affected by the creation of a new judicial district or the transfer of territory from one district to another, and referred to §58 of the Judiciary Act, codified at 28 U. S. C. §119, the precursor of current 28 U. S. C. §1404 covering change of venue in civil cases, to provide the mechanism for transferring cases from the original district to the new district. In 1948, the venue provisions of §59 which related to criminal cases were transferred to Title 18 on Criminal Procedure, Act of June 25, 1948, c. 645, 62 Stat. 827; in 1949, this new section was amended, Act of May 24, 1949, P. L. No. 72, c. 139, §50, 63 Stat. 96, to delete the reference to the transfer mechanism of 28 U. S. C. §119 (now 28 U. S. C. §1404), since, as the House report indicated, that reference was "surplusage in view of Rule 19 et seq. of the Federal Rules of Criminal Procedure." H. R. Rep. No. 352, 81st Cong., 1st Sess. (1949), reprinted in 49 U. S. Code Cong. & admin. News 1248, 1262 (1949). The history of the statute thus suggests that current Rules 20 through 22 ¹ on transfer of criminal proceedings establish the circumstances under which a court should order a case arising in one judicial district to be transferred to a newly established or expanded judicial district which encompasses the territory in which the offense allegedly occurred.

This interpretation is supported by the fact that none of the cases construing §3240, or its predecessor §59, have found that defendant had the right to transfer under the venue section unless Rule 21(b) factors were also present.

The majority of cases interpreting this section have not dealt directly with the issue of standards for transfer. In Lewis v. United States, 279 U. S. 63 (1929), the defendants were alleged to have committed certain violations of the national banking laws in Tulsa, Oklahoma prior to the transfer of Tulsa County and nine other counties from the Eastern District of Oklahoma to the newly created Northern District of Oklahoma. Defendants were indicted and convicted in the Eastern District. They then moved to dismiss the indictment on the grounds that the court lacked jurisdiction to hear the case and that the Grand and Petit Juries had not been legally constituted, id. at 66. The Supreme Court found that neither §59 nor the provision of the Sixth Amendment granting defendant a right to be tried by "an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law" had been violated, since the Eastern District continued to have jurisdiction over crimes committed in its former territory under §59, the prior statute establishing the Eastern District, and the statute transferring the ten counties in question to the new Northern District, and since the juries had been selected under the Eastern District court's power to call jurors from all counties within the district's former territory. Id. The Lewis case did not specifically consider the standards to be applied in granting a transfer under §59 if the defendant had made a transfer application, but noted only that the defendant had failed to "claim the right to be tried in the Northern District," id. at 69 n. 3.

Later cases have followed Lewis in finding that jurisdiction over an offense committed in the former district's territory remains with that district, Hayes v. United States [69-1 USTC ¶9204], 407 F. 2d 189 (5th Cir.), cert. dismissed, 395 U. S. 972 (1969); Westover v. United States, 394 F. 2d 164 (9th Cir. 1968), unless the defendant makes a specific claim for transfer, see Mizell v. Vickrey, 36 F. 2d 327 (10th Cir. 1929); Briggs v. White, 32 F. 2d 108 (8th Cir. 1929); cf. Quinlan v. United States, 22 F. 2d 95, 98 (5th Cir. 1927), cert. denied, 276 U. S. 627 (1928) (decided prior to Lewis). While subsequent cases have also followed Lewis in describing the last phrase of §3240 (or the same phrase as it appeared in §59) ² in language suggesting a "right" to transfer, Briggs, supra; Hale v. United States, 25 F. 2d 430 (8th Cir. 1928), such language, like the language in Lewis, has always been dicta and has always been couched either in ambiguous phrasing, as in Lewis, supra ("claim the right" [emphasis added] rather than "exercise the right"), or in Briggs, supra at 109 (the trial and subsequent proceedings should be in [the old] district "unless the defendant should apply for an order removing the trial" [emphasis added]; defendant made no claim that such application had been made) or by a finding of such circumstances as would satisfy the requirements of Rule 21 for a transfer. In Hale, supra, for instance, defendants moved to transfer to a specific county redistricted from the Western District Of Oklahoma to the Northern District of Oklahoma under §59 and §40 of the Judiciary Act of 1911; ² the court recited the convenience factors, such as the distance of the respective courthouses to the location of the alleged offense, the location of witnesses and the expense to defendant of securing attendance of witnesses at trial, id. at 632, favoring the transfer; treated the motion primarily as one to remove to a specific county; noted that the Western District court had no authority to transfer cases to a specific county in another district under §40, and that no motion had been made under §59 "for transfer to the Northern District" (emphasis added); but that "[i]f such application had been made, it would have been the duty of the District Court for the Western District to transfer the case to the Northern District generally," id. at 633, in effect incorporating the convenience test of current Rule 21(b) into its §59 [now §3240] analysis. See also Mizell v. Vickrey, supra (transfer clause of §59 could have no application to a criminal offense committed in territory now part of a new district, since the new district could never have jurisdiction over an offense committed prior to the creation of the new district [note that this interpretation of jurisdiction in criminal offenses is now modified under Rule 21(b) so that transfer of criminal cases is permissible under that Rule whether or not the transferee court would have had original jurisdiction over the case, see discussion of Rule 21(b) infra]); cf. United States v. Rosenberg, 226 F. Supp. 199, 200-01 (S. D. Fla. 1964) (nothing that defendant in certain tax cases may transfer as of right under 18 U. S. C. §3237(b) to the jurisdiction where the defendant resides; and suggesting that defendant's alternate motion for transfer under §3240 was not as of right, since the court noted that the Government "had no objection"; 3237(b) motion granted); cf. Mizell v. Beard, 25 F. 2d 324 (N. D. Okla. 1928) (finding that new district without jurisdiction over offenses committed prior to the creation of the new district).

Finally, the policy considerations underlying §3240 and the venue provisions in criminal cases generally suggest that if the district in which the site of the alleged crime was initially located has jurisdiction over a crime allegedly committed prior to the redistricting as if that district had retained its original jurisdiction, see Lewis, supra; Westover, supra; and if the new district has no original jurisdiction over the offense by virtue of the redistricting, see Mizell v. Vickrey, supra; then the defendant who wishes to transfer his case from the original district to the new district is in the same position as any defendant wishing to transfer a case to another district for convenience factors under Rule 21(b), and should not be placed in a better position than any other defendant by the fortuitous transfer of the territory where the crime was allegedly committed from one federal district to another, see Westover, supra at 166. For the foregoing reasons, defendant in this case is not entitled to an automatic transfer under 18 U. S. C. §3240.

B. Rule 21(b) motion. The Court will, however, grant defendant's motion to transfer under Rule 21(b), providing for transfers for the convenience of parties and witnesses and in the interests of justice. ⁴ In Platt v. Minnesota Mining & Mfcting. Co., 376 U. S. 240 (1964), the Supreme Court noted 9 factors to be considered in making a determination under Rule 21(b): (1) location of the defendant; (2) location of witnesses; (3) location of events likely to be in issue; (4) location of documents and records; (5) disruption of the defendant's business; (6) expense to the parties; (7) location of counsel; (8) relative accessibility of place of trial; and (9) docket conditions in each district. Platt at 243-44; see also United States v. Keuylian, No. 79-1043 (2d Cir., June 14, 1979 ) at 2997-98. In addition, a court may consider "any other special elements which might affect the transfer." Platt, supra, at 244; Keuylian, supra, at 2998. Under the Rule as amended in 1966, a court does not need to consider whether the transferee court would have original jurisdiction over the case. United States v. Williams, 437 F. Supp. 1047, 1051 (W. D. N. Y. 1977). The decision to transfer is at the discretion of the trial judge. Platt, supra; Keuylian, supra; Williams, supra.

In this case, the factors under consideration suggesting trial in the Northern District outweigh the factors suggesting trial in New York City , namely the convenience of the Government attorney, and the delay which will inevitably result from a transfer to another district.

The next term in the Northern District at which defendant could be tried is a term beginning in Albany on November 14. Albany is approximately 50 miles from Kingston , New York , the home of defendant Ronder and the location of the alleged crime, while New York City is approximately 100 miles away. All of the other possible witnesses in the case also live in or near Kingston . While the documents in the cae are currently in New York City , these documents are not so extensive that they could not be moved to Albany (the documents were originally brought to New York City from Kingston , and occupy "at most" two file drawers). All these factors favor an Albany location for the trial. In addition, an Albany location would be less disruptive of defendant Ronder's business, and less expensive to defendant Ronder, who could commute daily from his home in Kingston to Albany during the trial, but could not conveniently do so to New York City . Weighed against these considerations, and favoring trial in New York, are the inconvenience to the Government of trying the case in Albany, and the docket conditions of the respective courts, in particular, the delay between the trial date set in this court (October 22) and the possible trial date in the Northern District (since the Albany term will not begin until November 14), which may infringe upon both defendant's Sixth Amendment right to a speedy trial, Barker v. Wingo, 407 U. S. 514 (1972); United States v. New Buffalo, No. 78-1317 (2d Cir. May 22, 1979); United States v. Lane, 561 F. 2d 1075 (2d Cir. 1977); United States v. Polizzi, 500 F. 2d 856 (9th Cir. 1974), cert. denied, sub nom. Enterprise Corp. v. United States, 419 U. S. 1120 (1975), and on defendant's interest and the Government's and the Court's interest in providing a prompt trial under the Speedy Trial Act of 1964, 18 U. S. C. §3161 et seq., ⁵ as amended by Speedy Trial Act Amendments of 1979, P. L. No. 96-43, approved August 2, 1979. The Government's convenience is, however, a factor given little weight when other considerations of convenience suggest transfer of a trial under Rule 21(b), see United States v. Olen, 183 F. Supp. 212 (S. D. N. Y. 1960), mandamus denied sub nom. United States v. Cashin, 281 F. 2d 669 (1960). In addition, the delay of three weeks does not appear to infringe significantly on defendant's Sixth Amendment right to a speedy trial: the delay may be too short even to trigger the Sixth Amendment inquiry laid down by Barker, see Barker, supra at 530; in addition, defendant has requested the transfer, which makes a subsequent finding of a Sixth Amendment violation due to delay occasioned by the transfer unlikely, see Barker, supra; New Buffalo, supra; Lane, supra (when continuances granted at defendant's request to prepare for trial, no Sixth Amendment violation). Finally, while the Speedy Trial Act time limits required trial of this defendant by August 27, 1979, this Court has already made a specific finding on the record under §3161(h)(8) that a continuance until September 19, 1979 was warranted to enable defendant's new counsel to prepare for trial, and that the period from September 20 to October 29 during which this Court considered defendant's pending motions is excludable under §3161(h)(1)(F), (J) and (h)(8); and an exclusion of time pending transfer of this case to the Northern District is specifically excluded from the computation of Speedy Trial Act time periods by §3161(h)(1)(G). Clearly, the equities lie with defendant and the action will be transferred to the Northern District of New York.

However, to avoid burdening the transferee judge with a number of motions ripe for decision, this Court will proceed to dispose of certain pending motions before transfer.

[Conspiracy]

2. Wharton's Rule Claim. Defendant has moved to dismiss Count 1, the conspiracy count of the indictment under 18 U. S. C. §371, on the ground that indictment for the conspiracy charged here and for a substantive violation of 26 U. S. C. §7206(2) violates the principle of Wharton's Rule that a defendant shall not be charged with conspiracy to commit a substantive offense where the substantive offense necessarily "requires the participation of 2 or more persons for its commission," Lanelli v. United States, 420 U. S. 770, 774 (1975), citing 1 R. Anderson, Wharton's Criminal Law & Procedure §89 (1957). 26 U. S. C. §7206(2) provides that 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. To establish a violation of this section, the Government must prove

"only (1) that [defendant] aided, assisted, procured, counseled, advised or caused the preparation and presentation of a return, (2) that the return was fraudulent or false as to a material matter, and (3) that the act of the [defendant] was willful.

United States v. Perez, 565 F. 2d 1227, 1233-34 (2d Cir. 1977).

The innocence or guilty knowledge of the taxpayer for whom the return was filed has been held to be irrelevant in a prosecution under this section. United States v. Jackson [71-2 USTC ¶9739], 452 F. 2d 144, 147 (7th Cir. 1971); see United States v. Conlin, No. 76-1346 (2d Cir. March 17, 1977 ) at 2376; United States v. Haimowitz [69-1 USTC ¶9107], 404 F. 2d 38; United States v. Kelley [39-2 USTC ¶9621], 105 F. 2d 912, 917 (2d Cir. 1939) ("The purpose [of the statute] was very plainly to reach the advisers of taxpayers who got up their returns, and who might wish to keep down the taxes because of the credit they would get with their principals, who might be altogether innocent").

The Supreme Court outlined both the provisions of and the rationale underlying Wharton's Rule in Ianelli, supra. Under the Court's analysis, the general criminal law rule is that a conspiracy charge does not merge with a substantive charge: because the conspiracy poses a danger apart from the danger presented by the substantive offense, a conspiracy count may be brought concurrently with a substantive count. Ianelli, supra at 778. Wharton's Rule presents an exception to this general rule for offenses such as adultery, incest, bigamy and duelling, Ianelli, supra at 782; United States v. Rosenblatt, 554 F. 2d 36, 42 n. 7 (2d Cir. 1977), where (1) there is general congruence between the agreement and the completed substantive offense; and (2) the agreement poses no harm to society other than the harm contemplated under the substantive offense, Ianelli, supra at 782. Because the substantive offense and the conspiracy charged must be "generally congruent" for the Rule to apply, the Rule has been applied only where the substantive offense charged requires "concerted criminal activity, a plurality of criminal agents," id. at 785, rather than one defendant acting criminally in conjunction with innocent parties, see United States v. Jeffers, 432 U. S. 137, 147 (1977) (where statutory violation could occur even though defendant acted only in conjunction with "innocent dupes," Ianelli holding controls and Rule does not apply); United States v. Gebardi, 237 U. S. 112, 122 (1932) (Wharton's Rule would not bar prosecution under both Mann Act and general federal conspiracy statute where criminal transportation of woman across state lines was carried out without woman's consent). Moreover, under the "harm to society" analysis, if the agreement underlying the conspiracy charged encompasses the substantive offense charged, but also contemplates participation by third parties in a way that will enhance the dangers presented by the substantive offense, Ianelli, supra, at 782 n. 14, or "will produce agreements to engage in a more general pattern of criminal conduct," id. at 784, the Rule does not apply. Finally, the Supreme Court noted that the Rule was simply a presumption, which could be overridden in the face of a discernible legislative judgment that a company which otherwise would merge with a substantive offense under the Rule should not so merge. Id. at 786.

Under this analysis, Count 1 of the indictment cannot be dismissed on the basis of Wharton's Rule. First, the alleged violation of §7206(2) is not "generally congruent" with the conspiracy charged: the substantive offense charged here does not require proof of agreement between two "criminal agents," see Ianelli, supra at 785; Jeffers, supra, while the conspiracy count requires proof of such agreement, so that the conspiracy charge is not on its face duplicative of the substantive charge. Second, the agreement alleged under the conspiracy count here suggests potential harm to society beyond the harm contemplated under the substantive count in two ways: the conspiracy count argues participation by a third party, Grace Ede, the bookkeeper of Ulster Electric Supply Company, not indicted or mentioned under the substantive count; and the conspiracy count is based on actions occurring over a three-year period, rather than on the single filing for a single calendar year underlying the charge in Count 3.

For these reasons, the motion to dismiss Count 1 of the indictment under Wharton's Rule is denied.

[Grand Jury]

3. Grand Jury Selection. Defendant has, in addition, moved to dismiss the indictment under Rule 6(b)(2), F. R. Crim. P. and 28 U. S. C. §1867(a) on the grounds that the indictment was returned by a grand jury selected from an array which failed to represent an adequate cross-section of the community, since the grand jury indicting defendant was selected under a district plan which allowed persons residing over 50 miles from the United States Courthouse in Foley Square to be excused from grand jury service on individual request. Defendant asserts that this excuse provision was a systematic exclusion of a cognizable geographic group, residents of counties in the Southern District other than New York, Bronx, Westchester and Rockland counties, and of a cognizable social and economic group, "rural" residents, and a systematic distortion of the racial composition of the array when compared to the population of the South District as a whole, in violation of the Jury Selection and Service Act of 1968, 28 U. S. C. §1861 et seq. ("statute" or "Act") and of the Fifth and Sixth Amendments.

A. The Constitutional Standard. Under the Fifth and Sixth Amendments, an individual grand jury need not reflect the composition of the community from which it was drawn, Anderson v. Casscles, 531 F. 2d 682, 685 (2d Cir. 1976); United States v. Fernandez, 480 F. 2d 726 (2d Cir. 1973); United States v. Guzman, 337 F. Supp. 140, 143 (S. D. N. Y. 1972), aff'd, 468 F. 2d 1245 (2d Cir. 1972), cert. denied, 410 U. S. 937 (1973), but must be drawn from a "fair cross-section of the community," United States v. Kennedy, 548 F. 2d 608, 614 (5th Cir. 1977); United States v. Test, 550 F. 2d 577, 584 (10th Cir. 1976) ("Test II"); Guzman, supra at 143. A defendant may establish a prima facie case of improper grand jury selection under the constitutional standard by establishing absolute exclusion or systematic underrepresentation of a cognizable, ditinct class, see Casteneda v. Partita, 430 U. S. 482, 494 (1976). To show that a group is "distinct" or "cognizable," a defendant must show (1) that the group is defined and limited by some factor (i. e., that the group has a definite composition); (2) that a common thread or basic similarity in attitude or ideas or experience runs through the group; and (3) that there is a community of interest among members of the group such that the group's interests cannot be adequately represented if the group is excluded from the jury selection process, Test II, supra at 591; Guzman, supra at 143-44. A defendant alleging a constitional jury selection violation must show that a cognizable group has been totally excluded under the selection process (so that discriminatory intent may be presumed); see Casteneda, supra; Test II, supra; or that underrepresentation of the group was so statistically substantial that the underrepresentation is presumed to be "systematic" or purposeful, Casteneda, supra (40% discrepancy found signficant); but see Anderson, supra, at 685, and United States v. Huber, 457 F. Supp. 1221, 1226 (S. D. N. Y. 1978) (not every showing of disparity, or even of statistically significant disparity, meets this test); or that a lesser degree of underrepresentation was combined with a "selection procedure . . . susceptible of abuse or . . . not racially unneutral," Casteneda, supra at 594; Anderson, supra at 685.

B. The Act. The Act establishes a more detailed system of jury selection procedures for federal district courts. It first provides generally that a litigant in federal court has the right to a grand jury "selected at random from a fair cross-section of the community," 28 U. S. C. §1861, and that no citizen shall be excluded from grand jury service "on account of race, color, religion, sex, national origin, or economic status," 28 U. S. C. §1862, a test substantially equivalent to the standard developed under the Fifth and Sixth Amendments, Kennedy, supra; Test II, supra at 585, although the statute is more rigorous in its requirement for randomness in the selection process, Kennedy, supra, at 612, and may impose a stricter duty of ensuring that the fair cross-section requirement is met, Anderson, supra, at 685 n. 1; Fernandez, supra at 733.

Section 1863 of the Act requires each federal judicial district to establish a written jury selection plan implementing §§ 1861 and 1862. This section further authorizes district plan provisions under which jurors may be excused on individual request for certain specified reasons; as of May 9, 1978 , the date on which the Grand Jury indicting defendant Ronder was impanelled, the section specified that the plan:

"shall . . . fix the distance, either in miles or in travel time, from each place of holding court beyond which prospective jurors residing shall, on individual request therefor, be excused from jury service on the ground of undue hardship in travelling to the place where court is held."

18 U. S. C. §1863(b)(7) (superseded by Act of November 2, 1978 , Pub. L. No. 95-572, §2(a), 92 Stat. 2453). ⁶

Provisions in federal district jury selection plans which permit hardship excuses based on distance from the courthouse, in accordance with §1863(b)(7), have been found to be consistent with both the statutory goals outlined in §§ 1861 and 1862 of the Act and the requirements of the Fifth and Sixth Amendments for selection of juries, United States v. Olson, 576 F. 2d 1267 (8th Cir.), cert. denied, 439 U. S. 896 (1978) (150-mile distance hardship excuse approved); United States v. Lewis, 504 F. 2d 92, 99 (6th Cir. 1974), cert. denied, 421 U. S. 975 (1975) (70-mile distance excuse approved); Fernandez, supra at 734 (distance excuses "not in themselves suspect selection criteria"); United States v. Valentine, 472 F. 2d 164 (9th Cir. 1973) (40-mile distance excuse approved).

Under §1867(a) of the statute, a defendant in a criminal case may move to dismiss the indictment for "substantial failure to comply" with the provisions of the Act in selecting a grand jury. In addition, a party who makes a prima facie showing of "substantial failure to comply" is entitled under §1867(d) to an evidentiary hearing to present testimony by the jury clerk or commission, the relevant supporting documents used by the clerk or the commission in selecting prospective jurors, and any other relevant evidence in support of the motion to dismiss the indictment under §1867(a). To obtain dismissal of an indictment under §1867(a) or an evidentiary hearing under §1867(d), a defendant does not have to show that the claimed statutory violation resulted in actual prejudice, Kennedy, supra at 612, Guzman, supra at 142, or that the defendant was a member of the group allegedly excluded from the array. Test II, supra at 581 n. 3; Guzman, supra at 142.

Rule 6(b)(2), F. R. Crim. P. provides that a motion to dismiss the indictment based on objections to the grand jury may be made in accordance with the conditions prescribed by the Act.

To show "substantial failure" to comply with the Act for purposes of a §1867(a) or (d) motion, a defendant must show that a cognizable group has been systematically excluded from or underrepresented in the array, Guzman, supra at 146; United States v. Deardorff, 434 F. Supp. 1033, 1043 (S. D. N. Y. 1971). The test for whether a group is "cognizable" under the §1867(a) or (d) substantial failure standard is equivalent to the test for a cognizable group under the constitutional standard described above, see Test II, supra; Guzman, supra. As under the constitutional standard, a defendant may show that a group has been "systematically" excluded or underrepresented under this section of the Act by showing that the group has been (1) totally excluded under the selection procedure, Test II, supra; or (2) substantially underrepresented, see United States v. Jenkins, 496 F. 2d 57, 65-66 (2d Cir. 1974), cert. denied, 420 U. S. 925 (1975) (comparing discrepancies between the number of blacks on voter registration lists and the proportion of blacks in the underlying population to determine whether the disparity required resort to supplementary sources of potential black jurors, as suggested in the legislative history of the Act; the court found that the statistical test to be used was the numerical effect on the composition of the jury panel; a difference of one black juror in a panel of 60 jurors was not found to be substantial); see also Anderson, supra at 685 n. 1; or (3) underrepresented to a lesser degree, when the underrepresentation is accompanied by other factors suggesting abuse of the jury selection process, see Fernandez, supra. A defendant must show, however, more than a simple statistical deviation, Jenkins, supra at 65 ("[t]he Act was not intended to require precise proportional representation of minority groups in grand or petit juror panels"); Fernandez, supra at 733. A defendant who shows a statistical underrepresentation too low to constitute a constitutional claim may nevertheless have stated a claim under the Act, since in certain cases, as noted above, the Act may impose a higher duty to take affirmative steps to remedy discrepancies between the composition of jury panels and the composition of the underlying community, Anderson, supra at 685, n. 1.

In challenges based on the operation of excuse provisions specifically permitted under the Act and found to be constitutional--such as the distance excuse in question here--a defendant must show that the statistical underrepresentation or exclusion resulting from the operation of the excuse is of a type or an extent not contemplated when the specific excuse provision was adopted. See Fernandez, supra at 733 (noting that use of the individual excuses expressly permitted by §1863(b) "may have the inevitable effect of detracting from the representative character of the venires"); cf. Matter of Archuleta, 561 F. 2d 1059, 1063 (2d Cir. 1977) (must show that exclusion is "substantial and prejudicial" when jury selected in accordance with procedures of the Act); United States v. Gottfried, 165 F. 2d 360, 364 (2d Cir.), cert. denied, 333 U. S. 860 (1948); United States v. Grey, 355 F. Supp. 529, 532 (D. C. Okla. 1973) (on challenges to effect of statutory excuse provisions generally); United States v. Leonetti, 291 F. Supp. 461, 474 (S. D. N. Y. 1968).

C. Defendant's Contentions. In this case, defendant contends that the distance excuse provision in effect under the Southern District of New York Plan for Random Selection of Grand and Petit Jurors ("Plan") when the grand jury indicting defendant was selected violated the defendant's statutory and constitutional right to a grand jury panel representing a fair cross-section of the community, and that this violation is sufficiently substantial to (1) allow defendant to hold an evidentiary hearing under §1867(d). and (2) warrant dismissal of the indictment under §1867(a). These allegations are not supported by the record here.

First, it is apparent that defendant has failed to demonstrate, as required by §1867(a) or (d) or Rule 6, that the existence of the distance excuse provision in the Southern District Plan is in itself a "substantial failure" to comply with the Act or a violation of the underlying constitutional requirements. The Plan under which this grand jury was selected was adopted on June 26, 19 68 by the District Judges of the Southern District, and approved by the Judicial Council of the Second Circuit and the Chief Judge of this district as being in compliance with the Act, under the procedure established by §1863 of the statute.

The 1968 Plan provided for random selection of jurors from all counties of the Southern Ditrict for the Master Wheel from which the monthly Qualified Wheel is drawn, which in turn provides the source of jurors drawn for each individual array. On May 9, 1978, when the grand jury array at issue here was selected, the Plan included a provision excusing upon individual request "any person who resides more than 50 miles from the United States Courthouse at Foley Square, New York, N. Y.," Plan, Article V(8); this provision tracked the language of the contemporaneous provision of 28 U. S. C. §1863(b)(7), see text at note 6, supra. ⁷ The excuse provision in question was adopted in accordance with the procedures established by the Act, and that provision conformed to the distance excuse provision outlined in the Act at the time the provision was adopted in the Southern District. Furthermore, the distance excuse provision of the Act has been upheld under both constitutional and statutory challenges, see Olson, supra; Fernandez, supra; cf. Leonetti, supra (upholding distance excuse under prior statute, Constitution). ⁸ Under these circumstances, defendant cannot support a §1867(a) or (d) claim by challenging the excuse provision on its face.

Second, it is clear that the fact that the selection process may have excused all prospective jurors from defendant's county of residence is not in itself of constitutional or statutory significance. United States v. Ponder [71-2 USTC ¶9522], 444 F. 2d 816 (5th Cir. 1971), cert. denied, 405 U. S. 918 (1972); see Lewis v. United States , supra at 72; Westover, supra; Jeffers v. United States , 451 F. Supp. 1338 (D. C. Ind. 1978).

Third, although defendant has specified three possible "cognizable groups" and has made specific statistical allegations of systematic exclusion or underrepresentation of each group, defendant has not alleged facts which show a substantial failure to comply with the Act, as required by §1867(d) for an evidentiary hearing and by §1867(a) for dismissal of the indictment, resulting from the application of the excuse provision when the statistical disparities shown in defendant's affidavit are considered in light of the statutory and constitutional recognition of the need to excuse individually certain persons from jury service based on the hardship of attendance at court.

Geographic Discrimination. Defendant first alleges that the excuse provision, as applied, impermissible excluded all members of a geographic group, residents of counties in the Southern District other than New York , Bronx, Westchester and Rockland counties. Although it is not clear that this group would meet the cognizability requirements of Test II, supra, and Guzman, supra, the Court will assume that this group is cognizable for purposes of a statutory or constitutional challenge in line with the suggestion in Fernandez, supra; Gottfried, supra. Defendant has alleged that this group was totally excluded from the array. An allegation that a group was totally excluded would in other instances be sufficient to show a "substantial failure" to comply with the Act, such a showing has been found insufficient to constitute a constitutional violation or a substantial violation of the Act, however, where, as here, the geographic disparity resulted from the exercise of hardship excuses based on distance from the courthouse, United States v. Lane, 574 F. 2d 1019, 1022 (10th Cir. 1978); Test II, supra, at 582 n. 4; Fernandez, supra at 734 (though distance excuses "have the inevitable effect of tending to concentrate the representation of the venire of those living relatively close to the courthouse . . . this may be without legal consequences"); see Leonetti, supra at 474 (distance hardship excuse approved under the Constitution and prior federal jury selection statute even though this "necessarily amounts to eliminating the individual from the system"); United States v. Kelly, 349 F. 2d 720 (2d Cir. 1965), cert. denied, 384 U. S. 947 (1966), and where no other factors led to an "appearance of abuses," Fernandez, supra at 734-35. In Fernandez, the Second Circuit questioned distance excuses applied in the Eastern District of New York in conjunction with removal of a case to the second district courthouse in Westbury, Long Island when (1) the excuse was granted for a relatively short distance, 25 miles; (2) the distance excuse was apparently applied twice, in an arbitrary manner, first to exclude persons living 25 miles beyond the Cadman Plaza court-house in Brooklyn, then to further exclude persons living 25 miles beyond the Westbury courthouse; (3) the removal was carried out solely for the judge's convenience; and (4) the combination of removal and distance excuses possibly resulted in significant underrepresentation of non-white minorities on the venue list. Since defendant here has not alleged any of the first three abuse factors noted in Fernandez, and since defendant's allegations of underrepresentation of racial or socio-economic groups, in addition to the alleged underrepresentation of a geographic group, resulting from the application of the distance excuse are not, on this record, substantial, see discussion infra, defendant has not shown a constitutional violation or a substantial violation of the Act under §1867(a) or (d) on geographic grounds

"Rural" socioeconomic group. Defendant next alleges that the excuse provisions contained in the Southern District jury selection plan operate to produce systematic underrepresentation of "rural" jours. It appears that this group, like the geographical group discussed above, is cognizable under the statutory and constitutional tests: although this circuit has not specifically considered the cognizability of such a group under the criteria suggested in Test II, supra and Guzman, supra, the Second Circuit has twice considered "rural" jurors as a cognizable group under constitutional standards and prior jury selection statutes, Kelly, supra; Gottfried, supra; see also Leonetti, supra, and once considered the potential exclusion of economic and social groups under the Act as a result of the Eastern District distance excuse provisions, Fernandez, supra.

It is not clear, however, that defendant has made a showing that the underrepresentation of rural jurors he alleges was "systematic" within the meaning of the "substantial failure" test. First, defendant has shown that a statistical discrepancy exists, but has not alleged any facts which would support a claim that the Southern District excuse provision was abusive, see Huber, supra at 1226 n. 5 (noting that no opportunity for abuse or manipulation similar to that found in Casteneda exists under the Southern District jury selection plan itself), or presented the appearance of abuses, see Fernandez, supra; therefore, the statistical discrepancies would have to rise to the level of the Jenkins test to be significant under the Act and to the level of the Casteneda test to be significant under the Constitution. The underrepresentation which defendant has alleged here ⁹ falls below the level found significant in Casteneda, though the figures--a decrease in "rural" jurors of five to six potential jurors out of sixty under defendant's figures--is higher than the one out of sixty discrepancy found insignificant under the Act in Jenkins, supra. ¹⁰ Second, in a case such as this, where the statistical underrepresentation results from the exercise of a valid excuse provision, it appears that any statistical disparity under the Jenkins test should be weighed against the underrepresentation to be expected under the excuse provision in order to determine whether the underrepresentation constitutes a substantial failure to comply with the Act, since the Second Circuit found in Fernandez that a certain amount of underrepresentation was an inevitable result of the exercise of statutorily-approved hardship excuses under the new Act; and since the Fernandez court further found that hardship excuses based on distance from the courthouse were presumptively valid under the new Act, citing Kelly, supra and Leonetti, supra, two of the three pre-Act Second Circuit cases upholding the 50-mile distance excuse in the Southern District. This is precisely the type of balancing carried out in Gottfried, supra, rejecting a 1948 constitutional and statutory challenge to the Southern District distance excuse; Kelly, supra, rejecting such a challenge in 1965; and Leonetti, supra, rejecting such a challenge in 1968. Fernandez thus implies that the Gottfried, Kelly and Leonetti balancing should apply under the 1968 Act. Defendant's allegations of statistical disparity between the rural jurors in the array and rural jurors in the underlying population of the Southern District in fact fall within the range of statistical disparity found acceptable in Gottfried, Kelly and Leonetti. ¹¹ The challenge based on under-representation of "rural" jurors in the array must therefore be denied.

Racial Discrimination. Defendant's final allegation is that the use of the distance excuse provision led to a distortion of the racial composition of the array when compared to the racial composition of the Southern District as a whole. In support of this allegation, defendant cites census data showing that the population of New York, Bronx, Westchester and Rockland counties is 80% white, while the population of the entire Southern District is 82% white. It is unclear that white persons form a cognizable group for either statutory or constitutional purposes, under the criteria outlined in Test II, supra and Guzman, supra; see also Deardorff, supra. Assuming, however, that any racial group is presumptively cognizable, see Deardorff, supra at 1043, defendant has failed to show a statistical disparity which is significant either in statutory terms, see Jenkins at 65 (2.15% discrepancy not significant), or in constitutional terms, see Anderson at 685 (2.4% discrepancy not significant).

[Other Matters]

Request for Discovery of Grand Jury Selection Materials. Finally, defendant has moved under §1867(f) for an order permitting inspection of the records and papers used by the jury clerk of the Southern District in connection with the jury selection process. While it does not appear that defendant could thereby learn any facts which would further the defendant's present §1867(d) and (a) or Rule 6 motions, see Deardorff at 1043, §1867(f) gives defendant an unconditional right to inspect the relevant documents, Test v. United States, 420 U. S. 28 (1975) ("Test I"); Govt. of Canal Zone v. Davis, 592 F. 2d 887, 889 (5th Cir. 1979) (denial of motion to inspect under §1867(d) reversible error "[s]ince the appellants' right to inspection was unqualified whether or not the accompanying affidavit established a prima facie case of defective jury selection process"); People of Territory of Guam v. Palomo, 511 F. 2d 255, 258 (9th Cir. 1975) (noting that Test I overruled holdings tying §1867(f) to §1867(d) criteria in Guzman, Grey and Deardorff, supra). It is unclear from this record whether or not the defendant has exercised that unconditional right; therefore, the motion to inspect will be granted. In addition, the motions for an evidentiary hearing and to dismiss the indictment will be denied without prejudice in the event defendant wishes to renew the motion after inspection of such documents.

4. "Open-Ended" Grand Jury. Next, defendant has moved to dismiss the indictment on the ground that the procedure under which a grand jury investigation was initiated, as well as subsequent disclosure of information obtained by the grand jury to the Internal Revenue Service ("IRS"), violated the provisions of Rule 6(e), F. R. Crim. P., governing secrecy of grand jury proceedings. Defendant bases this motion first on a challenge to the procedure described in the version of the Internal Revenue Manual in effect when the initial investigation of Ulster Electric was in progress, under which an IRS investigation could be referred to the Justice Department prior to completion of that investigation with a recommendation that a grand jury investigation be conducted (a so-called "openeded grand jury inquiry"). Defendant contends that this procedure allowed the IRS to further its own investigation by use of the grand jury's broad investigative powers, in violation of Rule 6(e). Second, defendant contends that disclosure of grand jury evidence to the IRS following conclusion of the grand jury proceeding violated Rule 6(e). In In re Gruberg, 453 F. Supp. 1225 (1978), the Ulster Electric Supply Company moved to quash the initial subpoena served by the grand jury investigating this case on grounds, among others, that the "open-ended" grand jury referral procedures permitted "federal prosecutors to use the grand jury to conduct an IRS administrative investigation"; that the procedure violated limitations on the investigatory powers of the IRS "by usurping the special investigatory powers of the grand jury," id. at 1230; and that Assistant United States Attorney Patterson disclosed matters occurring before the grand jury to IRS agents, id. at 1233. Judge Haight rejected these claims, finding that "all the indications in the record are to the effect that the grand jury is concentrating solely upon an investigation of criminal offenses." Id. at 1232, and that disclosures of the Assistant United States Attorney, Mr. Patterson, to the IRS fell precisely within the class of disclosures permitted under Rule 6(e)(2) (A)(ii). Defendant Ronder has alleged no additional facts which would support a reconsideration of the issue of the propriety of IRS referral of the investigation to the grand jury or which would indicate that any subsequent disclosures by Mr. Patterson to the IRS of matters occurring before the grand jury would not also fall within the provisions of Rule 6(e)(2)(A)(ii). Accordingly, this motion is denied.

5. Improper Disclosure of Matters Before Grand Jury. Defendant Ronder further alleges that Government attorneys and agents investigating this case improperly disclosed matters occurring before the grand jury to Charles Simmons, an attorney previously retained by Ulster Electric Supply Company in connection with the investigation, and to Mr. Simmons' attorney, in violation of Rule 6(e), F. R. Crim. P. Defendant does not state any factual basis for this allegation. The affidavit of Assistant United States Attorney Patterson states that no such improper disclosures have been made. On this record, the Court can find no basis for dismissing the indictment on grounds of improper disclosure of matters occurring before the grand jury. The motion is denied.

6. Lack of Competent Evidence. Defendant next moves to dismiss the indictment on the grounds (1) that it was not supported by competent evidence and (2) that it was the result of prosecutorial misconduct. In support of this motion, defendant alleges upon information and belief that Charles Simmons, in breach of the confidential relationship existing between Simmons and defendant Ronder, induced defendant to make inculpatory statements and reported such statements to Government attorneys and agents and to the grand jury. In opposition to this motion, the Government asserts that no statements by or evidence obtained from defendant were presented to the grand jury (affidavit of Assistant United States Attorney Patterson), and that as a matter of law, defendant may not challenge a facially valid indictment for lack of competent evidence before the grand jury.

The Court finds that defendant's first argument is in fact foreclosed as a matter of law. See United States v. Schlesinger, 598 F. 2d 722, 726 (1979), citing United States v. Calandra, 414 U. S. 338, 345 (1974); Costello v. United States [56-1 USTC ¶9321], 350 U. S. 395, 363 (1956) (`an indictment returned by a legally constituted and unbiased grand jury . . . if valid on its face is enough to call for [a] trial of the charge on the merits'"). In addition, defendant has not made a factual showing sufficient to support either the first or the second part of this motion. The motion is therefore denied.

7. Inspection of Grand Jury Minutes. Defendant next moves for an order permitting him to inspect the grand jury minutes under Rule 6(e)(2)(C), F. R. Crim. P. The basis for this motion is identical to the basis for the motion to dismiss the indictment for lack of competent evidence: that the grand jury may have been presented with statements illegally obtained from the defendant. On this record, defendant has not made the showing of particularized need necessary to support an order to disclose. United States v. Weinstein, 511 F. 2d 622, 627 (2d Cir.), cert. denied, 422 U. S. 1042 (1975); United States v. Leonelli, 428 F. Supp. 880, 883 (S. D. N. Y. 1977). This motion is also denied.

8. Discovery. Defendant has made a broad motion to discover material in this case. The Government maintains that it has made available to defendant all the material covered by the defendant's discovery request. Since the defendant has not further specified any particular discovery dispute, there is no basis upon which this Court may make a ruling on this motion at this time. Decision on this motion is therefore deferred, pending transfer to the Northern District.

9. Motion to Suppress. Defendant next moves to suppress (1) evidence obtained from defendant Ronder after he became a target of the investigation but before being advised of his status as a target, and (2) any statements made by Charles Simmons. As to part (1) of this motion, the Government states that two interviews took place with defendant Ronder and defendant's attorney; that at the time of the first interview, the Government had no information implication defendant in the matter under investigation; that prior to the second interview, the Government informed defendant's attorney that the Government had obtained information implicating defendant in the matter; that at the time of the second interview with defendant and defendant's attorney, Ronder was not yet a "target" in the sense that a decision had been made to indict the defendant; and that no legal ground exists for suppression solely on grounds that defendant Ronder was a target of the investigation where the defendant was interviewed with counsel present, even if defendant had been interviewed after he became a target of the investigation. Defendant has disputed the Government's assertion with respect to the date on which defendant Ronder became a target of the investigation. The basis for the second part of this motion is unclear, but appears to rest on the factual issue of whether or not Mr. Simmons acted at any time as defendant Ronder's attorney. While the first part of this motion may be barred as a matter of law, cf. United States v. James and Sebold, Nos. 78-1346, 78-1353 at 4535-36 (2d Cir., Sept. 6, 1979 ), since the case is to be transferred to the Northern District, and since resolution of this motion may require a factual hearing, which may more properly be held by the transferee court, this Court will defer decision on the motion pending transfer of the case to the Northern District.

10. Motion to Take Depositions. Finally, defendant Ronder has moved to take the depositions of former co-defendant Gerald Gruberg, Charles Simmons, and Grace Ede under Rule 15, F. R. Crim. P. Defendant has not specified the basis for this motion. Rule 15 permits a defendant to take depositions of his own witness when "due to exceptional circumstances," such as the potential unavailability of the witness at trial, the taking of such depositions is in the interests of justice; depositions are not allowed "merely for the purpose of discovery." United States v. Rich, 580 F. 2d 929, 933-34 (9th Cir. 1978), cert. denied, -- U. S. --, 99 S. Ct. 330 (1979). Defendant here has not made a showing which would satisfy the requirements of Rule 15. Accordingly, the motion is denied.

Summary

For the reasons stated above, defendant's motion to transfer is granted, his motion to dismiss the indictment under 18 U. S. C. §1867 is denied without prejudice, and his other motions to dismiss the indictment, to inspect the grand jury minutes and to take depositions are denied with prejudice.

SO ORDERED.

¹ Rule 19 was rescinded effective July 1, 19 66. Rule 20 covers transfers from a district for plea and sentencing. Rule 21(a) covers transfers for trial for prejudice in the district; Rule 21(b) covers transfers for trial "for the convenience of parties and witnesses and in the interests of justice." Rule 22 covers timing of a defendant's motion to transfer.

² The phrase is virtually identical: "unless the court, upon the application of the defendant, shall order the cause ["case" in §3240] to be removed to the new district or division for trial" (emphasis added). See Quinlan, supra, at 97.

³ Judiciary Act of 1911, c. 231, §40, 36 Stat. 1100, formerly codified at 28 U. S. C. §101 (1940 ed.) now codified at 18 U. S. C. §323 on venue in capital cases. The section now reads "The trial of offenses punishable with death shall be had in the county where the offense was committed, where that can be done without great inconvenience."

⁴ Rule 21(b) provides:

"For the convenience of parties and witnesses, and in the interest of justice, the court upon motion of the defendant may transfer the proceeding as to him or any one or more of the counts thereof to another district."

⁵ Defendant has also asserted a Sixth Amendment claim to be tried in his own vicinage by jurors drawn from Ulster County or from a similarly rural population base in support of his motion to transfer. This claim is clearly irrelevant insofar as it alleges exclusion of Ulster County residents since under the Sixth Amendment, the Southern District remains the district with jurisdiction over the offense for purposes of trial and jury selection, see Lewis, supra; Westover, supra; Hale, supra; Mizell v. Beard, supra; cf. United States v. Ponder, 444 F. 2d 816 (5th Cir. 1971), cert. denied, 405 U. S. 918 (1972); United States v. Gottfried, 165 F. 2d 360 (2d Cir.), cert. denied, 333 U. S. 860 (1948); and since the location of defendant's residence is not relevant for venue purposes, Platt, supra; United States v. Walker, 559 F. 2d 365 (5th Cir. 1977), unless there are allegations that the prosecution is or appears to be manipulating its choice of jurisdiction to gain a favorable forum, see United States v. Johnson, 323 U. S. 273 (1944), United States v. Fernandez, 480 F. 2d 726 (2d Cir. 1973), a claim not supportable here. Further its does not appear that defendant has made the specific showing required for a challenge to the array, on geographic, economic or racial grounds, see United States v. Test, 550 F. 2d 577 (10th Cir. 1976), in the absence of a showing of apparent or actual prosecutorial misconduct, see Fernandez, supra, and discussion under Point 3, infra.

⁶ The current version of this provision is found at 28 U. S. C. §1863(b)(5) (plan shall specify persons to be excused on individual request on grounds of "undue hardship" or "extreme inconvenience" and §1869(j) ("undue hardship" and "extreme inconvenience" as a basis for excuse ". . . shall mean great distance, either in miles or travel time, from the place of holding court").

⁷ This provision was modified effective January 16, 1979 . Article V(8) of the Plan now provides for an excuse upon individual request for "any person who resides a great distance, either in miles or travel time, from the place of holding court." See amendment to 18 U. S. C. §1863, note 6 supra.

⁸ Defendant has further alleged that the excuse nature of the provision destroys the random nature of the selection process, citing Kennedy, supra. While Kennedy did suggest that use of volunteers might destroy the randomness of the selection, it is not at all clear that persons requesting a statutory excuse, such as the distance hardship excuse, are "volunteers" within the meaning of that case, see Kennedy, supra at 612 n. 6; Grey, supra. In addition, the Kennedy court went on to hold that to make a showing sufficient for a dismissal under §1867(a) on randomness grounds, or to present a Fifth Amendment violation, the defendant in that case would have to show exclusion or underrepresentation of a "discernible class of persons" as a result of the use of volunteers, id. at 612-14, the same standard discussed in the text above, see infra, for defendant's allegations here.

⁹ Defendant suggests two possible measurements of "rural" population, population living in areas of less than 2,500 persons and population living in areas of less than 25,000 persons. Defendant cites figures from the 1970 Census showing that 1.5% of the population of New York, Bronx, Westchester and Rockland Counties live in areas of under 2,500 persons and 16% live in areas of less than 25,000 persons; while in the Southern District as a whole, 11% of the population live in areas of less than 2,500 persons (a 9.5% difference from New York, Bronx, Westchester and Rockland counties) and 28% live in areas of less than 25,000 persons (a difference of 12% from New York, Bronx, Westchester and Rockland counties). In addition, defendant cites the Census Department's grouping of New York, Bronx, Westchester and Rockland counties in the New York City Standard Metropolitan Statistical Area (which defendant alleges implies that these counties are almost exclusively "urban" and "suburban" rather than "rural"), and the fact that residents of the counties excluded from the grand jury pool constitute 16% of the population of the Southern District as a whole.

Measured under the Jenkins test, defendant's figures show a disparity of 6 potential jurors out of 60 (if "rural" jurors are measured by reference to persons living in areas of under 2,500 population) or 7 jurors out of 60 (if potential "rural" jurors are measured by reference to persons living in areas of under 25,000 population).

¹⁰ The Court notes also that the Jenkins statistical test was developed to measure the significance of exclusion of a racial group; and that one of the strongest purposes underlying the Act was elimination of underrepresentation of racial minorities on jury panels, so that a racial group is presumptively cognizable under the Act, see Deardorff, supra. The test may be somewhat less rigorous when applied to a rural socioeconomic group.

¹¹ In Gottfried, supra, the Second Circuit considered a claim very similar to the claims raised by defendant here; that the Southern District's failure to draw jurors from counties other than New York , Bronx and Westchester violated the Constitution and the prevailing statutory standard for jury selection. The court found that where the 8 excluded counties held 8% of the total population of the Southern District; where 16% of the population of the entire Southern District was "rural" (measured by percentage of persons living in areas of under 25,000 people, since Kingston, New York--the home of the defendant in that case, and incidentally, of the defendant in this case--had a population of 25,000), while 7% of the population of New York, Bronx and Westchester counties was "rural" by this standard (in Jenkins terms, a decrease in potential "rural" jurors from 10 out of 60 to 4 out of 60); and when the jury selection statute in effect at that time, as well as every preceding jury selection statute, permitted hardship excuses based on distance from the courthouse "in the interest . . . of economy, and of lessening the burden of attendance." id. at 364, the distance excuse provisions of the Southern District satisfied both the statutory and the constitutional "fair cross-section" standards.

In 1965, the Second Circuit considered the Gottfried issue again in Kelly, supra. The court took judicial notice that the population of the excluded eight counties was 770,000, while the population of New York, Bronx and Westchester counties was 3,930,000 (so that jurors from the excluded counties represented 16.4% of the total population of the Southern District at that time), and on this basis concluded that Gottfried was still controlling Kelly at 779.

Here defendant has alleged that the population of the seven Southern District counties other than New York, Bronx, Westchester and Rockland is 16% of the population of the entire Southern District, a percentage comparable to that in Kelly, supra; and that exclusion of the residents of the other seven counties in the district leads to a decrease in "rural" jurors from 17 out of 60 to 10 out of 60 in Jenkins term (if "rural" is measured using a cutoff figure of geographical areas with a population of less than 25,000 persons), or from 7 out of 60 to 1 out of 60 potential jurors, if "rural" is measured using a cutoff figure of areas with a population of less than 2,500 persons. These decreases are again similar or identical to the 6 juror in 60 decrease found acceptable in Gottfried, supra.

 

 

[83-1 USTC ¶9358]In re: United States of America , Petitioner

(CA-4), U. S. Court of Appeals, 4th Circuit, No. 83-1149, 706 F2d 494, 5/11/83

[Code Sec. 7206 and 18 U. S. C. §3237(b)]

District Courts: Venue: Prosecution for tax fraud: Aiding and assisting in preparation of false returns.--The district court for the Southern District of West Virginia erred when it transferred to the district court for the defendant's district of residence a case involving charges of a criminal conspiracy in the preparation and filing of a fraudulent partnership return. The district court misconstrued 18 U. S. C. §3237(b), which gives a defendant in prosecutions for criminal tax violations "by use of the mails" the option to have the case as to that taxpayer transferred from a district in which he is not a resident to the district of his residence. Venue in the defendant's case, however, was not dependent on any mailing within the meaning of §3237(b). The business of the partnership was centered in the district of indictment and many of the acts in furtherance of the conspiracy was committed there. In addition, there was no indication that in enacting §3237(b), Congress was concerned about persons who are prosecuted not as taxpayers, but as persons who aided in the preparation and filing of false returns.

David A. Farber, United States Attorney, Benjamin L. Bailey, Mary S. Feinberg, Assistant United States Attorneys, Charleston, W. Va. 35322, for petitioner. David Wyant, Love, Wise, Robinson & Woodroe, 1200 Charleston Nat'l Plaza, Charleston, W. Va. 25323, for respondent.

Before RUSSELL and ERVIN, Circuit Judges, and HAYNSWORTH, Senior Circuit Judge.

HAYNSWORTH, Senior Circuit Judge:

The United States seeks a writ of mandamus or prohibition compelling the district court for the Southern District of West Virginia to docket is prosecution of an individual and a corporation for alleged tax fraud. The individual and the corporation had been jointly indicted with two other individuals in the Southern District of West Virginia, but the district court had transferred the case against Nardone and his wholly-owned corporation to the Eastern District of New York where Nardone resided, and it declined to accept a retransfer of those cases.

We conclude that the district court misconstrued 18 U. S. C. A. §3237(b) and that all of the cases are properly triable in the Southern District of West Virginia.

I. A federal grand jury sitting in Charleston, West Virginia indicted William Nardone, Barterline, Ltd., W. Garland Nealy and James C. Reed, Jr. on one count of conspiracy in violation of 18 U. S. C. A. §371, and ten counts of aiding and assisting in the preparation and filing of false and fraudulent United States Partnership Returns of Income in violation of 26 U. S. C. A. §7206(2) and 18 U. S. C. A. §2. This indictment grew out of the syndication and promotion of ten "tax shelter" partnerships involving subleases of West Virginia coal bearing land. There is no allegation of any fraud or falsity in any personal income tax return filed by Nardone or any corporate income tax return filed by him on behalf of Barterline.

The defendants allegedly obtained control of a mineral lease of some four thousand acres of land in the Southern District of West Virginia. For the purpose of syndicating limited partnership interests in the coal, the tract was subdivided into twenty-two tracts, and ten limited partnerships were successfully syndicated. According to the indictment, this syndication was successfully accomplished by the dissemination of a false map, which included land in addition to that within the boundaries of the four thousand acre tract, and false reports by engineers and others of coal reserves on the land.

Each of the ten limited partnerships paid to Barterline as an advance royalty $350,000 in cash and gave it a non-recourse promissory note in the amount of $1,400,000. The general partner distributed to the limited partners K-1 forms showing the allocable portion of the tax loss of each limited partner, including his share of the $1,750,000 allegedly paid as an advance royalty. This generated allegedly fraudulent income tax deductions for the limited partners in the aggregate of $17.5 million dollars.

Nardone's office is in Manhattan in the Southern District of New York, and apparently Barterline was headquartered there or in the Eastern District of New York. Nardone's residence, however, was in the Eastern District of New York.

Nealy and Reed are West Virginians .

According to the indictment, there were conferences in Nardone's office in the Southern District of New York, and much of the activity in connection with the syndication of the partnership shares allegedly occurred there. There were other meetings and conferences in the Southern District of West Virginia, however, and the coal, which was the subject of the syndication was located there. The engineers and other alleged experts, who participated in the production of the technical reports which lent attractiveness to the scheme in the eyes of persons interested in tax sheltered income, are in West Virginia .

On Nardone's motion that the charges against him be transferred to the Eastern District of New York under the provision of 18 U. S. C. A. §3237(b), the United States magistrate transferred those charges and the charges against Barterline. On motion to reconsider, the district court ordered the transfer of those changes to the Eastern District of New York. He expressed disagreement with the majority of the panel that had decided In re United States (Clemente), 608 F. 2d 76 (2d Cir. 1979), cert. denied, 446 U. S. 908 (1980). He thought the dissenting opinion of Judge Kearse more persausive, and he relied upon her reasoning.

Not surprisingly, Judge Bramwell of the Eastern District of New York, looking to the decision of his own court of appeals, thought that the charges had been erroneously transferred. He transferred the cases back to the Southern District of West Virginia, but the district judge there refused to accept the retransfer and ordered that the cases not be placed upon the docket.

II. Section 3237(b) gives a defendant in certain prosecutions for a criminal violation of the Internal Revenue Code the option to have the case as to that taxpayer transferred from a district in which he is not a resident to the district of his residence. Among them is a charged violation of §7206(2), as alleged in the substantive counts in this case, where the "offense involved use of the mails." In Clemente, the majority of the panel of the Court of Appeals for the Second Circuit found the words "where an offense involves use of the mails" ambiguous and construed them as confined to remedy the perceived evil that led to the enactment of that subsection. The evil was that the many taxpayers who are required to file income tax returns in an office of the Internal Revenue Service outside the district of their residence could be prosecuted in the district of the filing rather than in the district where they resided. This was thought an unfair advantage on the part of the Internal Revenue Service and an unfairness to the taxpayer. The words were thus construed to be applicable only when the use of the mails was the basis upon which the United States laid venue in a district other than that of the taxpayer's residence.

We agree with the Court of Appeals for the Second Circuit. That narrow construction of the words "where an offense involves use of the mails" is faithful to the result intended by Congress, but avoids the judicial inefficiency and duplicative proceedings that would be the inevitable result of a broader interpretation of that language.

In this case, the severance and transfer to New York of the charges against Nardone and Barterline would necessitate two trials instead of one. According to Judge Bramwell's opinion, each trial is estimated to take six weeks, and a trial in the Eastern District of New York would hardly serve the convenience of the many West Virginia witnesses.

Venue in this case is in no way dependent upon any mailing. The focus of the alleged conspiracy was in the Southern District of West Virginia. Many of the acts in furtherance of it were committed there, and the remaining acts in furtherance of the conspiracy were committed in the Southern District of New York and not in the Eastern District of New York. If Nardone is inconvenienced by a trial in the Southern District of West Virginia, it is only because he chose to go into that district to accomplish his allegedly fraudulent scheme.

Moreover, this is even further from the congressional objective than was Clemente. As mentioned earlier, there is here no charge founded upon the income tax return of any defendant. Fraud is charged in the preparation and filing of Partnership Returns of Income which are not personal to Nardone. One can readily understand the congressional concern for the taxpayer summoned to stand trial in a criminal tax case in a district other than that of his residence simply because he was required to file his personal tax return in that district. There is no indication of any such concern for one who is being prosecuted not as a taxpayer, but as a procurer of the filing of a fraudulent partnership information return when the business of the partnership is centered in the district of indictment.

III. Confident that the district court will now accept the retransfer of the charges against Nardone and Barterline and permit the case to be restored to its docket, we think that a formal writ need not actually issue.

[93-1 USTC ¶50,098] United States of America , Plaintiff-Appellee v. Richard M. Hirschfeld, Defendant-Appellant

(CA-4), U.S. Court of Appeals, 4th Circuit, 91-5046, 5/7/92 , 964 F2d 318, Affirming an unreported District Court decision

[Code Sec. 7206 ]

Crimes: Fraud and false statements: Conspiracy to defraud the IRS: Prosecution: Venue: Jury instructions: Sentencing.--A defendant's conviction for conspiracy to defraud the IRS was upheld because there was no reversible error. The defendant's argument that venue in the Eastern District of Virginia was improper was rejected because some of the acts in furtherance of the conspiracy to defraud were begun, continued or completed in the district and defendant aided or assisted in the preparation of a false return by those acts. Also, the district court's jury instruction on "willfulness" was not erroneous because it did not require the jury to determine willfulness by an objective standard. Further, the government was permitted to seek enhancement of the defendant's sentence because it proved his intent to accomplish illegal transactions that would cause a tax loss to the government, even though the tax loss would not occur in the year of the transactions.

Richard Cullen, United States Attorney, David Glenn Barger, Assistant United States Attorney, Alexandria, Va. 22314, Dana J. Boente, Charles P. Rosenberg, Department of Justice, Washington, D.C. 20530, for plaintiff-appellee. Andrew Lewis Frey, Kerry Edwards Cormier, Mayer, Brown & Platt, 2000 Pennsylvania Ave., Washington, D.C. 20006-1882, Robert H. Bork, Washington, D.C., for defendant-appellant.

Before POWELL, Associate Justice (Retired), United States Supreme Court, sitting by designation, and HALL and NIEMEYER, Circuit Judges.

OPINION

NIEMEYER, Circuit Judge:

Richard M. Hirschfeld, a lawyer, was convicted of conspiracy to defraud the IRS in violation of 18 U.S.C. §371 (Count I of the indictment against him), conspiracy to defraud the SEC in violation of 18 U.S.C. §371 (Count II), and aiding in the preparation of his fraudulent income tax return for 1984 in violation of 26 U.S.C. §7206(2) (Count III). The convictions are based on a complex series of financial transactions, controlled and manipulated by Hirschfeld to create for his benefit significant tax losses and to provide him with cash flow from the illegal underwriting of a small corporation. Hirschfeld was sentenced under the Sentencing Guidelines on Count I to 36 months imprisonment and under pre-guidelines' law on Counts II and III to 36 months on each. The sentences on Counts II and III were ordered to run concurrently with each other but consecutively to the sentence on Count I. He was also fined a total of $460,000.

On appeal Hirschfeld contends that (1) Count II was barred by the applicable statute of limitations, (2) venue for Count III did not lie in the Eastern District of Virginia, (3) the jury was improperly instructed on the "good faith" defense to the tax counts, (4) the tax fraud counts and the SEC count were improperly joined, (5) the Sentencing Guidelines were improperly applied to Count I, and (6) the district court erred in calculating the appropriate Sentencing Guideline range for Count I. After carefully considering the arguments and reviewing the record, we are satisfied that no reversible error contributed to Hirschfeld's conviction or to his sentence, and accordingly we affirm.

I

Hirschfeld first contends that prosecution of Count II, charging him with conspiracy to defraud the SEC, was barred by the applicable five-year statute of limitations. He argues that the last act in furtherance of the conspiracy occurred in 1984 when the public underwriting of Robotronix Corporation, which was the object of the conspiracy, was completed, and he was not indicted until November 28, 1990 , over six years later.

The government contends that the object of the SEC conspiracy as alleged in Count II was to take Robotronix Corporation public, using the assistance of Stephen Goren who had been barred since 1973 from participating in such activity, and to conceal Goren's participation in the transaction and the payment to him for his participation. It maintains that, even though the underwriting was completed in 1984, acts in furtherance of disguising an improper payment to Goren, a necessary object of the conspiracy in light of Goren's suspension, took place within the five-year period before indictment. In 1986 Hirschfeld failed to report on his income tax return $2,000 received from Goren as interest on an advance of money made by Hirschfeld to Goren in connection with the underwriting. The government argues that the payment was not disclosed in order to conceal the illegal arrangement between Goren and Hirschfeld.

The government also contends that Hirschfeld decided, as a tactical matter, not to raise and did not raise the statute of limitations defense in the district court and that the defense was thus waived.

Before trial, Hirschfeld filed a "Notice of Probable Intent to Raise Statute of Limitations Defense to Counts in the Indictment" in which he stated:

2. Although Rule 12(b) does not include a motion addressed to the statute of limitations as being in the group of motions which "must be raised prior to trial," [] Mr. Hirschfeld, in an abundance of caution, hereby gives notice of his probable intent to file such motion and, further, gives notice that he does not waive any defense based on the statute of limitations.

3. The determination of whether the above-referenced motion, addressed to the issue of the statute of limitations in this case, should be filed is, at this time, premature because the defendant has not yet received the discovery in this case. Indeed, the filing of such motion may not be appropriate until the government's presentation of its case-in-chief at trial, since the motion, of necessity, may arise from the evidence.

The government filed a response, which noted that the statute of limitations defense would be waived if not preserved. Thereafter, Hirschfeld did not raise the statute of limitations defense, although he had several opportunities to do so. The defense was not included as part of his motion for judgment of acquittal or post-verdict motions, and it was never voiced during trial or argued to the district court at any time. The issue has been raised for the first time on appeal.

While counsel for Hirschfeld was obviously aware of the defense, the strategy apparently undertaken was to meet the charges of Count II head on and not suggest that "the crime may have been committed, but you got me too late." Faced at that time with the choice of strategies and the possible damage that the limitations defense might cause to a defense on the merits, it was not unreasonable for Hirschfeld to have relinquished the limitations defense because of the murky question of whether post-underwriting conduct within the limitations period was in furtherance of the conspiracy. Having lost on the merits, however, and not having raised the limitations defense below, Hirschfeld cannot now, in hindsight, raise the defense for the first time on appeal. See United States v. Walsh, 700 F.2d 846, 855-56 (2d Cir.), cert. denied, 464 U.S. 825 (1983). We therefore refuse to consider whether the conspiracy continued into the five-year period before indictment.

II

Hirschfeld also contends that the government did not prove that the Eastern District of Virginia was a proper venue in which to prosecute Count III, charging him with willfully aiding or assisting in, or procuring, counseling, or advising the preparation of his 1984 income tax return in violation of 28 U.S.C. §7206(2) . Hirschfeld relies on the facts that the tax return for 1984 was prepared in California, mailed from Charlottesville, Virginia (located in the Western District of Virginia), and filed at the IRS center in Memphis, Tennessee. None of these locations is within the Eastern District of Virginia.

The government points out, however, that other acts undertaken by Hirschfeld to aid and assist in the preparation of the return took place in the Eastern District of Virginia. From the Eastern District of Virginia, Hirschfeld applied for and obtained an extension to file his 1984 return which was incorporated in the return; he purportedly paid a $2.1 million judgment in the Eastern District of Virginia which turned out to be a fraudulant settlement of a sham lawsuit that formed the basis for a false tax deduction on his 1984 return; he allegedly provided assistance from the Eastern District of Virginia to a co-conspirator in the preparation of a document entitled "Satisfaction of Judgment" which was attached to his return; the "Satisfaction of Judgment" referenced an agreement which was allegedly fraudulently entered into in the Eastern District of Virginia; he sent a letter from the Eastern District of Virginia to a co-conspirator's lawyer discussing a potential fraudulent lawsuit and subsequent tax deduction; he failed to disclose on Schedule B interest income from Stephen Goren which arose primarily out of actions in the Eastern District of Virginia; and he claimed allegedly false insurance and legal expenses on lines 16 and 19 of Schedule C of the return, based in part on documents that were created in the Eastern District of Virginia.

The general venue statute for crimes, as set forth in 18 U.S.C. §3237(a), provides:

Except as otherwise expressly provided by enactment of Congress, any offense against the United States begun in one district and completed in another, or committed in more than one district, may be inquired of and prosecuted in any district in which such offense was begun, continued, or completed.

While 26 U.S.C. §7206(2) , which is involved here, does not expressly identify where the tax violation is deemed to have occurred, the prohibitive language focuses on the conduct of any person who "aids or assists in, or procures, counsels, or advises the preparation" of a false return. Thus, any such conduct constitutes a continuation of the offense and forms a basis for establishing venue. See United States v. Griffin [87-1 USTC ¶9299 ], 814 F.2d 806, 810 (1st Cir. 1987). Hirschfeld reads §7206(2) too narrowly in focusing only on where the return was prepared, mailed, and filed. The prohibition by its own terms reaches conduct which consists of aiding and assisting in the preparation of a false return. See United States v. Nealy [84-1 USTC ¶9293 ], 729 F.2d 961, 962-63 (4th Cir. 1984) (upholding conviction under §7206(2) of defendant who assisted in the preparation of a false engineering report which he knew would be used to compute unjustified deductions).

Because Hirschfeld, while in the Eastern District of Virginia, participated actively in assisting and preparing his 1984 return, which he knew included fraudulent deductions, the Eastern District of Virginia was a proper venue for the prosecution of the offense.

III

Hirschfeld next contends that his convictions on Counts I and III should be reversed because the court's instruction on "willfulness" was misleading and deprived him of the right to have his "good faith" defense adequately presented to the jury. Section 7206(2) imposes punishment for willful violations, and "willfulness," in the context of criminal income tax cases, is defined as a " 'voluntary, intentional violation of a known legal duty.' " Cheek v. United States [91-1 USTC ¶50,012 ], 111 S.Ct. 604, 610 (1991) (quoting United States v. Bishop [73-1 USTC ¶9459 ], 412 U.S. 346, 360 (1973)). In Cheek the Court held that willfulness is to be determined by a subjective standard and it therefore prohibited instructing the jury that in order to have a good faith defense, one's belief must be objectively reasonable. Id. at 610-12.

In this case, the district court's charge to the jury included the folllowing instructions in connection with the "willfulness" requirement and the "good faith" defense:

[A]s I have told you, each of the counts in this indictment requires that the defendant have acted willfully. Willfulness requires that the government prove beyond a reasonable doubt that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty.

The defendant's conduct is also not willful if he acted through negligence, inadvertence or mistake, or due to a good faith misunderstanding of the requirements of the law.

* * *

Now, members of the jury, the good faith--the good faith of defendant Richard Hirschfeld is a complete defense to the charge in Count One of conspiring to defraud the Internal Revenue Service and to charges in Counts Three and Four of aiding in the preparation of false income tax returns. This is because "good faith" is simply inconsistent with willfulness--with the "willfulness" required by each of those counts.

While the term "good faith" has no precise definition, it means, among other things, an honest belief, a lack of malice, and the intent to perform all lawful obligations. A person who acts on a belief or on an opinion honestly held is not punishable under the law merely because that honest belief turns out to be incorrect or wrong.

The tax laws subject to criminal punishment only those people who willfully violate those laws.

If a person acts without reasonable grounds for belief that his conduct is unlawful, it is for the jury to decide whether that person is acting in good faith in order to comply with the law, or whether that person has willfully violated the law.

A person who believes that his tax return, as prepared by his accountant, truthfully reports his taxable income and allowable deductions under the tax law acts in good faith and cannot be found guilty of willfully conspiring to defraud the Internal Revenue Service and willfully aiding in the preparation of a false tax return as is charged in Counts One, Three, and Four of the indictment. Willfulness does not mean mere negligence, or even gross negligence.

* * *

If the evidence in the case leaves you with a reasonable doubt as to whether the defendant acted in good faith or acted willfully, you must acquit the defendant as to all counts in which such a reasonable doubt is present.

Taken as a whole, we do not think that the district court's instructions introduced reversible error. The court described subjective good faith as an "honest belief . . . and the intent to perform all lawful obligations," and it amplified the definition by instructing that "[a] person who acts on a belief or an opinion honestly held is not punishable under the law merely because that honest belief turns out to be incorrect or wrong." We believe that this instruction fairly complies with the standard described in Cheek.

Hirschfeld complains that the district court omitted his requested clarification that a person can act in good faith "even where there are no reasonable grounds for the person's honest belief," and that omission had the tendency to confuse the jury when the court instructed that "[i]f a person acts without reasonable grounds for belief that his conduct is unlawful, it is for the jury to decide whether that person is acting in good faith." Hirschfeld argues that the district court imposed in essence a requirement of objective reasonableness, a conclusion reached on a similar instruction in United States v. Powell [91-2 USTC ¶50,320 ], 936 F.2d 1056 (9th Cir. 1991).

While there is language in the district court's instruction that is similar to the inadequate instruction given in Powell, the instructions in Powell did not include the elaborate discussion about when a person acts in good faith. For instance, Powell did not contain the phrase, included by the district court here, "A person who acts on a belief or on an opinion honestly held is not punishable under the law merely because that honest belief turns out to be incorrect or wrong." We believe that the district court's later use of the word "reasonable" was not used to define "good faith," but rather to introduce the circumstances under which the jury would have to determine whether subjective good faith is to be applied. Cf. United States v. Fowler, 932 F.2d 306, 318 (4th Cir. 1991) (concluding, in a prosecution for conversion and conveyance of unauthorized documents, that the use of "the one word 'reasonable,' in the context of which the district court spoke and in light of all the other instructions could not have misled the jury" into applying a standard of objective reasonableness).

Accordingly we conclude that the district court's charge in this case, when read in its entirety, did not instruct the jury to determine "willfulness" from an objective standard, and, therefore, we find no reversible error.

IV

Hirschfeld argues that the convictions on all counts should be reversed because the SEC conspiracy count was improperly joined with the tax fraud counts. He argues that the conspiracies were separate, and joining them caused him prejudice.

Federal Rule of Criminal Procedure 8(a) permits joinder of separate offenses if they "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 have interpreted "connected transactions" flexibly, as " 'implying a connection of logical relationship.' " See United States v. LaRouche, 896 F.2d 815, 830 n.5 (4th Cir.), cert. denied, 110 S.Ct. 2621 (1990) (quoting United States v. Carmichael, 685 F.2d 903, 910 (4th Cir. 1982), cert. denied, 459 U.S. 1202 (1983)).

In this case there were both logical and factual connections between the SEC and tax conspiracies. For example, Hirschfeld met conspirators from both conspiracies in Virginia Beach on February 3, 1984 , to pay them off. He orchestrated the transfer of funds to Robert Chastain, a principal member of the tax conspiracy, who, in turn, made a $120,000 payment to Stephen Goren, a member of the SEC conspiracy, in exchange for a worthless screen play for the purpose of concealing Goren's involvement with Hirschfeld. The $120,000 payment served two purposes for Hirschfeld. It concealed a payment back from the tax conspirator and disguised a payment to the SEC conspirator for his participation in the Robotronix stock offering.

The district court's decision not to sever the two conspiracies for trial is reviewed by us under an abuse of discretion standard. See LaRouche, 896 F.2d at 830. In the circumstances of this case, we do not find that the district court abused its discretion in failing to grant the severance.

V

Challenging his sentence on Count I (the tax conspiracy count), Hirschfeld argues that the district court should not have applied the Sentencing Guidelines which became effective November 1, 1987 , because the conduct occurred at the latest in March 1986 when Hirschfeld filed his 1984 tax return. This was some eight months before the effective date of the Sentencing Guidelines. The government contends that the conspiracy, which included conduct of Hirschfeld's co-conspirators, extended well into 1989.

Count I alleges that Hirschfeld conspired with Robert Chastain and others to defraud the IRS by creating a $2.1 million false income tax deduction claimed by Hirschfeld on his 1984 return. The $2.1 million deduction was claimed because of the payment of that sum by Hirschfeld to Chastain in a fraudulent settlement of a sham law suit. In an attempt to have the transaction withstand tax scrutiny, an object of the conspiracy, Hirschfeld claimed the deduction, and therefore Chastain believed he had to report the income. Because Chastain, a co-conspirator, did not file his 1984 tax return until June 1989 when he reported the $2.1 million as an income item attributable to the fraudulent settlement with Hirschfeld, his conduct in furtherance of the conspiracy occurred during the period when the Sentencing Guidelines were applicable. The district court was thus not in error in applying the Sentencing Guidelines when sentencing Hirschfeld on Count I.

VI

Finally, Hirschfeld contends that the district court erred in calculating his base offense level on Count I under the Sentencing Guidelines. His principal contention is that the offense level for Count I should not have been enhanced on the basis of the amount of gross income or taxable income understated because even without the false deduction, he had no gross income in 1984 against which to apply the false deduction. He argues that the government did not sustain an "actual tax loss," and therefore his sentence should not be enhanced by the amount of the false deduction as if the government sustained a loss. See U.S.S.G. §§2T1.3, 2T4.1.

The government agrees that it did not actually sustain a tax loss for the tax year 1984. But it contends that there was evidence to reveal Hirschfeld's intent to carry forward the loss created by the deduction to reduce taxable income in future years. It notes appropriately that the background commentary to §2T1.3 of the Sentencing Guidelines points out that future tax loss is an appropriate consideration in evaluating the seriousness of the offense:

[I]n instances where the defendant is setting the groundwork for evasion of a tax that is expected to become due in the future, he may make false statements and underreport income that as of the time of conviction may not yet have resulted in a tax loss. In order to gauge the seriousness of these offenses, the guidelines establish a rule for determining a "tax loss" based on the nature and magnitude of the false statements made.

The situation involving future tax losses differs from that presented in United States v. Schmidt [93-1 USTC ¶50,074 ], 935 F.2d 1440, 1450-51 (4th Cir. 1991), in which defendants were convicted of various federal tax violations arising out of a scheme to sell trusts known as Unincorporated Business Organizations (UBOs). Under the scheme, the purchasers of the UBOs transferred income from their personal tax returns to trust tax returns and diminished their taxable income by claiming otherwise unavailable deductions and by effecting distributions of income "off-shore." At sentencing, the district court calculated the "tax loss" under §2T1.3 by taking 28% of the total amount of the gross income reported on UBO purchasers' trust tax returns, despite the fact that otherwise they would have been required to report the same amount of income on their individual returns. We reversed, concluding that although the purchasers had no legitimate right to report any of their income on trust tax returns, the government did not suffer a tax loss merely because the taxpayers were reporting income on a trust return rather than an individual return. Rather, the tax loss was represented by the illegitimate deductions and by the understated gross income caused by income "distributed" to them through an off-shore institution.

In the present case the district court determined "tax loss" under §2T1.3 by calculating 28% of the false lawsuit settlement deduction reported on Hirschfeld's return. As distinguished from Schmidt, where the reporting of income on the trust return did not, and would not have, produced a loss of tax revenue, Hirschfeld's fraudulent deduction would have directly reduced the amount of tax ultimately due. Although the deduction did not produce a tax loss in the year that it was claimed, it set "the groundwork for evasion of a tax that [was] expected to become due in the future." See U.S.S.G. §2T1.3, comment. (backg'd).

Thus, in determining the magnitude of the false statement, i.e. the false deduction, it was appropriate for the district judge to consider the potential loss of future tax revenue determined by a percentage of the amount of income that would be sheltered by the false deduction.

Finally, with respect to the district court's finding to enhance Hirschfeld's sentence based on his role in the conspiracy and previous criminal history, we find no error.

For all of the foregoing reasons, therefore, we affirm the judgment of the district court.

AFFIRMED

 

 

[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.

 

 

 

 

 

[2005-2 USTC ¶50,539] United States of America , Plaintiff v. Hal Hicks, Defendant.

U.S. District Court, So. Dist. Ill. ; 2005-cr-40023-JPG, August 17, 2005 .

[ Code Sec. 7206]

Procedure and administration: Fraud and false statements: Motion to sever: Venue. --

An individual could not sever a tax-related count from a larger indictment and have that count transferred to another venue. The tax-related count alleged that the taxpayer filed a false income tax return. Under 18 U.S.C. §3237(a) the action could be prosecuted in the present district because the taxpayer's preparer received information in that district from the taxpayer that was used to prepare the allegedly false return. The court rejected the taxpayer's argument that an exception under 18 U.S.C. §3237(b) existed. Venue in the present district was not based soley on the taxpayer mailing his return to that district. Indeed, there was no IRS center there to which the taxpayer could have mailed his return, even accidentally. Rather, venue in the present district was based on the taxpayer's preparer working and receiving information from the taxpayer there.

MEMORANDUM AND ORDER

GILBERT, District Judge: This matter comes before the Court on defendant Hal Hicks's motion for a change of venue and severance (Doc. 8), to which the government responded (Doc. 25) and Hicks replied. (Doc. 41). Although the government also filed a sur-reply brief in this case, the Court's local rules provide that "[u]nder no circumstances will sur-reply briefs be accepted," so that brief (Doc. 43) will be STRICKEN from the record and hasn't otherwise been considered here. Having reviewed the relevant materials, the Court agrees with the government and finds that Hicks's motion should be DENIED.

Defendant Hal Hicks is no stranger to this Court. It's perhaps unremarkable that he'd like as many of the charges in this case as possible moved to the Middle District of Florida, not because the Court is prejudiced against him --it's not and no reasonable observer could think otherwise --but it's just that he's yet to win a case here. In any event, like the other civil actions we've become familiar with over the course of the past three years (with which the Court assumes familiarity for present purposes), the indictment in this case revisits to some extent the misdeeds Hicks allegedly committed in connection with his role in the Illinois corporations of Midwest Transit, Inc., Midwest Transport, Inc., Mail-A-Way, Hal. D. Hicks Mail Transportation, etc., all of which exist(ed) to serve the U.S. Postal Service exclusively. The indictment contains five counts, which we'll take chronologically. Count 5 accuses Hicks of filing a false 1998 income tax return and is the main focus of this Order. As the government explains in its opposition brief, the falsity stems from a $210,000 tax deduction Hicks took in 1998 for depreciation on a Raytheon King Air 350 aircraft. Because Hicks didn't take delivery of the plane until early 1999, the argument goes, it was illegal to claim depreciation for it in 1998. Count 4, by contrast, charges Hicks with falsifying a fuel use certification form submitted to the Postal Service in early 2003. Note that unlike normal businesses --which we know charge for their goods or services based on what the market will bear regardless whether that price necessarily yields a profit or not (at least in the short run) --Postal Service contractors seem to be given their costs plus a specified profit margin. Making money is guaranteed. It follows that the contractor's expenses must also be reported; fuel use certification forms were the means used for such reporting in this case. What's more, note that trucks are largely useless without fuel, which is therefore a major expense of such businesses. Given that fuel is sold in any number of places, as an incentive to high-volume customers (like Hicks) fuel-selling outlets --like Pilot Corporation, Fabik Power Systems, Blue Beacon Enterprises, and Dixie Management Group, in this case --offer rebates to their customers, though apparently not "instant rebates." And there you have it. What the government says happened in this case is that while Hicks charged the Postal Service with the full amount of the initial fuel purchase, he never accounted for the rebates he later received, i.e., he failed to issue credits reflecting the reduction in actual fuel expense. Finally, counts 1, 2 and 3, for their parts, are much easier to conceptualize. The accusation on this score is that Hicks received three checks, properly belonging to someone else and totaling just over $170,000, and cashed them in early 2004 to pay "his interior designer, plastic surgeon, brokerage accounts for kids, etc." In other words, he's accused of just plain old stealing.

Based on what we've said thus far, an astute reader might say that a logical gap seems to exist between count 5, on the one hand, and counts 1 through 4, as a group, on the other. While the latter arguably involve the diversion of revenue from one of the businesses, at some level at least, the crime alleged in count 5 seems purely individual, not to mention its temporal disparity with the others. And so Hicks argues, positing, one, that 18 U.S.C. §3237(b) entitles him to severance of count 5 from the remainder of the counts alleged in this case, as a matter of right, and transfer of this count to the Middle District of Florida for trial; two, that FED. R. CRIM. P. 14 entitles him to severance of count 5 from the remainder of the other counts in any event.

Let's take point one first. The Court notes that everyone in this case agrees that 18 U.S.C. §3237 applies here; the question is whether it's subsection (a) or (b) that controls. Subsection (a) states the general rule: "[A]ny offense against the United States begun in one district and completed in another, or committed in more than one district, may be inquired of and prosecuted in any district in which such offense was begun, continued, or completed. Any offense involving the use of the mails ... may be inquired of and prosecuted in any district from, through, or into which such ... mail matter ... moves." Recall that filing a false tax return is the "offense" at issue in count 5, so under subsection (a) this prosecution could've been brought where the return was made; subscribed; filed; or where the preparer received information from Hicks, even though Hicks may have signed and filed the return elsewhere. See United States v. Marrinson [ 87-2 USTC ¶9610], 832 F.2d 1465, 1475 (7th Cir. 1987), and cases cited there. See also United States v. Ringer, 300 F.3d 788, 791 (7th Cir. 2002). We've yet to see the evidence in this case, of course, but at the very least it seems that Michael Burton received information in this district from Hicks that Burton used to prepare the 1998 return. That's sufficient under Marrison. We're therefore left with subsection (b), an exception to the general rule stated in subsection (a), which provides: "Notwithstanding subsection (a), where an offense is described in section [7206(1)] of the Internal Revenue Code of 1986 ... [and] is based solely on a mailing to the Internal Revenue Service, and prosecution is begun in a judicial district other than the judicial district in which the defendant resides, he may upon motion filed in the district in which the prosecution is begun, elect to be tried in the district in which he was residing at the time the alleged offense was committed." But the problem with applying subsection (b) in this case is that venue in this district isn't based "solely on a mailing," as the provision requires. Most obviously, there's no Internal Revenue Service center in this district at all to which Hicks could've mailed his tax return --even accidentally. As the principal cases cited by the parties agree, subsection (b) is aimed at eliminating the burden placed on taxpayers prosecuted in distant judicial districts based "solely on the mailing" of their returns into those districts (recall, subsection (a) and cases like Marrinson would allow a southern Illinoisan to be prosecuted for the crime alleged in this case in the Western District of Missouri, for example, as the Kansas City, Missouri, service center is the one to which a southern Illinoisan mails his tax return and therefore the Western District of Missouri is one judicial district into which "such mail matter moves"), although such a prosecution involves significant inconvenience to the taxpayer, not to mention significant prejudice to his defense. But that's not what we have in this case. Hicks's tax preparer worked in this district, Hicks gave him tax information here. And again, venue isn't grounded on the mere presence of an IRS service center in this district, a determinative fact in both United States v. Humphreys [ 93-1 USTC ¶50,100], 982 F.2d 254 (8th Cir. 1993), and United States v. Melvan, 676 F.Supp. 997 (C.D. Cal. 1987), two cases rejecting this type of challenge. This also distinguishes United States v. Nathanson, 813 F.Supp. 1433 (E.D. Cal. 1993), from this case. Venue there was "premised solely on his mailing his returns to Fresno , California ," a city within the Eastern District of California.

So, too, with point two. Granted, the case principally relied on by Hicks, United States v. Randazzo, 80 F.3d 623 (1st Cir. 1996), seems to suggest that joinder of count 5 with counts 1 through 4 in this case may be improper. The notion is that neither the income generated from the allegedly stolen rebate checks, nor the income realized from the failure-to-disclose, could've impacted a tax return filed five years earlier. True enough. But it's still early in the case, and FED. R. CRIM. P. 14 requires more than just improper joinder for severance to be necessary. See United States v. Lane, 474 U.S. 438, 449 n. 12 (1986). There must also be prejudice, which there is not at this point. It's been this Court's experience that juries are well-equipped to separate good counts from bad, and this case seems to present nothing new that a limiting instruction can't handle.

For the foregoing reasons defendant Hal Hicks's motion for a change of venue and severance (Doc. 8) is DENIED. The government's sur-reply (Doc. 43) is STRICKEN.

IT IS SO ORDERED.