Petition for Writ of Certiorari — Dale v. United States
Supreme Court brief1993
Ask Donna
What actually matters in this document.
Text
| Supreme Seust, ¥.9, '
y-412 4] an
93-4 4 ik SEP 14 1993
No. 93- OFFICE OF THE CLERK
eet
IN THE
Supreme Court of the Gnited States
OCTOBER TERM, 1993
Davip M. DALE,
Petitioner.
,
UNITED STATES OF AMERICA,
Re spondent.
On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The District Of Columbia Circuit
PETITION FOR WRIT OF CERTIORARI
JEFFREY S. PARKER
3401 North Fairfax Drive
Arlington, Virginia 22201
(703) 9938-8055
Counsel for Petitioner
David M. Dale
September 14, 1993
Questions Presented for Review
A. Fourth Amendment Issues
1. Can a search warrant otherwise violating the Fourth
Amendment’s particularity requirement be cured by reference to a
probable cause affidavit that neither accompanied the warrant nor
was found to be present at or used in the search, merely because the
officer executing the affidavit was present at the search?
2. Where a search warrant issues on false allegations of
product substitution under a contract with the U.S. Army, does an
uncontested defense showing that any effort by the investigator to
verify the allegations with U.S. Army officials would have revealed
their falsity fail as a matter of law to make a "substantial
preliminary showing" of reckless disregard for truth requiring an
evidentiary hearing under this Court’s decision in Franks vy.
Delaware, 438 U.S. 154 (1978)?
B. Federal Rules of Evidence Issues
3. What is the preliminary standard of reliability for the
admission of tape-recorded evidence under the Federal Rules of
Evidence?
4. Does a district court’s failure to make a preliminary
finding on either the reliability or the authenticity of tape-recorded
evidence comply with the requirements of Fed. R. Evid. 104?
C. Federal Criminal Law and Fifth Amendment Issues
5. Can a defendant be charged and convicted for an alleged
tax evasion conspiracy under either the "defraud" clause or the
"offense" clause of 18 U.S.C. §371, where_ the charged
conspiratorial conduct: (a) produced no tax revenue loss to the
United States, through the defendant’s own self-correction prior (0
the indictment; (b) consisted entirely of conduct covered by 76
U.S.C. §7201 and its lesser included offenses; or (c) included
conduct that neither was nor could lawfully be charged as
constituting an attempt to evade under 26 U.S.C. §7201 or its lesser
included offenses?
6. Can a defendant be charged and convicted cumulatively
of offenses under 18 U.S.C. §§371, 1001, and 1343, and under 26
U.S.C. §§7201 and 7206, when all of the offenses arise from the
same course of conduct that is charged exclusively as intended to
evade income taxes?
7. In instructing the jury, does a district court correctly (a)
omit definitions of "defraud the United States" or specific intent to
defraud in charging on the “defraud” clause of 18 U.S.C. §371, (b)
refuse to define "deductible expense” in a tax evasion case
challenging deductibility, and (c) refuse to instruct that truth is a
defense under 18 U.S.C. §1001?
8. Does a jury instruction defining reasonable doubt as "a
doubt for which you can give a reason" and "such a doubt as would
cause a juror. . . to be so undecided that he cannot say that he has
an abiding conviction of the defendant’s guilt" comply with the Due
Process Clause as construed by this Court?
D. Sentencing Issues
9. Is a district court free to ignore Sentencing Commission
commentary to USSG §1B1.2 requiring a finding of a defendant’s
participation in each object of a multi-object conspiracy beyond a
reasonable doubt as a prerequisite to the application of the
conspiracy sentencing guidelines?
10. Is the application of the "straddle" theory to impose a
guideline sentence to a conspiracy count allegedly "continuing"
beyond the effective date of the guidelines consistent with the Due
Process, Double Jeopardy, and Ex Post Facto clauses of the
Constitution where the result is to impose both pre-guidelines and
post-guidelines sentences for exactly the same pre-guidelines offense
conduct?
iii
List of Parties
The proceeding below was a federal criminal prosecution,
with the United States as plaintiff in the district court and appellee
in the court of appeals, and the following parties as defendants in
the district court and appellants in the court of appeals:
(1) David M. Dale, the Petitioner in this Court;
(2) Michelle Ashton;
(3) Martin Segal;
(4) Automated Data Management, Inc.; and
(5) Terence Sweeney.
iV
Tabie of Contents
Page
I INO oi icicncccshondéurensdceinatbdiedeedmmes i
RE IE sachscstceianwiedanasentinciacsaubannions ili
Re ee IE citittivnontanevasinnvicoduneciantenes vi
I IN Cicéibu titi aiesscdelienh bunteai evens, l
Jurisdiction ....... iidevidiiadapembinesies teaniistacdadaaiddan 2
Constitutional, Statutory and Regulatory Provisions
PII coc clschiueseyeiae peicei uct eee Le, 2
I er i le 2
Reasons for Allowing the Writ .......................0000. 11
I. There Is a Direct and Substantial Conflict
among the Circuits on the Important Fourth
Amendment Question Whether an Invalid
General Search Warrant Can Be Cured by
Reference to an Affidavit that Does Not
Accompany the Warrant at the Search. ............... 11
II. This Court Should Review the Lower Courts’
Application of its Prior Decision
re 14
III. This Court Should Settle the Important Question
of the Threshold Standard of Admissibility
for Tape-Recorded Evidence under the Federal
SO Ge SN Siiilcndscubnisncdeonmuiseabendindodiness 17
IV. This Court Should Review the Application of the
> £r OoR A DS Oe Oe St Mer 5 — on , 2 > ted = 5 ay
zs -_ -) tell —
Vv
General Federa! Fraud and Conspiracy Statutes to
NE HE SIS vcdendvnovscasaceecoveedenesbaaness 20
V. The Reasonable Doub; *: finition Applied Below
Se IS acesicdvodiuseansoseusesennsaeneuens 24
VI. The Sentences Below Disregarded Sentencing
Commission Commentary. ...........scsccecessscecescees 25
VII. The "Straddle" Theory of Guideline
Sentencing Was Unconstitutional as Applied
INS. siidtivacsacectnisaacubecssskenesiekinnipanines 25
RRA AP DL GE ERI ES eee SUNN LGM MeN OE 26
vi
Table of Authorities
Cases
Page
Andresen v. Maryland, 427 U.S. 463
SUIT ten ton cd acaschoabdunsamaieeues 12
United States v. Arch Trading Company,
987 F.2d 1087 (4th Cir. 1993). ...... 21
United States v. Bilzerian,
916 F.2d 1285 (2d Cir. 1991) .......... 21
Bishop v. United States,
Dam Tl, OG COIS) csccvccsccsesecsess 22
Bourjaily v. United States,
— oi Be, 8). :) Sees 20
Cage v. Louisiana,
ge i 2), rns 24
Carpenter v. United States,
Os We CHUTEED ecvcntssaracecceanes 21
Cheek vy. United States,
BEE B, GE GO CRS eD evecasceccccecsns 22
Center Art Galleries-Hawaii, Inc.
v. United States, 875 F.2d 747
GEG: SENET Sucacucsecccessiwans 13-4
Daubert v Merrell Dow
Pharmaceuticals, Inc., -—- U.S.
—, 113 U.S. 2786 (1993) ............ 17
he ee ee 7 8 ee YS a ES
vii
United States v. Decker, 956 F.2d
FID Gas Gat. FERED ssevcresccscccssses 14
United States v. Falcon, 959 F.2d
bog) gt A nn 12
Franks v. Delaware,
SE Uo Bae OU cetdccccevedencens 14-5
United States v. George,
975 F.2d 72 (2d Cir. 1992) ............ 12
United States v. Gahagan,
865 F.2d 1490 (6th Cir. 1989) ......... 13
United States v. Haldeman,
559 F.2d 31 (D.C. Cir. 1976),
cert. denied, 431 U.S. 933 (1977) ..... 18
United States v. Henderson,
386 F. Supp. 1048 (S.D.N.Y. 1974) ..... 21
Huddleston v. United States,
es te CE cdisnccdutocscveces 20
United States v. Hurley,
957 F.2d 1 (ist Cir. 1992) ............ 21
United States v. Ingram,
360 U.S. GIS CISA) <ccceeseescesecees: 22
United States v. Johnson,
690 F.2d 60 (3d Cir. 1982) ............ 12
United States v. King,
587 F.2d 956 (9th Cir. 1978) .......... 18
United States v. Klein,
247 F.2d 908 (2d Cir. 1957) ........... 22
Application of Lafayette Academy,
610 F.2d 1 (ist Cir. 1979) ............ 12
United States v. Lance,
853 F.2d 1177 (Sth Cir. 1988) ......... 18
United States v. Leary,
846 F.2d 592 (10th Cir. 1988) ........ 13-4
United States v. Leon,
468 U.S. 897 (1984) .....00..0000000.. 13-4
United States v. Luk,
859 F.2d 667 (9th Cir. 1988) ........... 14
McNally v . United States,
Ge Wie Be GED vtcetccireva-sassexs 21
United States v. Maxwell,
920 F.2d 1028 (D.C. Cir. 1990) ........ 13-4
United States v. Minarik,
875 F.2d 1186 (6th Cir. 1989) ......... 21
Miller v. Florida,
482 U.S. 423 (1987) ...............c cee. 26
United States v. Money,
949 F.2d 899 (6th Cir. 1991) ........... 21
United States v. Niven,
952 F.2d 289 (9th Cir. 1991) ........... 26
United States v. Pomponio,
a le Bt CEE ccbidcadivetesentsvene 22
ix
Rickert v. Sweeney,
813 F.2d 907 (8th Cir. 1987) ........... 13
United States v. Sandoval,
960 F.2d 587 (6th Cir. 1992) ........... 18
United States v. Sandoval,
709 F.2d 1553 (D.C. Cir. 1983) ......... 18
Sansone v. United States,
3ED U.S. 343, 351 CIGGS) ..0.cccccceses 22
United States v. Slade,
627 F.2d 293 (D.C. Cir.),
cert. denied, 449 U.S. 1034 (1977) ..... 18
Spies v. United States,
SUT US. SEZ, BAT OSES) ccccccvcsecess. 22
Stinson v. United States, ---U.S.--,
ben Be: errr 25
United States v Tagbering,
985 F.2d 946 (8th Cir. 1993) ........... 13
Tanner v. United States,
Ge Soils He CED cbeccetiendecsexcese 21
United States v. Vaughn,
830 F.2d 1185 (D.C. Cir. 1987) ......... 13
United States v. Washington,
852 F.2d 803 (4th Cir. 1988) ........... 13
United States v. Weinstein,
762 F.2d 1522 (11th Cir. 1985) ......... 14
United States v. Wuagneux,
683 F.2d 1343 (11th Cir. 1982) ......... 13
Statutes and Rules
U.S. Const.:
Se OF cxccsnntissewtisicssmecees 1]
Fe Wratae PFE neccsiuiovcetccussnenn 21-3
26 U.S.C. §§7201, 7206 ............... 21-2
POS. KR. BvIG. 106, Fl .cccccecsocsees 17-20
ET GRU sedeevicqnsiieivcsénievaiies 25
Se PO vicosoenavecnnesetcennsionss 26
Secondary Authorities
2 W. LaFave, Search and Seizure
§4.6(a)(2d ed. 1987) ..........60000.... 12
2 McCormick on Evidence §214
_ - } ia 19
9 Wigmore on Evidence §2550
(Chadbourn rev. 1981) .............0.... 18
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1993
No. 93-
Davip M. DALE,
Petitioner,
Vv.
UNITED STATES OF AMERICA,
Resf ondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED*STATES COURT OF APPEALS FOR THE
DISTRICT OF COLUMBIA CIRCUIT
Petitioner David M. Dale respectfully prays that a writ of
certiorari issue to review the judgment of the United States Court of
Appeals for the District of Columbia Circuit.
Opinions Below
The opinion of the court of appeals upon the rendering of its
judgment (al-70)' is reported at 991 F.2d 819 (D.C. Cir. 1993).
An earlier order of the court of appeals (a71-73), remanding the
case for a clarification of certain of the rulings by the district court,
and the district court’s responsive memorandum order (a74-75)
transmitting two previously unfiled memoranda (a76-102), are
unreported. The district court’s opinion on defendants’ motions to
dismiss counts of the indictment (a103-25) is reported at 782 F.
Supp. 615 (D.D.C. 1991). The remaining orders and memoranda
of the district court (a126-60) are unreported.
' Citations to “a-" are to pages of the appendix to this petition. Citations to
"JA-" are to pages of the Joint Appendix in the court of appeals.
2
Jurisdiction
The judgment of the court of appeals was entered on April 6,
1993 (al). An order denying rehearing was entered on June 16,
1993 (al61). This Court has jurisdiction under 28 U.S.C. §
1254(1).
Constitutional, Statutory, and
Regulatory Provisions Involved
The pertinent texts of the Ex Post Facto Clause (art.I, §9, cl.3),
the Fourth and Fifth Amendments to the Constitution, 18 U.S.C.
§§371, 1001, & 1343, 26 U.S.C. §§7201, 7203, & 7206, Rules 104
and 901 of the Federal Rules of Evidence, and USSG §§ 1B1.2,
1B1.3, 2T1.1, 271.9, 2X1.1 & the official commentary thereto, are
set forth in the appendix to this Petition (a162-73).
Statement of the Case
This case involves the destruction of a minority-owned defense
contracting firm, through the collaboration of dishonest former
employees of the firm and overzealous enforcement agents of the
federal government.
Under this strange collaboration, an investigation launched on
baseless allegations of government contract fraud, and badly
motivated attacks on the bona fides of the firm as a minority
enterprise, ultimately evolved into a criminal prosecution for purely
imaginary income tax "evasion." As a result, the firm and its
owners now stand convicted, and its owners sentenced to substantial
prison terms, for “evading” income taxes that in fact were paid--
voluntarily and without any deficiency assessment by the Internal
Revenue Service-months and in most cases years prior to the
issuance of the government’s indictment, while the dishonest
employees remain free to pursue further activities, apparently with
the prosecutor’s blessings.2 There is something fundamentally
2 We stress here at the outset that no part of this Petition rests upon factual
error in the courts below, or even ordinary legal error, but is confining to the
issues of general importance that are presented on this record. In the following
statement of the case, except where otherwise noted, we have attempted to state the
case consistently with the court of appeals’ recitation of the government’s version
Ee
3
wrong with a legal structure that produces this result in even one
case, much less as a durable pattern of law enforcement expediency.
In terms of the discretionary jurisdiction of this Court on
certiorari, the strange evolution of this case is important to a
consideration of the unusually wide range of questions now
presented that are worthy of this Court’s attention, for the
government here has overreached the boundaries of legality in law
enforcement in several different directions simultaneously.
First, the government’s misguided investigatory methods raise
two important and recurring issues under the Fourth Amendment:
one has produced a direct and substantial conflict among the courts
of appeals on the question whether the mere presence of an affiant-
not a supporting affidavit--will serve to excuse an unconstitutionally
general search warrant; the other concerns the application of this
Court’s guidelines for controlling the issuance of search warrants
based on false accusations.
Second, the government’s use at trial of tape recordings of
questionable veracity exploited a chaotic state of the law in the
courts of appeals on the broadly important question of the threshold
requirements of reliability for tape-recorded evidence, which ought
to be settled by this Court.
Third, the government’s expansive use of the general federal
conspiracy statute both to criminalize conduct that has not been
prohibited expressly by Congress, and to impose multiple or
increased punishment for a single act--which have become routine
practices in the federal courts today--raises even broader and more
important questions of legality in government. In particular, this
Petition questions whether 18 U.S.C. §371, as construed by most
though not all of the lower courts in recent years, has become a
monstrosity of overcriminalization that not only threatens the
freedoms of individuals in our society, but also, as applied here in
the context of alleged income tax evasion, actually undermines the
of the facts (al-31), which views the evidence "in the light most favorable to the
government"(al), even though some aspects of the government's case where so
exceedingly implausible as to defy credulity in any light (see, ¢.g., al0-11 & n.14
(Bowers’ explanation of his admitted theft of funds from the company))
4
efficacy of the tax collection system through the premature
intervention of the criminal sanction.
This expansion of the general conspiracy statute into the field of
tax offenses has emanated from lower court opinions, and, so far as
we are aware, has not been approved by this Court. Therefore, it
also presents important questions of federal law which have not
been, but should be, settled by this Court.
Background Facts: The Company and its Business
This case focuses on the operations of Automated Data
Management, Inc. ("ADM"), a District of Columbia corporation
that was founded in 1982 by Michelle Ashton, one of the five
defendants in the proceedings below. In late 1984, Ashton hired
David Dale, another defendant below and the Petitioner in this
Court, as executive vice-president of ADM. In addition to his
salary, Dale obtained an 18% equity interest in ADM, while Ashton
retained 82%.
In 1984, ADM had been qualified as a minority business under
the Small Business Administration’s "8(a)" program, and in
February 1985, through that program, ADM was awarded a contract
to supply small computers and associated services to the United
States Army. Over the next several years, ADM underwent a
dramatic expansion of the scale and scope of its operations. !n
order to serve the needs of the forward-deployed Army forces
overseas, ADM established branch offices in Korea and Germany,
and hired two new vice-presidents to Oversee operations in those
areas: David Bowers for Asia; and Terence Sweeney for Europe.
During this same period, ADM hired Charles Roth as marketing
vice-president, and Martin Segal as its chief financial officer; both
Roth and Segal worked out of ADM’s home office in Washington,
D.C.
Because the operations of ADM’s foreign offices were restricted
either by host country law or the host country’s agreements with the
United States, ADM set up foreign affiliates to pursue non-Army
business in those areas. In Asia, those affiliates were two Hong
Kong companies named Swaffham and Gemona, supplemented by
a Guam corporation named ADM Asia. In Europe, ADM set up a
German firm named ADM Hard- und Software Handelgesellschaft
5
GmbH ("ADM H&S"). In each case, the regional vice-president of
ADM--Bowers in Asia, and Sweeney in Europe—received 25% of
the equity in the regional firms, and was placed in general charge
of their operations. Ultimately, transactions involving these ADM
affiliates became the focus of the indictment in this case, but they
were not the precipitating cause of the government’s investigation
of ADM.
Instead, the principal cause was the disaffection of Bowers, the
Asian regional vice-president, and Roth, the marketing vice-
president, with their positions at ADM. Although their precise
grievances and objectives are somewhat obscure on this record,
apparently both Bowers and Roth believed that had been promised--
or could obtain--equity positions in ADM, if only they could, in
Bowers’ own testimony to the Grand Jury, "get rid of Mr. Dale”
(JA817). In June 1987, Roth was fired from ADM, and Bowers
resigned in August 1987.’ On his way out in August, Bowers stole
all of the remaining funds belonging to the ADM Hong Kong
affiliates by forging corporate minutes to give himself sole signing
authority and then transferring the funds to another company under
his exclusive control. (al0-11; JA2114,2149). In the meantime,
Bowers and Roth had retained a lawyer who demanded payments
totalling $1.5 million from ADM. The demands were refused.
Ten months later, federal agents appeared at ADM’s office with
a search warrant that had been obtained primarily on the basis of
unverified--and false--allegations of government contract fraud made
by Bowers and Roth against ADM.
The Government’s Investigatory Activities and the Search
In February 1988, Bowers_was questioned by an agent of the
Defense Department’s Defense Criminal Investigation Service
("DCIS") concerning allegations against Bowers on a matter
unrelated to ADM. In that connection, Bowers--later joined by
Roth and two other disaffected former employees of ADM--began
to make allegations of wrongdoing against ADM, Ashton, and Dale,
primarily focused on product substitution under ADM’s Army
> While they were still working for ADM, Bowers and Roth had set up their
own separate firm to compete with ADM (JA1781-83).
contract.
Those allegations were repeated in an affidavit dated June 14,
1988, by DCIS Special Agent Heide Shintani (JA253-60)* submitted
in Support of an application for a search warrant (JA252), which
was issued by Magistrate Dwyer on that same date (JA249). There
is nothing in the record to indicate that Shintani did anything at all
to verify the allegations, including the obvious and simple step of
checking with the Army. Had she done so, she would have
discovered that the product substitution allegations were entirely
without substance: from the outset of the contract in 1985, Army
officials were aware of and approved the use of a different brand of
hard disk drive in the Wang computers that ADM was supplying to
the Army, which in fact improved the quality and cost-effectiveness
of the product to the Army (see JA267-87), and there were Army
records verifying this fact (JA284). Ultimately, the court of appeals
ruled that these facts, while indicating that Shintani was negligent
(a40), as a matter of law did not constitute a substantial preliminary
showing that she was reckless, and that ruling creates one of the
questions presented (#2) for this Court’s review.
The search warrant was executed on June 16, 1988, by fifteen
federal agents who searched throughout ADM’s offices for 10 hours
and seized 75 boxes of materials, some of which were later used at
trial. Agent Shintani apparently was present at the search, but there
is no finding in this record that her affidavit was served with the
warrant Or was present at or used in conducting the search. The
court of appeals, after holding that the warrant in itself "was not
sufficiently particular" (a44-45), noted that "it is not altogether clear
that the affidavit accompanied the warrant at the search" (a48), but
nonetheless ruled that Shintani’s presence at the search "sufficiently
limited the discretion of the executing agents" (a48), thus framing
the other Fourth Amendment question presented (#1) by this
Petition.
* Shintani’s affidavit described ADM as “purports to be minority owned and
operated” (JA253), and misstated the ownership shares(JA254). At that point, the
allegations of tax evasion were a minor afterthought (J A258-59) to the main thrust
of government contract fraud, which also was supplemented by allegations of
rebates, payoffs, etc., all of which were unsubstantiated.
7
The product substitution aspect of the government’s activities
came to naught when the government’s agents later discovered the
truth. No charges were brought on that ground. Nonetheless, the
government continued to target ADM and its officers, under a new
theory also invented by Bowers and Roth, and when the indictment
issued some eighteen months later, it was based upon this new
theory of a tax evasion conspiracy.
The Indictment and the Challenged Transactions
On January 11, 1990, the Grand Jury returned a 10-count
indictment (JA141-74) against ADM, Ashton, Dale, Sweeney, and
Segal. The only present or former officers of ADM that were not
charged were Bowers and Roth, who were providing the
government with its theory of prosecution.
Count 1 of the indictment was an all-encompassing conspiracy
charge under both the "defraud" and “offense” clauses of 18 U.S.C.
§371, alleging an overall goal of “defrauding the United States of
tax revenues” (JA146). The substantive counts 2-10 alleged
offenses under 18 U.S.C. §§ 1001 & 1343, and under 26 U.S.C.
§§7201 & 7206, based on conduct that completely overlapped with
count 1.°
In essence, the government’s case was based on challenges to the
bookkeeping treatment of six different transactions or series of
transactions involving the ADM regional affiliates--four in Asia and
two in Europe. The precise timing of these transactions and their
subsequent tax treatment is important to an understanding of the
federal criminal law issues presented by this Petition.
Of the four Asian transactions, all of which were orchestrated by
Bowers, one-a loan from ADM funds through the Guam affiliate to
another ADM affiliate in the United States--had no potential income
tax consequences at all, as a loan is neither income nor expense.
The other three were: (1) cash advances to Ashton and Dale during
1986 from ADM’s Korean bank account, which were reported as
personal income by Ashton in an amended 1986 return filed in
December 1987, and by Dale in his 1987 return; (2) $417,532 paid
5 As the indictment charged offenses under federal criminal statutes, the district
court had original jurisdiction under 18 U.S.C. $3231.
lle
8
by ADM in 1986 for consulting and marketing services by the Hong
Kong affiliates, which was never claimed as a tax deduction by
ADM; and (3) a 1986 accrual of $500,000 in respect of further
services to be invoiced in the future by one the Hong Kong
affiliates, Swaffham, which was reversed in an amended corporate
tax return filed on March 30, 1989, after ADM’s non-Army Asian
activities had fallen apart in the wake of Bowers’ departure.
The two European transactions both involved payments by ADM
to an unrelated Swiss firm named Bourbonia for consulting services.
The first payment of $316,000 in December 1986 was reversed in
an amended corporate income tax return filed on August 25, 1988.
The second payment of $102,655 was never claimed as a tax
deduction by ADM. In both cases, the expenses were reallocated
to ADM H&S, the European affiliate, on the rationale that the
consulting services, which related to non-Army_ business, should be
borne by that entity, whose ownership shares differed from the
parent firm, ADM.
Significantly for the questions presented in this Court, the
substantive tax counts of the indictment (Counts 2-4) only
challenged two of these transactions--the $500,000 Swaffham
accrual, and the $316,000 payment to Bourbonia, both of which
were the subject of amended corporate tax returns filed long before
the indictment issued, but after the government’s misguided search
of ADM’s offices.
The remaining counts of the indictment were purely derivative:
Count 5 charged that the payment of the same $316,000 to
Bourbonia by wire transfer also constituted wire fraud in violation
of 18 U.S.C. §1343, and Counts 6-10 charged Ashton, Dale, and
ADM with violations of 18 U.S.C. §1001, based upon alleged
failures to disclose Ashton and Dale’s interests and directorships in
the ADM Hong Kong affiliates (which were wholly owned by U.S.
citizens) as "foreign connections" or “foreign interests" in various
forms filed with the Defense Department concerning ADM’s Army
contract.
The substantive counts all involved alleged offense conduct
completed prior to November 1, 1987, the effective date of the
federal sentencing guidelines. However, and significantly to the
sentencing issues here presented, the conspiracy was alleged to have
9
"continued" beyond that date, primarily through actions allegedly
“misleading the Internal Revenue Service" (JA164) by filing
amended tax returns (see JA164-66).
Proceedings in the District Court
In the district court, the defendants moved to dismiss the
indictment for Grand Jury abuse and for substantive insufficiency,
and to suppress the fruits of the government’s search of ADM’s
offices. Defendants also moved to suppress tape recordings
purportedly made by Bowers and Roth of telephone conversations
with Ashton, Dale, and other ADM employees during 1987, on the
ground that the recordings were made in violation of Title III of the
Omnibus Crime Control and Safe Streets Act of 1968. The district
court denied all of these motions, and also denied defendants’
request for an evidentiary hearing on the question whether the false
product substitution allegations were knowingly or recklessly
included in the Shintani affidavit.
At trial, defendants further objected to the admission of the tape
recordings on the ground that they were untrustworthy, and in
support of their objection submitted an expert’s report finding
physical and scientific evidence of tampering and alteration of the
tapes. On the basis of testimony by Bowers and by a government
agent who had custody of the tapes prior to trial, the district court
ruled the tapes admissible, without making any preliminary finding
of either their authenticity or their reliability.
Following trial, all defendants were convicted on all counts of
which they were charged. Petitioner Dale was convicted on Counts
1, 2, 4, 5, 7, 9, and 10. Following the verdict, the district court
ruled that Count | was subject to sentencing under the guidelines
(al48). Petitioner was sentenced to 41 months’ imprisonment on
that Count, and to concurrent 30 month sentences on each of the
remaining counts, plus 3 years of supervised release, $675,000 in
fines, and approximately another $60,000 in assessments and costs
of incarceration and supervised release. (JA1831-35).
Of course, there was no restitution ordered by Dale or any of the
other defendants, because there was no tax deficiency.
ee
10
Proceedings in the Court of Appeals
All defendants appealed their convictions and sentences to the
D.C. Circuit. Following briefing and argument on appeal, the court
of appeals took the unusual step, in its order of January 8, 1993
(a71-73), of remanding the case for “a clarification of the district
court’s ruling and the reasons in support thereof” (a73) on the
application Title III] to the Bowers/Roth tape recordings used at trial.
With its responsive memorandum order filed on January 21, 1993
(a74-75), the district court transmitted two undated and previously
unfiled memoranda, one on the Title III questions (a77-81), and the
other, more pertinent here, on the Fourth Amendment questions
presented by the search of ADM’s offices(a83-102). The parties
then submitted supplemental briefs addressing these new documents
(see a35, a38), which are called the "Tapes Memorandum" and the
"Warehouse Memorandum” in the court of appeals’ decision.
On April 6, 1993, the court of appeals rendered its judgment and
opinion (a1-70), affirming all of the convictions but remanding for
resentencing with instructions to vacate the sentences under Counts
2 and 3 for violations of 26 U.S.C. §7206, on the holding that those
lesser offenses merged into the convictions on Count 4 for attempted
tax evasion under 26 U.S.C. §7201 (a67-70). However, the court
of appeals declined to apply this same principle to either the wire
fraud charge in Count 5 or to the false statement charges in Counts
6-10 (a69n.61), expressly rejecting the defense argument that "the
Internal Revenue Code supplies the exclusive basis for tax fraud
prosecutions" (a49). The court of appeals further rejected the
defense’s objections to the jury charge on the "defraud" branch of
18 U.S.C. §371, the definition of “deductible expense," the defense
of truth to a charge under 18 U.S.C. §1001, and the definition of
reasonable doubt (see a52-58).
The court of appeals disagreed in part with the district court’s
Fourth Amendment analysis in the recently forwarded "Warehouse
Memorandum,” and ruled that "the warrant, by itself, was not
Sufficiently particular" (a44-45) to comply with the Fourth
Amendment. Furthermore, though the court of appeals felt that the
warrant included sufficient words of reference to incorporate the
Shintani affidavit, it found that the record failed to show that "the
affidavit accompanied the warrant at the search” (a48).
Eee
11
Nevertheless, the court of appeals declined to suppress, holding that
the presence of the affiant at the search could substitute for the
presence of the affidavit (a48), thus joining in a growing conflict
among the circuits on this point. The court of appeals also upheld
the district court’s denial of an evidentiary hearing on the false
allegations contained in the affidavit (a38-43).
The court of appeals further upheld the district court’s admission
of the tape recordings without a preliminary finding, interpreting the
district court’s inaction as an "implicit" finding (see a36, 38) that
“was not an abuse of discretion" (a36). Similarly, the court of
appeals also approved the district court’s application of the
sentencing guidelines to Count | on the “straddle” theory (a58-60),
and rejected the defense’s objections, inter alia, that the sentencing
judge had failed to make the requisite findings of each defendant's
participation in each of the ‘object offenses by a reasonable doubt
standard, as required by guidelines commentary, by referring to the
district court’s “adoption” of the presentence investigation reports
(see a59 & n.54; a61).
Defense motions for rehearing, including one by Petitioner Dale,
were denied on June 16, 1993 (a161).
REASONS FOR ALLOWING THE WRIT
I. There Is a Direct and Substantial Conflict among the Circuits
on the Important Fourth Amendment Question Whether an
Invalid General Search Warrant Can Be Cured by Reference to
an Affidavit that Does Not Accompany the Warrant at the
Search.
The Fourth Amendment provides that "no Warrants shall issue,
except upon probable cause, . . . and particularly describing. . .
the . . . things to be seized." U.S. Const., amd. IV. One might
think that, of all the possible issues presented under the Fourth
Amendment, this simple and indeed minimal requirement of
governmental regularity, explicitly set forth in the constitutional
text, would be relatively straightforward in application: either the
warrant meets the particularity requirement, in which case it is
lawful; or it does not, in which case the search is unlawful and any
12
evidence seized should be suppressed. But such simplicity is not the
case in the lower federal courts today. To the contrary, there is a
sharp conflict among decisions of the federal courts of appeals,
including the decision below in this case, on just how far the
government may deviate from its responsibilities before the
individual’s constitutional right will be enforced.
The precise issue decided here stems from a body of doctrine
developed in the lower federal courts in response to the obviously
frequent occurrence--judging from the large number of reported
decisions--that the warrant itself plainly does not meet the
Constitution’s particularity requirement, as the court of appeals held
here (a44-45).° In that context, the general doctrine has evolved
that the government’s violation of the Fourth Amendment will be
excused or “cured” by reference to the underlying affidavit in
support of the warrant application, assuming it is sufficiently
descriptive, where: (1) the affidavit’s description is incorporated by
reference in the warrant; and (2) the affidavit “accompanies” the
warrant at the search.’
That development alone would merit this Court’s attention. But
the development, and the divisions among the federal courts of
appeals, extend much further, both to varying interpretations of the
excusing criteria and to the questions whether both, either, or
neither of the two excusing elements are necessary to a decision
permitting the fruits of the search to be used. The First,* Second,’
Third,” Ninth,"’ and Tenth’? Circuits require the affidavit to be
* Thus, this Court’s decision in Andresen v. Maryland, 427 US. 463 (1976),
is not implicated here.
’ For a discussion of the general authority in this area, see 2 W. LaFave,
Search and Seizure §4.6(a)(2d ed. 1987). And see the cases cited below.
* United States v. Falcon, 959 F.2d 1143 (1st Cir. 1992); Application of
Lafayette Academy, 610 F.2d 1 (1st Cir. 1979).
* United States v. George, 975 F.2d 72 (2d Cir. 1992).
'° United States v. Johnson, 690 F.2d 60 (3d Cir. 1982).
7
13
both incorporated by reference and to accompany the warrant, while
the Fourth,” Eighth,"* and Eleventh’® Circuits permit either
element to suffice. The law of the Fifth and Sixth Circuits is
unclear, but a Sixth Circuit decision on the related requirement of
particularity in describing the place to be searched suggests that
neither of the excusing elements would be strictly required in that
court.'®
Prior to the decision below in this case, the D.C. Circuit
appeared to require both excusing elements,’’ but by the decision
in this case, the D.C. Circuit now has shifted into the category of
those Circuits allowing only one of the two excusing elements to
suffice, at least where, as here, there is an indication that the officer
executing the affidavit was present at the search.
Furthermore, there is yet another layer of disagreement among
the courts of appeals on the applicability of this Court’s decision in
United States v. Leon, 468 U.S. 897 (1984), in this context of
deficient particularity in the warrant. One group of decisions
reasons that Leon’s good faith exception is inapplicable, as Leon’s
predicate of a facially valid warrant is not met where the description
of things to be seized is not sufficiently particular on the face of the
'"! Center Art Galleries-Hawaii, Inc. v. United States, 875 F.2d 747 (9th Cir.
1989).
'2 United States v. Leary, 846 F.2d 592 (10th Cir. 1988).
'3 United States v. Washington, 852 F.2d 803 (4th Cir. 1988).
4 United States v Tagbering, 985 F.2d 946 (8th Cir. 1993), Rickert v.
Sweeney, 813 F.2d 907 (8th Cir. 1987).
'S United States v. Wuagneux, 683 F.2d 1343 (11th Cir. 1982).
'6 United States v. Gahagan, 865 F.2d 1490 (6th Cir. 1989).
'7 United States v. Maxwell, 920 F.2d 1028 (D.C. Cir. 1990); United States v.
Vaughn, 830 F.2d 1185 (D.C. Cir. 1987).
14
warrant."* A competing group of decisions applies Leon in this
context,’® holding that officers may reasonably rely on such a
warrant, at least where there are other mitigating factors, such as
the affiant’s presence at the search.”
Thus, there is a continuing and indeed growing conflict among
the courts of appeals on the criteria, if any, that will excuse the lack
of sufficient particularity in a search warrant. The conflict is well-
developed by the numerous reported decisions in the Circuits, and
it rests fundamentally on a clash of principle: whether the
particularity requirement is solely a matter of limiting the executing
officers’ discretion, or also extends to providing fair notice to the
defendant of the items subject to seizure. The question is ripe for
this Court’s decision, and is of manifestly broad importance, as the
issuance and execution of search warrants are the daily routine of
law enforcement throughout the Nation.
II. This Court Should Review the Lower Courts’ Application of
its Prior Decision in Franks v. Delaware.
In Franks v. Delaware, 438 U.S. 154 (1978), this Court sought
to establish guidelines for evidentiary challenges to the veracity of
probable cause affidavits. The application of those guidelines made
by the decision below would completely eviscerate the protections
envisioned by this Court in Franks, by setting an impossibly high
threshold standard for obtaining an evidentiary hearing. In this
way, the decision below is in conflict with this Court’s decision in
Franks.
For purposes of this Petition, we limit our focus to the sole
question of Agent Shintani’s failure to seek any verification of the
'* United States v. Leary, 846 F.2d 592 (10th Cir. 1988); United States v.
Decker, 956 F.2d 773 (8th Cir. 1992); Center Art Galleries-Hawaii, Inc. v. United
States, 875 F.2d 747 (9th Cir. 1989).
'9 United States v. Wuagneux, 683 F.2d 1343 (11th Cir. 1982); United States
v. Weinstein, 762 F.2d 1522 (11th Cir. 1985); United States v. Luk, 859 F.2d 667
(9th Cir. 1988).
United States v. Maxwell, 920 F.2d 1028 (D.C. Cir. 1990); United States v.
Luk, 859 F.2d 667 (9th Cir. 1988).
15
ex-employees’ allegations of illegal product substitution in ADM’s
Army contract, which, as the district court noted, was "[t}he
gravamen of the allegations in the affidavit" (a84). On this point,
unlike some of the others raised below by the defense,” there is
no question of the materiality of the allegations to the probable
cause determination, nor is there any question on this record of the
falsity of the allegations. The only question is whether Shintani’s
inclusion of those false allegations in the affidavit was a deliberate
or reckless falsehood, or, more precisely under Franks, whether the
defendants made "a substantial preliminary showing," Franks, 438
U.S. at 156, so as to require an evidentiary hearing.
In Franks, this Court described the requisite threshold showing as
follows:
"To mandate an _ evidentiary hearing, the
challenger’s attack must be more than conclusory
and must be supported by more than merely a mere
desire to cross-examine. There must be allegations
of deliberate falsehood or of reckless disregard for
the truth, and those allegations must be
accompanied by an offer of proof. They should
point out specifically the portion of the warrant
affidavit that is claimed to be false; and they shouid
be accompanied by a statement of reasons.
Affidavits or sworn or otherwise reliable statements
of witnesses should be furnished. . . ."
438 U.S. at 171. In this case, the defendants complied in every
way with the requirements of Franks: they specifically identified
the false allegations in the affidavit, and they submitted sworn
statements by Army officials showing that the allegations were false
(JA267-87), including a copy of an Army document showing the
Army’s full awareness and approval of the products being delivered
(JA284). This showing demonstrated not only that the allegations
were false, but also that it would have been extremely simple for
Shintani to discover that fact with a minimal amount of effort.
Nonetheless, the defendants were denied an evidentiary hearing
21 The defendants also challenged Agent Shintani’s reliance on the credibility
of her “informants,” the ex-ADM informants (see 240-42).
a
16
in the district court, and that ruling was affirmed on appeal. The
court of appeals’ decision noted a split in the Circuits on the
standard of review on appeal from a denial of a Franks hearing
(a39n.44), but it did not choose between them, holding that the
district court’s determination could be affirmed under either a
clearly erroneous or a de novo standard, thus effectively ruling as
a matter of law.
But aside from references to the general principle that an affiant
is not required to exhaust every possible lead, and the court of
appeals’ somewhat paranoic speculation that "Shintani’s failure to
contact Army officials may have been entirely prudent given the
possibility of a leak back to ADM” (a40),” the court of appeals’
analysis consists only of announcing its legal conclusion that "the
agent’s actions amounted to at most negligence which is insufficient
to warrant a Franks hearing" (a40 (emphasis by the court of
appeals)).
If the court of appeals’ ruling represents a correct interpretation
of the Franks standard, then Franks should be recast or overruled,
because it certainly is not achieving its purpose of controlling the
use of false allegations by government affiants, for it is difficult to
imagine a more aggravated situation of recklessness than the one
presented here. After all, Agent Shintani was not a policewoman
walking a beat or even an FBI agent. She was an employee of the
investigative arm of the Defense Department, the same Department
that includes the Army and that is charged with the protection of
this Nation’s security and its most sensitive secrets. If the failure
of such an agent to do any checking within her own Department to
verify allegations from untested informants does not, as a matter of
law, make even a “substantial preliminary showing” of reckless
~ There is no evidence in the record to support this speculation. The court
of appeals apparently was referring to the an allegation in Shintani’s affidavit that
ADM would "certainly destroy” documents if subpoenaed (see a40), attributed by
the affidavit to a source interviewed two days after the purported execution date
of the affidavit (see JA256). Even crediting that allegation, it is difficult to see
what it would have to do with a confidential consultation with Army officials or
with a review of the Defense Department’s own files, which would have revealed
the truth and could not have been destroyed by ADM.
17
disregard for truth, then what does? Furthermore, how do appellate
courts distinguish as a matter of law between negligence and
recklessness, especially on a preliminary record such as this? If
they cannot do so, should the Franks standard be reconsidered?
These questions all merit this Court’s attention, in this important
aspect of Fourth Amendment law that also is a part of the daily
routine of law enforcement.
IiI. This Court Should Settle the Important Question of the
Threshold Standard of Admissibility for Tape-Recorded
Evidence under the Federal Rules of Evidence.
Just recently, in Daubert v Merrell Dow Pharmaceuticals, Inc.,
-- U.S. —, 113 U.S. 2786 (1993), this Court settled the uncertain
question of the threshold standard of admissibility for expert and
scientific evidence under the Federal Rules of Evidence. This case
presents the analogous question for another important category of
evidence--tape-recorded evidence of telephone conversations--that is
equally or more unsettled in the lower federal courts, and to some
extent is an aspect of the same question involved in Daubert,
because sound recordings in effect are scientific ewidence.
The questions presented here are broadly important, because
sound recordings--which already are common in criminal
prosecutions--are likely both to be used more frequently in all types
of litigation and to present unique problems of reliability, because
they are so easily altered or falsified by sophisticated means that lay
juries are unlikely to detect.
The admissibility threshold for sound recordings is all the more
appropriate for this Court’s attention because of the changes
wrought by the Federal Rules of Evidence, which on their face do
not treat the unique problems of sound recordings in any systematic
way and leave a doctrinal ambiguity in the assessment of sound
recordings’ reliability. In the decision below, as in other recent
decisions, this doctrinal ambiguity has produced an erosion of the
previously recognized standard of reliability. Moreover, that same
ambiguity seems to be at least partially responsible for the failure of
the decision below to observe this Court’s prior decisions on the
requirement of a preliminary determination under Rule 104 of the
Federal Rules of Evidence.
18
A. The Reliability Threshold
Prior to the enactment of the Federal Rules, the reliability of
sound recordings usually was treated as an aspect of the common-
law evidence doctrine of competency.” On that basis, the lower
federal courts evolved a general approach that is exemplified by the
D.C. Circuit’s own prior decision in United States v. Haldeman,
559 F.2d 31 (D.C. Cir. 1976), cert. denied, 431 U.S. 933 (1977),
which established a threshold reliability requirement that the
recordings be authentic, accurate, and trustworthy, and required the
trial court to find that “the possibilities of misidentification and
adulteration eliminated, not absolutely, but as a matter of reasonable
probability,” Haldeman, 559 F.2d at 107.
However, since the enactment of the Federal Rules of Evidence,
the approach of Haldeman and similar cases has been eroded by the
lack of any clear doctrinal basis in the Federal Ruies for applying
the threshold standard of competency,” and that development is
exemplified by the court of appeals’ decision in this case, which
essentially conflates the Haldeman standard into the distinct
requirement of authentication (see a36-38), and thereby deprives the
district court of its essential function of screeening out unreliable
evidence that the jury is unable fairly to evaluate.
The problems thus created are aptly illustrated by the context in
which the issue arose in this case in the district court. Unlike most
prior federal decisions involving sound recordings--where the
recordings had been made in the carefully supervised environment
of government wiretapping orders--but like the probable future
context of these issues in both civil and criminal litigation, here the
tapes proffered by the government purportedly were made by
private individuals, Bowers and Roth, using their own equipment,
* On the distinction between competency and relevancy, see generally 9
Wigmore on Evidence §2550 (Chadbourn rev. 1981).
* See, e.g., United States v. Slade, 627 F.2d 293 (D.C. Cir.), cert. denied,
449 U.S. 1034 (1977); United States v. King, 587 F.2d 956 (9th Cir. 1978); United
States v. Sandoval, 709 F.2d 1553 (D.C. Cir. 1983); United States v. Lance, 853
F.2d 1177 (Sth Cir. 1988); United States v. Sandoval, 960 F.2d 587 (6th Cir.
1992).
19
by their own private means and for their own private motives.
There was no officially supervised recording, no specially trained
operators, and no elaborate chain-of-custody testimony to eliminate
the problem of tampering or alteration.
To the contrary, there was obvious physical evidence of
tampering with the tape housings and a scientific analysis by a
defense expert finding electronic evidence of alteration (JA824-906).
But the district court simply threw the question to the jury, without
any preliminary finding or resolution of the scientific issues
presented, and the court of appeals affirmed that decision,
essentially on am abuse of discretion standard.
But the reliability questions raised in the district court were quite
different from the typical problems of authentication addressed by
Federal Evidence Rule 901, or by the "Best Evidence” Rule
provisions of Article X of the Federal Rules. The questions of
where and how, under the Federal Rules, questions of this sort
should be addressed, are questions that ought to be settled by this
Court.
A sensible approach would be to recognize that sound recordings
in fact are a form of scientific evidence, and therefore are directly
subject to the Daubert standard of reliability. Sound recordings are
neither testimony nor documents in the usual sense, but are, in
effect, "mechanical" or “electronic” testimony as to particular
historical events, and therefore depend for their probative force on
the reliability of the equipment, procedures, and underlying
scientific principles used to create the recording. Thus, sound
recordings--at least those whose accuracy is questioned--are more
analogous, for example, to x-rays than to ordinary photographs,~
and therefore should be subject to the standards of scientific
reliability.
Whether this approach should be taken, or some other is more
appropriate under the Federal Rules, is a decision that should be
made by this Court now, rather than allowing the lower courts to
% For a discussion of the distinction between the “demonstrative” theory
sometimes applied to ordinary photographs and the "silent witness” theory of
scientific foundation usually required for x-rays, and a consideration of the sound
recordings in this context, see 2 McCormick on Evidence §214 (4th ed. 1992).
acinar
20
continue struggling with the problem for years to come, to the
detriment of the fairness and efficacy of federal trials.
B. The Preliminary Determination
Regardless of the appropriate threshold showing, the decision
below was incorrect in excusing the district court’s failure to make
a preliminary determination of either reliability or authenticity under
Rule 104, under this Court’s prior decisions in Bourjaily v. United
States, 483 U.S. 171 (1987), and Huddleston v. United States, 485
U.S. 681 (1988).
If a reliability finding is required, then the district court’s failure
to make an explicit finding of the preliminary fact under Rule
104(a), as interpreted by this Court in Bourjaily to require the
application of a preponderance standard, plainly was error. See also
Daubert, 113 S. Ct. at 2796 & n.10. But even if the only
prerequisite was a sufficiency determination under Rule 104(b)--as,
for example, would be the case if only the Rule 901 authentication
standard is applicable--then this Court’s decision in Huddleston still
requires that the district court "decides whether" the sufficiency
showing has been made, see Huddleston, 485 U.S. at 689.
Under either standard, the district court is not permitted to do
nothing, nor does it have the "discretion" whether or not to make
the preliminary determination, as the court of appeals apparently
held here (see a36-38).
IV. This Court Should Review the Application of the General
Federal Fraud and Conspiracy Statutes to Income Tax Offenses.
What is the public policy justification for federal prosecutors’
well-known proclivities to multiply the counts of their indictments
by charging violations of the general federal conspiracy, fraud, and
false statement statutes in virtually every imaginable context?
Surely, it is not to make prosecutors’ lives easier, nor to
maximize the coverage of the federal net of criminalization, nor to
place a large part of the citizenry in fear of federal incarceration.
Nor can it be to permit federal prosecutors or juries to make up the
crimes as they go along, for that would contradict the fundamental
precepts of legality in criminal law. And particularly where the
— ———
21
Congress has acted to regulate an area of activity very specifically,
and defined an intricate technical sequence of specific criminal
offenses-as in the case of the Internal Revenue Code--what justifies
the continued application of these vague general statutes to
criminalize what the Congress may have chosen to exclude from the
criminal sanction, for good reason?
These questions have not much troubled the lower federal courts
in recent years, although there are some notable exceptions,
particularly in the context of tax offenses. The Sixth Circuit’s
decision in United States v. Minarik, 875 F.2d 1186 (6th Cir.
1989), raised the problem of “allow[ing] the fact situation to define
the crime,” 875 F.2d at 1191, in the context of applying the
"defraud" clause of 18 U.S.C. §371 to a situation otherwise
governed by 26 U.S.C. §7206, which is one of the charging statutes
involved here. And the well-regarded District Judge Weinfeld of
New York raised a similar concern in United States v. Henderson,
386 F. Supp. 1048 (S.D.N.Y. 1974), in the context of the
cumulative application of the mail fraud and internal revenue
offenses. Neither decision has been very popular in the other lower
federal courts,” including the courts below in this case.
But then again, the "intangible rights" theory of the federal mail
and wire fraud statutes was extremely popular in the lower federal
courts before this Court disapproved the theory in McNally v .
United States, 483 U.S. 350 (1987) and Carpenter v. United States,
484 U.S. 19 (1987); see also Tanner v. United States, 483 U.S. 107
(1987)(limiting the scope of 18 U.S.C. §371), and the reasoning of
McNally was to some extent anticipated by Judge Weinfeld in
Henderson and relied upon by the Sixth Circuit in Minarik.
What is perhaps most remarkable and significant about the
expansion of the general fraud and conspiracy statutes into the area
% for decisions distinguishing or criticizing Minarik, see, e.g., United States
v. Hurley, 957 F.2d 1 (1st Cir. 1992); United States v. Bilzerian, 916 F.2d 1285
(2d Cir. 1991); United States v. Arch Trading Company, 987 F.2d 1087 (4th Cir.
1993); United States v. Money, 949 F.2d 899 (6th Cir. 1991), and the district
court’s opinion in this case on the motions to dismiss the indictment (a106-11).
The court of appeals’ decision below collects authorities criticizing Henderson
(a50), although the court conceded that the decision “gives us some pause" (a49).
22
of tax offenses is the extent to which the development has proceeded
without the considered approval of this Court. The entire idea of
a violation of the “defraud” clause of 18 U.S.C. §371 through a
conspiracy to evade income taxes appears to have originated with
the Second Circuit’s decision in United States v. Klein, 247 F.2d
908 (2d Cir. 1957), and the theory often is called a “Klein
conspiracy” after that decision. But our research has failed to locate
a single instance in which this Court has even cited Klein.
Moreover, even the “offense” clause of 18 U.S.C. §371 to a tax
offense appears to have been involved significantly in only one
decision of this Court, United States v. Ingram, 360 U.S. 672
(1959). Ingram does not endorse the application of the “offense”
clause to attempted tax evasion, which is not as straightforward as
might at first appear, given the special characteristics of tax offenses
as they have been defined by the Congress and construed by this
Court.
Therefore, this very important area of the law appears not to have
been considered systematically by this Court, but to be primarily an
artifact of extensive development in the lower courts, as was the
"intangible rights" doctrine. That factor stands in contrast to the
Court’s prior attention to the substantive tax offenses, emphasizing
the integrated nature of the Internal Revenue Code’s offense
structure, as establishing "a penalty suitable to every degree of
delinquecy," Spies v. United States, 317 U.S. 492, 497 (1943); see
also Sansone v. United States, 380 U.S. 343, 351 (1965), which in
its “capstone” offense under 26 U.S.C. §7201 is strictly limited by
a stringent mens rea requirement, see Cheek v. United States, 111
S. Ct. 604 (1991); United States v. Pomponio, 429 U.S. 10 (1976);
Bishop v. United States, 412 U.S. 346 (1973).
There is an obvious tension between the strict and integrated
interpretation of the Internal Revenue Code offenses by this Court,
and the expansive importations of the general fraud and conspiracy
Statutes into the tax context by the lower courts, which merits this
Court’s attention.
The potential abuses of the expansive charging practices in the
lower courts are amply illustrated by the situation in this case,
where tax convictions were obtained without any actual or
realistically threatened revenue loss to the government. The only
23
tax “evasion” that occurred here was in the imagination of the
prosecutors, or, even viewing the evidence in the light most
favorable to the government, in the imaginations of the defendants.
But thoughts are not crimes, and the imposition of the criminal
sanction here is very probably unnecessary and counterproductive
from the standpoint of the criminal law, and almost certainly
detrimental to the government’s interest in maintaining a system of
revenues based primarily on self-assessment and self-correction.
The indictment here challenged a total of six transactions in its
expansive conspiracy count, only two of which were challenged as
constituting an attempt to evade under 26 U.S.C. §7201 or a lesser
included tax offense. Thus, the conspiracy count alone expanded
the reach of criminalization beyond that permitted by Congress in
the substantive tax offenses, in effect to reach back into an earlier
stage of development that the Congress chose not to criminalize in
the tax code--precisely the problem that troubled the Sixth Circuit
in Minarik.
Furthermore, the same problem arises under either clause of 18
U.S.C. §371, as applied even to the most serious of the tax
offenses. Under the "offense" clause, the application of §371
creates an offense of "conspiracy to attempt to evade," which is an
oxymoron in terms of general criminal law, which recognizes either
conspiracies or attempts, but not conspiracies to attempt--a concept
that, so the extent it has any coherence at all, simply is too far
removed from the threatened harm. Under the "defraud" clause,
§371 effectively would criminalize that which is not a crime at all,
because, by definition, the underlying conduct was insufficient to
support even the charge of "conspiracy to attempt to evade." -
In this context, the logic of Minarik is entirely sound: if the
prosecutors cannot charge under the specific Congressional
prohibition, then they should not be permitted to charge under the
general statutes. Absent some affirmative indication of
Congressional intent to the contrary, it is not logical to suppose that
the Congress took great pains to define the specific tax crimes only
to have those prohibitions trumped by the vague prohibitions of the
general statutes. At least, if that is to be the law of the United
States, it should be so declared by this Court.
Furthermore, in examining these questions, the Court should re-
24
examine its interpretation of the offense definitions in the Internal
Revenue Code itself, to determine whether the actus reus
requirement should be sharpened from the current standard of “any
affirmative act," based on this Court’s decisions in Spies and
Sansone. To some extent, this formulation suffers from the same
problems of vagueness and prematurity as the expansive applications
of the general fraud and conspiracy statutes, as there is no bright-
line test for incurring criminal liability. Under these circumstances,
the absence of a “safe harbor" from criminal liability actually may
impair the efficacy of the tax-collection system, by giving taxpayers
an affirmative disincentive to correct prior errors, and in this regard
it is of no moment whether the prior errors were deliberate or not.
If a taxpayer knows that it will obtain no protection from self-
correction, or, worse yet, that it will increase its exposure by self-
correction--as appears to have occurred in this case, where only the
self-correcting acts of filing amended returns were charged as
substantive tax offenses--then obviously taxpayers will have a
disincentive to correct those errors. The same level of deterrence
can be obtained, with more efficiency in tax collections, by more
sharply defining the point of criminal liability.
Finally, to the extent that the Court examines this subject, it also
should review the errors assigned by the defendants to the district
court’s instructions on the offenses involved, which are framed in
paragraph 7 of the questions presented by this Petition.
V. The Reasonable Doubt Definition Applied Below Was
Unconstitutional.
The district court’s jury instruction defining "reasonable doubt,"
and the court of appeals’ failure to reverse on that basis (a57-58),
are inconsistent with this Court’s decision in Cage v. Louisiana, 498
U.S. 39 (1990) (per curiam), which held a similar instruction
unconstitutional as a violation of the Due Process clause. Like the
instruction in Cage, the district court’s definition here placed undue
emphasis on the amount of uncertainty required for acquittal,
Stressing that the jurors had to be "so uncertain" that they did not
have an “abiding conviction” of guilt. Furthermore, the phrase "a
doubt for which you can give a reason" was inappropriate,
particularly as it followed immediately after the phrase "a doubt
25
based on reason" (see a57), thus indicating to the jurors that
something more than reasonable doubt was required, and implying
that the jurors that they could be called upon to justify their doubts
to the court.
VI. The Sentences Below Disregarded Sentencing Commission
Commentary.
In Stinson v. United States, --U.S.—-, 113 U.S. 1913
(1993), this Court held that Sentencing Commission commentary
that interprets or explains a sentencing guideline is binding on the
federal courts. That decision requires that Petitioner’s sentence on
the conspiracy count be vacated, because the district court failed to
follow commentary to USSG §1B1.2 requiring that sentencing on a
multi-object conspiracy count be predicated upon a finding by the
trial court, applying a reasonable doubt standard, that the defendant
was responsible for each object of the conspiracy. The commentary
is clearly set forth in Application Note 5 to that section and the
accompanying statement by the Commission upon the addition of
that note (see al69-70). Both the district court and the court of
appeals disregarded the reasonable doubt standard (see a61l).
Although the conspiracy here was alleged to have only the single
object of income tax evasion, it embraced several different object
offenses. Because the guidelines essentially “pass through" the
conspiracy count to the underlying object offense, a trial court
finding of guilt beyond a reasonable doubt is necessary as to each
one of the object offenses under the guidelines, because a jury
verdict logically could rest on any one of them and therefore the
verdict itself establishes none.
VI. The "Straddle" Theory of Guideline Sentencing Was
Unconstitutional as Applied in this Case.
The decision below applied the so-called "straddle" theory
to sentence the Petitioner under the sentencing guidelines only on
Count 1, while all other counts were sentenced under pre-guidelines
law (see a58-60). Whatever the merits of the “straddle” theory
more generally, as applied here the theory violates the Double
Jeopardy Clause’s prohibition against multiple punishments because
26
it bases two legally distinct sentences--both guidelines and pre-
guidelines, on exactly the same conduct. This effect results from
the “relevant conduct” provisions of the guidelines, which require
the consideration of an entire course of allegedly related conduct,
see USSG §1B1.3, and thus force a duplicative sentence, which
violates Double Jeopardy unless the pre-guidelines conduct is
separated out and sentenced solely under prior law, United States v.
Niven, 952 F.2d 289 (9th Cir. 1991). Furthermore, if the pre-
guidelines conduct is not separated out from consideration from the
guidelines sentence, then the guidelines as applied would have the
retrospective effect of increasing the total sentence for offense
conduct that was, by definition, complete prior to the effectiveness
of the guidelines, and in that instance also would violate the Ex Post
Facto clause under the standards of this Court’s decision in Miller
v. Florida, 482 U.S. 423 (1987).
Conclusion
For the reasons stated above, a writ of certiorari should issue to
review the judgment of the United States Court of Appeals for the
District of Columbia Circuit.
Respectfully submitted,
JEFFREY S. PARKER
3401 North Fairfax Drive
Arlington, Virginia 22201
(703) 993-8055
Counsel for Petitioner
David M. Dale
September 14, 1993
APPENDIX
ae SS Ne ee ee
al
Notice: This opinion is subject to formal revision before publication in
the Federal Reporter or U.S.App.D.C. Reports. Users are requested to
notify the Clerk of any formal errors in order that corrections may be made
before the bound volumes go to press.
Gnited States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 18, 1992 Decided April 6, 1993
No. 91-3228
Unitep States oF AMERICA.
APPELLEE
Vv.
Davin M. Date.
APPELLANT
No. 91-3229
Unitep Srartes or AMERICA,
APPELLEE
Vv.
MICHELLE ASHTON,
APPELLANT
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
a2
No. 91-3230
Unitep STATES OF AMERICA
APPELLEE
v.
MartTIN SEGAL,
APPELLANT
No. 91-3231
Unitep StaTes oF AMERICA,
APPELLEE
v.
AUTOMATED DaTA MANAGEMENT, INC.,
APPELLANT
No. 91-3232
UNITED STATES OF AMERICA,
APPELLEE
v.
TERENCE SWEENEY.
APPELLANT
a3
Appeals from the United States District Court
for the District of Columbia
(Criminal No. 90-00027)
Samuel J. Buffone for appellant David M. Dale in No. 91-
3228
Paul Mogin, with whom Brendan V. Sullivan, Jr. was on
the brief, for appellant Michelle L. Ashton in No. 91-3229.
Alan M. Dershowitz, with whom R. Stan Mortenson and
Scott L. Nelson were on the brief, for appellant Martin Segal
in No. 91-3230. 7
W. Neil Eggleston, with whom Laura S. Shores was on the
brief, for appellant Terence A. Sweeney in No. 91-3232.
Kenneth Michael Robinson was on the brief for appellant
Automated Data Management, Inc. in No. 91-3231. Robert
F. Muse also entered an appearance for appellant Automated
Data Management, Inc.
Stephen P. Anthony, Assistant United States Attorney,
with whom Jay B. Stephens, United States Attorney, and
John R. Fisher, Robert J. Meyer and Helene Kazanjian,
Assistant United States Attorneys, were on the brief, for
appellee.
Before Wap, Rutu B. Ginssurc and Henperson, Circuit
Judges.
Opinion Per CuriaM.
Per Curiam: The defendants, a corporation and its officers,
challenge their convictions and sentences on various counts of
fraud against the United States and its agencies. For the
reasons set out below, we affirm their convictions in toto but
remand for resentencing pursuant to Part X(F) of this opin-
ion.
I. Facts
On appeal from a criminal conviction, this court must view
the evidence in the light most favorable to the government,
allowing it the benefit of all reasonable inferences that may
eee hhh
a4
be drawn from the evidence and permitting the jury to
determine the weight and credibility of the evidence. United
States v. Smith, 964 F.2d 1221, 1223 (D.C. Cir. 1992); United
States v. Butler, 924 F.2d 1124, 1126 (D.C. Cir.), cert. denied,
112 S. Ct. 205 (1991). So viewed, the evidence reveals the
following material facts. ~
Defendant Automated Data Management, Inc. (ADM) is a
Washington, D.C. firm founded in the early 1980s by defen-
dant Michelle Ashton, its president. In late 1984, Ashton
hired defendant David Dale as “Executive Vice-President”
and at about the same time issued to him 18% of ADM’s
stock, retaining the other 82% for herself. In early 1985,
ADM obtained a contract to sell computers to the United
States Army under the “minority set-aside” program of the
Small Business Administration (SBA).
In late 1985, ADM established offices abroad in Germany
and Korea and hired a new vice-president to manage each:
defendant Terence Sweeney in Germany and defendant David
Bowers in Korea. In addition, defendant Martin Segal was
hired as ADM’s in-house accountant in September 1986 and
later received the title “Chief Financial Officer.”
In August 1987 Bowers left ADM after a falling-out with
Dale and Ashton—and after secretly taping telephone conver-
sations he had with each of them. Bowers subsequently
assisted a government investigation of ADM’s operations that
led to the defendants’ indictments and convictions. Those
convictions were based on the defendants’ allegedly fraudu-
lent tax treatment of various financial transactions involving
ADM’s Asian and European operations and on certain alleged
misrepresentations or nondisclosures on government forms
completed by defendants Ashton and Dale. We now summa-
rize the facts underlying the convictions.
A. Tax Fraud
All five defendants were convicted both of tax fraud and of
conspiracy to commit tax fraud. While the substantive tax
fraud counts involved only ADM’s 1986 corporate return, the
conspiracy count involved other aspects of ADM’s operations
lal
ad
in both Asia and Europe. We describe separately the fraudu-
lent activity relating to each location.
1. Asia
After taking charge of ADM’s Korean operations, defen-
dant Bowers determined ADM should take advantage of
Asian business opportunities unrelated to its Army contracts.
In order to circumvent legal restrictions on such activity,’
Bowers, after consulting with Dale, arranged for Nancy Ed-
wards, a legal adviser to ADM’s Korean office, to set up a
Guam corporation which would not be subject to the restric-
tions. Edwards and her husband incorporated Asia Manage-
ment Systems, Inc. in late summer 1986. Soon thereafter the
corporate name was changed to ADM Asia and ownership
transferred to Ashton, Dale and Bowers. Ashton and Dale
each acquired a 37.5% interest in the company, while Bowers
received the remaining 25%. Upon Dale’s instruction to
acquire additional companies, Bowers arranged for Edwards
to purchase four Hong Kong corporations, Capulus, Fossano,
Swaffham and Gemona, which were apparently shells with no
assets other than documents of incorporation. During late
October and early November 1986 ownership of Swaffham
and Gemona was transferred to Ashton, Dale and Bowers in
the same percentages as ADM Asia.” There followed a
number of financial transactions involving the related corpo-
rations on which the government based some of its tax fraud
charges.
First, during 1986 Bowers arranged for Dale and Ashton to
obtain payments totalling $50,000 from ADM funds chan-
nelled through the Korean office. Dale received $20,000 in
February 1986% and Ashton received $20,000 in
1 Provisions in a “Status of Forces Agreement” prohibited ADM
from doing business in Korea with any party other than the United
States government.
2 Ownership of the other two corporations was transferred to
Bowers and his wife for their own development.
3On a visit to Korea, Dale gave Bowers a check from ADM for
$50,000, purportedly to cover operating expenses. A deposit slip
a
a6
May‘ and $10,000 in September.® Neither Dale nor Ashton
reported these amounts as personal income on their 1986
federal income tax returns.
Second, between August 1986 and March 1987 ADM made
three payments to related companies that it treated, falsely,
as legitimate business deductions.
In August 1986, ADM paid $200,000 to Arlington Associates
(Arlington), a company owned in equal shares by Dale and
Ashton.’ This payment was recorded in Arlington’s books as
a bank loan from Guam National Bank. Sometime in late
summer or early fall 1986, Dale instructed Bowers to draft
documents representing that the $200,000 payment was a loan
to Arlington from Asia Management Systems, Inc., the Guam
corporation that Ashton, Dale and Bowers had acquired on
August 29, 1986, and subsequently renamed ADM Asia, Inc.
During December 1986 ADM paid a total of $417,532 to
Swaffham and Gemona, the two Hong Kong companies ac-
quired by Ashton, Dale and Bowers, for studies and services
dated February 29, 1986, reflects a deposit to ADM’s Korean
checking account of a $50,000 check, less $20,000 received in cash.
ADM’s check register characterizes the transaction as simply a
$30,000 deposit.
‘ During a visit to Korea by both Dale and Ashton, Dale gave
Bowers two checks, each in the amount of $50,000, for “Korea
Operating Expenses” and instructed Bowers to give him two signed
checks for $10,000 each, with the payee left blank. These checks
were later dated June 3, 1986, and made out to the order of “D.C.
National Bank”—the funds were apparently used by Ashton to
purchase a condominium.
5 Bowers cashed a $10,000 check drawn on ADM’s Korean check-
ing account and sent the proceeds to Ashton who was in Hong
Kong. |
. §At Dale’s request, Bowers wrote a $205,000 check on ADM’s
Korean account, payable to his wife; the check was deposited into
the Bowerses’ joint checking account and Bowers then wrote a
personal check to Arlington for $200,000.
ee
a7
never actually performed.’ ADM recorded these payments
as deductible business expenses.
Finally, in March 1987 Bowers and Dale created a phony
debt of $500,000 to Swaffham and documentation to support
it. The debt was for software development purportedly
performed by Swaffham but actually performed by employees
of ADM in Korea at a cost of only about $30,000. The debt
was treated as an accrual and deducted as a business expense
on ADM’s 1986 tax return.
2. Europe
In Germany, defendant Sweeney hired Larry Knight in
February 1986 as a consultant to assist with the European
operations. Later that same year, Sweeney and Knight
formed an interim German partnership to enable ADM to
take advantage of non-Army business opportunities in Germa-
ny until a German corporation could be established.’ On
November 18, 1986, a German corporation, ADM Hard- und
7 At Dale’s direction, Bowers created three bogus invoices: two
from Gemona, dated November 11 and December 15, 1986, seeking
payment of, respectively, $89,000 and $185,422 for marketing and
product studies, and one from Swaffham, dated December 15, 1986,
seeking payment of $143,110 for consulting services. While visiting
Washington, D.C. in December 1986, Bowers received from Segal
three checks for the invoiced amounts, one signed by Ashton, the
other two by Dale. Bowers deposited the checks into Gemona’s and
Swaffham’s Hong Kong bank accounts.
8In February 1987 Dale told Bowers to create invoices for the
work from either Swaffham or Gemona. They decided on the
$500,000 amount only after some discussion and apparently based
on how much they thought they “c[ould] get away with.” See infra
note 36. Incident to the arrangement, Bowers created a phony
“Software Development Contract,” backdated letters between Bow-
ers and Swaffham and an invoice which he sent by facsimile to Dale.
* Apparently, German law prohibited ADM itself from entering
into or performing any contracts other than the Army contract that
brought it to Germany.
a8
Software Handelgesellschaft GmbH in Deutschland (ADM
H&S), was incorporated to assume the partnership’s busi-
ness.!° Qwnership of ADM H&S was divided among Ashton
(37.5%), Dale (37.5%) and Sweeney (25%) and Knight was
appointed general manager."
Over the next two years, ADM made substantial payments
to Bourbonia Invest AG, a Swiss investment firm operated by
Gerd Wormer, an investment counselor and old friend of
Knight. At trial, the government asserted and furnished
evidence to show that these payments in fact accrued to the
benefit of Ashton, Dale, ADM and ADM H&S and were
fraudulently treated by ADM as business deductions.
The first Bourbonia payment, for $316,000, was made in
December 1986, pursuant to two invoices signed by Wormer
and dated December 11, 1986, a time when Sweeney and
Knight were in the midst of a two-day meeting with Wormer
at Wormer’s home. One of the invoices sought payment for
“Product Development Consulting for the period March 86, to
December 86,” Joint Appendix (JA) 1984, and the other “for
Services rendered in accordance with letter contract as of
March 11, 1986 for Machine Language Translation Research
and Development Project,” JA 1985. Request forms to ADM
10 As of that date the earlier partnership was dissolved and all of
its business activities transferred to ADM H&S.
The new corporation was capitalized with $88,000 paid by
ADM, allegedly in return for research performed by Knight. To
support the payment, Sweeney prepared and signed what can only
be a back-dated letter which “authorized Mr. Larry Knight acting
in behalf of ‘Hard- und Software Handelgeselleschaft mbH fuer
Deutschland’ [sic] (H&S), a company which is the process [sic] of
being licensed to operate in West Germany, to begin a market
project to provide the basic guidance required to form a business
plan and direct the efforts of ADM into these new markets.” Joint
Appendix 2032. The letter further stated: “Based on my negotia-
tions, I estimate the cost of this project to be approximately
$90,000. The project will be completed by the end of this year. I
will develop a contract in the near future for your review and
approval.” Jd The letter was dated January 12, 1986, some seven
or eight months before ADM H&S’s corporate name was selected.
2 a
a9
for checks to pay the Bourbonia invoices were marked “OK
MS from D. Dale 12/22/86” and “Sent Via Bank Wire
12/22/86” and one of them was signed by Segal. ADM
deducted the $316,000 payment as a business expense on its
1986 tax return. In late 1986, Bourbonia made a payment to
ADM H&S of about $125,000 to purchase five vehicles, one
for Knight’s use and the other four to be leased to ADM., Inc.
Sweeney and Knight characterized the payment as a loan, but
the government maintains the funds came from the $316,000
Bourbonia payment and were never intended to be repaid,
which in fact they were not.
The second Bourbonia payment was made in January 1988
pursuant to an invoice dated December 26, 1987, requesting
payment of $102,655 for “consulting services for 1987 as per
sep. agreement.” Ashton signed a check request form dated
January 5, 1988, indicating payment had been requested by
Segal and authorizing payment of the requested amount.
Dale signed a check to Bourbonia for $102,655 dated January
26, 1988.
Ashton and Dale both maintained investment accounts with
Bourbonia at least as early as 1987. Forms filed with the
IRS indicated that in 1987 each had $10,000-$50,000 in an
account with Wormer, while in 1988 the balance in each
account had grown to more than $100,000.
B. Other Fraudulent Activity
Apart from tax fraud, the jury also convicted Dale, Ashton
and ADM of fraud in connection with four forms Dale and
Ashton submitted to government agencies.
The first three frauds involved forms Dale and Ashton filed
with the Department of Defense (DOD) in early 1987 to
obtain a security clearance for ADM. In late January and
early February 1987, Dale and Ashton each completed a DOD
“Personnel Security Questionnaire,” on which each responded
“yes” to the question “Do you have any foreign property or
business connections or have you ever been employed by or
acted as a consultant or representative for a foreign govern-
ment” and each identified the 37.5 % interest held in ADM
H&S and ADM Asia. Neither mentioned any connection with
al0 j
Gemona or Swaffham, although each had acquired a 37.5%
interest in the two companies by November 1986. In early
February 1987 each also completed a DOD “Statement of
Full Disclosure of All Foreign Connections,” purporting to
“hereby explain and fully disclose my foreign connections”
but listing only their interests in ADM H&S. Finally, about
the same time, Ashton signed a DOD “Certificate Pertaining
to Foreign Interests” in which she responded “no” to the
question “Does your organization have interlocking directors
with foreign interests.” Dale also signed the document to
certify that Ashton had authority to act on ADM’s behalf.
The fourth fraud related to an “Application for Small
Business Determination” Ashton filed with the Small Busi-
ness Administration (SBA) on April 10, 1987. On the form
she identified herself and Dale as officers of ADM and
answered “yes” to the question “Are any of the persons listed
[above as owners, partners, officers, directors, & principal
stockholders] owners, partners, directors, officers, employees
or principal stockholders in any other company?” In re-
sponse to a direction to identify the other companies and
offices held, however, she failed to mention her or Dale’s
interests in or positions with Arlington, Swaffham, Gemona,
ADM, ADM H&S or ADM Asia.”*
C. Bowers’ Disaffection and Its Aftermath
According to Bowers, in early 1987 he became concerned
about his future with ADM and about potential criminal
liability. As a result, he took a number of measures in
contemplation of departing ADM. First, in March 1987, he
began to tape record telephone conversations he had with
both Ashton and Dale, in an apparent effort to protect
himself.'* Next, in April 1987 Bowers withdrew about $100,-
000 from Gemona’s and Swaffham’s bank accounts, reasoning
12 Ashton identified no other companies or offices for herself and
for Dale identified only a nonprofit organization of which he was an
officer.
13 At trial, Bowers explained:
ea ceaiaeaeaaliall
all
that the funds represented his 25% interest in the two
corporations. Later, sometime after mid-July, he withdrew
the remaining money from the corporations’ accounts, again,
according to his testimony, to protect himself. Finally, on
August 14, 1987, Bowers faxed a resignation letter to Ashton
in the United States.
In response to Bowers’ resignation, Ashton and Segal flew
to Korea and negotiations ensued during which Ashton,
through Segal, attempted to persuade Bowers to turn over all
business records, including all tape recordings of telephone
conversations, to surrender his interests in ADM Asia,
Gemona and Swaffham and to agree to several measures
designed to protect the interests of ADM, Dale and Ashton.”
Ultimately, Bowers returned to the United States, without
succumbing to Ashton’s demands, and sought legal counsel.
After Bowers’ resignation ADM and its principals took
steps to alter the tax treatment of many of the transactions
described above.
First, sometime in August or September 1987, Segal in-
formed ADM’s outside accountant, Grant Thornton, that
I believed that one of the problems, if I was to extricate myself
from a situation that I had put myself in, was that I wanted it
clear that it wasn’t just me that was giving directions and
replying to requests, and I just wanted the record clear in that
respect, I wanted to make sure that I was protected.
JA 1097.
14 Bowers testified at trial: “I didn’t want the money to be moved
and then me made out to be—you know, everything tried to be
erased like it never happened, and I be put in a position where I
could be accused of things.” JA 1109.
18 At one point, Bowers was presented with a proposed settlement
agreement under which he was to indemnify ADM, Ashton and Dale
for any liability arising from the Korean activities, to refrain from
testifying against them in a pending lawsuit by another ADM vice
president, Chuck Roth, to acknowledge certain facts regarding
Roth’s terms of employment, to give up all interest in ADM Asia,
Gemona and Swaffham and to “turnover [sic] to M. Ashton all
documents, tapes, statements and evidence of any kind which he or
Roth may ever have intended to use against {[ADM, Ashton and
Dale).” JA 2715.
al2
ADM’s records had to be changed because of recently discov-
ered information, namely that the $417,532 paid to Gemona
and Swaffham in December 1986, allegedly for marketing
studies, was not deductible and that there were additional
Korean revenue of $348,337 that had not previously been
“booked.” The accountants accordingly prepared ADM’s
1986 tax return, which, pursuant to an extension, was not
filed until September 15, 1987, to reflect this information. An
amended return, filed in 1988, reduced the amount of the
additional revenue to $311,643.
Second, on November 30, 1987, Dale and Ashton met with
their personal accountant and told him they had received
expense advances in 1986 that had not been included on their
1986 individual returns. After this meeting, Ashton filed an
amended 1986 tax return dated December 2, 1987, adding to
her taxable income $40,000 that she characterized as “travel
advances not included in her 1986 W-2 wages.” JA 2217-18.
Dale decided against filing an amended return because he
wanted to determine whether his extra $10,000 might be
offset by amounts ADM owed him. He subsequently added
the $10,000 to the taxable income reported in his 1987 tax
return.
Third, at some point, probably after August 21, 1987, Dale
and Ashton signed a promissory note to repay ADM the
$200,000 it had furnished to Arlington in August 1986. The
payment to Arlington had initially been recorded as a loan
from Guam National Bank and was later characterized by
Dale as a loan from Asia Management Systems, Inc.'’ This
note is now marked “paid 12/31/87.”"* JA 1979.
16 There is no apparent explanation in the record for the discrep-
ancy between the amounts Ashton and Dale reported to the IRS,
$40,000 and $10,000 respectively, and the amounts each received
according to Bowers’ testimony, $30,000 and $20,000 respectively.
See supra pp. 5-6.
17 August 21, 1987 is the date that appears on the note’s face but
it is unlikely that both Dale and Ashton signed it on that day since
it appears Ashton was then in Korea and Dale was in Washington.
18 A document from Dale’s and Ashton’s personal accountant’s file
indicates that as of February 29, 1988, the “Guam National Bank
loan” was stil] outstanding and no payments had been made,
although the next entry states: “Paid w/ $206,250 capital contribu-
tion from David M. Dale, $200,000 loan, $6250 interest.” Trial
al3
Fourth, at some point, apparently during summer 1988
after federal agents searched ADM’s headquarters on June
16, 1988, Segal informed one of ADM’s accountants that in
December 1986 ADM had mistakenly paid $316,000 in con-
sulting fees on behalf of ADM H&S and asked what should be
done. The accountant then prepared an amended 1986 re-
turn, dated August 25, 1988, and signed by Ashton, eliminat-
ing the deduction previously taken for the December 1986
Bourbonia payment. In a memorandum to the accountant
dated August 8, 1988, Segal explained that both that payment
and the $102,655 payment in the following year “were paid in
error by ADM, Inc.” JA 2349. The memo further stated
that “a loan will be set up in Michelle’s and David’s name to
ADM, Inc. for the amounts sent to Bourbonia” and that
“{iJnterest on the notes will accrue from the day the funds
were disbursed from ADM, Inc.” Jd. Subsequently, four
promissory notes were prepared, dated August 10, 19838,
dividing the indebtedness between Dale and Ashton according
to their respective ownership interests in ADM. Ashton and
Dale each signed two of the notes and Segal witnessed all
four. Each note is now marked “Paid 8/12/88.” See JA 2034,
2035.
Finally, in March 1989, after additional government investi-
gation and subpoenaing of documents, Segal told one of
ADM’s accountants that he had discovered a $500,000 accrual
taken as a deduction in 1986 that had not been reversed when
it later went unpaid. Accordingly, the accountant prepared
an amended return, dated March 30, 1989, deleting the $500,-
000 deduction, and Segal signed it. The amended return
explained its purpose as “[t]o adjust consulting expense for
amounts accrued in 1986 but never paid subsequent Decem-
ber 31, 1986 [sic] and erroneously not reversed by Accounting
Department.” JA 2253.
Transcript 3073-75. The accountant testified that he had no per-
sonal knowledge of the repayment but had merely been informed of
it by Dale.
al4
D. Indictment and Trial
On January 11, 1990, an indictment was returned against
ADM, Dale, Ashton, Sweeney and Segal, charging the follow-
ing counts:
(1) Against all five defendants: conspiracy (in violation
of 18 U.S.C. § 371) (a) to defraud the United States by
impeding the IRS’ assessment and collection of taxes and
(b) to commit the following offenses against the United
States: (i) tax evasion (26 U.S.C. § 7201), (ii) subscribing
to a false return and aiding and abetting the preparation
of a false return (26 U.S.C. §§ 7206(1) and 7206(2)) and
(iii) false statements and concealing facts by trick,
scheme and device from the IRS, the SBA and the DOD
(18 U.S.C. § 1001); '
(2) Against Dale and ADM: subscribing to a false tax
return (in violation of 26 U.S.C. § 7206(1)) (for signing
the 1986 ADM tax return falsely deducting the $500,0000
debt to Swaffham and the $316,000 payment to Bourbo-
nia);
(3) Against Ashton, Sweeney and Segal: aiding and
assisting in the preparation and presentation of a false
and fraudulent return (in violation of 26 U.S.C.
§ 7206(2)) (for actions related to ADM’s 1986 return and
its two fraudulent deductions);
(4) Against all five defendants: attempted tax evasion
(in violation of 26 U.S.C. § 7201) and aiding and abetting
(in violation of 18 U.S.C. § 2) (for actions related to the
underreporting of taxable income on ADM’s 1986 re-
turn);
18 Count 1 specifically identified as acts of the tax evasion conspir-
acy the following transactions: the deduction of the $417,532 Gemo-
na payment, the $500,000 Swaffham accrual and the $316,000 and
$102,655 Bourbonia payments, the failure to treat as income the
$200,000 Arlington disbursement and the $50,000 payments to Dale
and Ashton and the creation of phony explanations in amended
returns for the initial treatment of the $500,000 accrual, the $316,-
000 payment and the $50,000 payments.
al5
(5) Against Dale, Ashton, Sweeney and ADM: wire
fraud (in violation of 18 U.S.C. § 1343) and aiding and
abetting (in violation of 18 U.S.C. § 2) (for causing the
wire transfer of the $316,000 Bourbonia payment with
intent to commit tax fraud);
(6) Against Ashton and ADM: concealing facts by
trick, scheme and artifice (in violation of 18 U.S.C.
§ 1001) and aiding and abetting (in violation of 18 U.S.C.
§ 2) (for Ashton’s nondisclosure of her relationship with
Gemona or Swaffham in the DOD “Personnel Security
Questionnaire”);
(7) Against Dale and ADM: concealing facts by trick,
scheme and artifice (in violation of 18 U.S.C. § 1001) and
aiding and abetting (in violation of 18 U.S.C. § 2) (for the
same nondisclosure in Dale’s “Personnel Security Ques-
tionnaire”);
(8) Against Ashton and ADM: concealing facts by
trick, scheme and artifice (in violation of 18 U.S.C.
§ 1001) and aiding and abetting (in violation of 18 U.S.C.
§ 2) (for Ashton’s nondisclosure of her Swaffham and
Gemona interests in her February 1987 “Statement of
Full Disclosure of All Foreign Connections”);
(9) Against Dale and ADM: concealing facts by trick,
scheme and artifice (in violation of 18 U.S.C. § 1001) and
aiding and abetting (in violation of 18 U.S.C. § 2) (for
Dale’s identical nondisclosure); and
(10) Against Dale, Ashton and ADM: making false
statements (in violation of 18 U.S.C. § 1001) and aiding
and abetting (in violation of 18 U.S.C. § 2) (for denying
the existence of interlocking directorships with foreign
interests in the “Certificate Pertaining to Foreign Inter-
ests”).
JA 141-74.
On July 23, 1990, after a lengthy trial, a jury returned a
guilty verdict on each count against each defendant named
therein. On July 15, 1991, the trial court sentenced Dale,
Ashton, Segal and ADM. Dale was sentenced to 4] months’
imprisonment on count 1, vith concurrent 30 month sentences
a 16
on each of the other counts against him, 2 years’ supervised
release, a special assessment of $350 and a $675,000 fine and
was assessed $58,037.96 for incarceration costs. Ashton was
sentenced to 37 months’ imprisonment on count 1, with
concurrent 30 month sentences on each of the other counts
against her, 2 years’ supervised release and a $225,000 fine
and was assessed $52,375.72 for incarceration costs. Segal
was sentenced to 24 months’ imprisonment on count 1, with
concurrent sentences of 12 months on each of the other
counts against him. ADM was assessed a $360,000 fine and a
$450 special assessment. Sweeney’s sentencing was delayed
until August 13, 1991, when he was sentenced to concurrent
prison terms of 18 months on counts 1, 3, 4 and 5, 2 years of
supervised release and a $15,000 fine. The defendants chal-
lenge both their convictions and sentences and we address
their various arguments below.
II. SuFFicieENCY OF THE EVIDENCE
Each defendant challenges the sufficiency of the evidence
to support the convictions. The court’s review here is a
narrow one. First, as noted above, we must view the evi-
dence in the light most favorable to the government, defer-
ring to the jury’s weight and credibility determinations.
United States v. Smith, 964 F.2d 1221, 1223 (D.C. Cir. 1992);
United States v. Butler, 924 F.2d 1124, 1126 (D.C. Cir.), cert.
denied, 112 S. Ct. 205 (1991). In addition, the court must
affirm each conviction if any rational trier of fact could have
found the essential elements of the offense charged beyond a
reasonable doubt. United States v. Long, 905 F.2d 1572, 1576
(D.C. Cir.), cert. denied, 111 S. Ct. 365 (1990). Applying
these principles, we reject seriatim each defendant’s sufficien-
cy challenge.
A. Ashton
Defendant Ashton contends there was insufficient evidence
to support her conviction on any of the counts on which she
was convicted, namely counts 1, 3, 4, 5, 6, 8 and 10. For the
al7
following reasons, we find the evidence suificient to support
her convictions on all seven counts.”
First, Ashton argues we must reverse her convictions on
counts 6, 8 and 10, charging her with concealing facts from
and making false statements to the federal government in
violation of 18 U.S.C. § 1001” and those portions of count 1
alleging conspiracy to violate that section because the evi-
dence was insufficient to establish either that her misstate-
ments or nondisclosures on the DOD and SBA forms were
made “knowingly and willfully,” as required under the stat-
ute, or that they were material. We find neither contention
persuasive.
Ashton’s first challenge to her convictions on counts 6, 8
and 10 is that under a reasonable interpretation of the forms
cited in those counts, her statements on them were literally
true and complete. While Ashton’s interpretation of the law
regarding section 1001 appears consistent with the holdings
in other circuits,“ we nevertheless conclude her convictions
2 For the same reasons, we also reject ADM’s sufficiency chal-
lenge which adopts Ashton’s arguments by reference. See ADM
Brief at 8.
21 This section provides:
Whoever, in any matter within the jurisdiction of any depart-
ment or agency of the United States knowingly and willfully
falsifies, conceals or covers up by any trick, scheme, or device a
material fact, or makes any false, fictitious or fraudulent state-
ments or representations, or makes or uses any false writing or
document knowing the same to contain any false, fictitious or
fraudulent statement or entry, shall be fined not more than
$10,000 or imprisoned not more than five years, or both.
18 U.S.C. § 1001.
2 See, e.g., United States v. Gahagan, 881 F.2d 1380 (6th Cir.
1989); United States v. Race, 632 F.2d 1114, 1120 (4th Cir. 1980);
United States v. Vesaas, 586 F.2d 101, 104 (8th Cir. 1978); United
States v. Anderson, 579 F.2d 455, 459-60 (8th Cir.), cert. denied, 439
U.S. 980 (1978); United States v. Diogo, 320 F.2d 898, 906-07 (2d
Cir. 1963).
CS
al8
must be affirmed because her statements on those forms
were not literally true under a reasonable interpretation of
the forms.
Ashton first claims she could not be convicted under counts
6 and 8 because the expressions “foreign ... business connec-
tions” in the “Personnel Security Questionnaire” (count 6) and
“foreign connections” in the “Statement of Full Disclosure of
All Foreign Connections” (count 8) can reasonably be inter-
preted to refer only to “actual status as an owner or director
of a foreign company,” and that she did not enjoy that status
when she completed those forms because certain formalities
required under Hong Kong law had not yet been satisfied.”
We reject this claim summarily, finding Ashton’s interpreta-
tion of “connections” far too restrictive. In its common
usage, the word “connection” has a broad meaning™ that
certainly embraces Ashton’s relationship to the two Hong
Kong corporations of which she was by January 1987 indis-
putably both an owner and director, if not de jure at least de
2 Ashton asserts the record does not establish she was a legal
owner or director of the two Hong Kong corporations before she
signed the cited DOD forms because (1) corporate minutes indicate
the transfer of ownership in the company was approved only
“subject to stamping,” meaning subject to stamping by the Stamp
Duty Office in Hong Kong, and there is no evidence stamping
occurred before the forms were completed in late January and early
February 1987; (2) notices of change of directors for the two Hong
Kong corporations were not filed with the Hong Kong Registrar of
Companies unti] February 27, 1987; and (3) a letter dated March
12, 1987, from Edwards to a Hong Kong law firm noted that the
firm “had never received new bank signature cards nor any docu-
ments effecting change of directors and transfer of shares” and
stated: “If you could effect such changes and provide the bank with
the appropriate signature cards I would be most appreciative.” JA
2744.
“4 See Webster’s Third New International Dictionary 481 (1981)
(defining “connection” as “the state of being connected or linked”
and as “a social, professional, or commercial relationship in a
practical or active way”).
al9
facto. Because Ashton’s proffered construction of the
forms’ language was unreasonable, we reject her challenge to
her convictions on counts 6 and 8.”
We similarly reject Ashton’s challenge to count 10. Ashton
contends her denial on the 1987 “Certificate Pertaining to
Foreign Interests” that ADM had “interlocking directors with
foreign interests” was literally true because foreign interests
can reasonably be construed to exclude foreign corporations
owned by American citizens. We disagree. A “foreign cor-
poration” is clearly a “foreign interest” regardless of owner-
ship, as Ashton herself acknowledged when, on the “State-
ment of Full Disclosure of all Foreign Connections,” she
identified herself as a “Representative of a Foreign Interest”
based on her interest in ADM H&S.
Ashton also asserts the count 10 conviction must be re-
versed because the misrepresentation alleged in that count,
the denial of any “foreign interests” in the January 1987
“Certificate Pertaining to Foreign Interests,” was not materi-
al. Ashton reasons that, because the interlocking director-
ships between ADM and ADM H&S were discoverable from
the February 1987 “Statement of Full Disclosure of All
Foreign Connections,” in which she identified ADM H&S as a
foreign interest in which she, Dale and Sweeney were di-
rectors, it could not have influenced or been material to the
DOD. We find this argument also unavailing. Admittedly, in
order to give rise to criminal liability under section 1001, a
2% The Gemona and Swaffham corporate minutes of meetings
conducted October 21, 1986 note that Dale, Ashton and Bowers
were “appointed as Directors ... with immediate effect.” JA 2106,
2127. In addition, Ashton signed a notice that she “consented to act
as Director” of each corporation “as from October 21, 1986,” JA
2109, 2129, and in fact attended a shareholder’s meeting for each on
November 2, 1986, the minutes of which reflect that a “shareholder
vote” “did unanimously resolve” to increase the outstanding shares
in each corporation to 100: 37.5 for Dale, 37.5 for Ashton and 25 for
Bowers. JA 2131, 2110.
% Our disposition here applies equally to Dale’s adoption by
reference of the same argument to challenge his conviction on count
9. See Dale Brief at 1.
a 20
concealment or affirmative misrepresentation must be materi-
al. United States v. Hansen, 772 F.2d 940, 949 (D.C. Cir.
1985), cert. denied, 475 U.S. 1045 (1986). Nevertheless, even
assuming that the earlier disclosure of ADM’s relationship
with ADM H&S rendered nondisclosure of that relationship
here immaterial, it does not affect Ashton’s liability for failing
to disclose the interlocking directorships with Swaffham and
Gemona which had not been otherwise disclosed to the DOD
and therefore were material.”’
Ashton’s final sufficiency challenge is that the trial evi-
dence failed to establish that she “willfully” participat-
ed in the fraudulent tax deductions alleged in counts 3
and 4, as required under 26 U.S.C. §§ 7206(2)% and
27In light of this disposition, we need not decide whether, as
other circuits have held, it is a misrepresentation’s potential to
influence, irrespective of the recipient’s knowledge vel non of its
falsity, that determines materiality under section 1001. See United
States v. Whitaker, 848 F.2d 914, 916 (8th Cir. 1988); United States
v. Goldfine, 538 F.2d 815, 8820-21 (9th Cir. 1976). We note in this
regard, however, that this Circuit has consistently held:
The test of materiality is whether the statement “has a natural
tendency to influence, or was capable of influencing, the deci-
sion of the tribunal in making a [particular] determination.”
Proof of actual! reliance on the statement is not required; the
Government need only make a reasonable showing of its poten-
tial effects.
Hansen, 772 F.2d at 949 (quoting United States v. Diggs, 613 F.2d
988, 999 (D.C. Cir. 1979), cert. denied, 446 U.S. 982 (1980)), cert.
denied, 475 U.S. 1045 (1986); see also Weinstock v. United States,
231 F.2d 699, 701-02 (D.C. Cir. 1956).
% This subsection provides in part:
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
————————
a 21
7201, or that she had a “conscious knowing intent to de-
fraud” in connection with the wire transfer of funds to
Bourbonia alleged in count 5, as required under 18 U.S.C.
§ 1343, the wire fraud statute.” All three of the challenged
counts alleged fraud in connection with ADM’s claimed
1986 deductions of the $500,000 Swaffham accrual and the
$316,000 Bourbonia payment. Ashton argues there was no
evidence that she was aware the Bourbonia payment was not
false as to any material matter, whether or not such falsity or
fraud is with the knowledge or consent of ine person autho-
rized or required to present such return, affidavit, claim, or
document; ...
shall be guilty of a felony and, upon conviction thereof, shall be
fined not more than $100,000 ($500,000 in the case of a corpora-
tion), or imprisoned not more than 3 years, or both, together
with the costs of prosecution.
26 U.S.C. § 7206(2).
2 This section provides:
Any person who. willfully attempts in any manner to evade or
defeat any tax imposed by this title or the payment thereof
shall, in addition to other penalties provided by law, be guilty of
a felony and, upon conviction thereof, shall be fined not more
than $100,000 ($500,000 in the case of a corporation), or impris-
oned not more than 5 years, or both, together with the costs of
prosecution.
26 U.S.C. § 7201.
%* This statute provides:
Whoever, having devised or intending to devise any scheme or
artifice to defraud, or for obtaining money or property by
means of false or fraudulent pretenses, representations, or
promises, transmits or causes to be transmitted by means of
wire, radio, or television communication in interstate or foreign
commerce, any writings, signs, signals, pictures, or sounds for
the purpose of executing such scheme or artifice, shall be fined
not more than $1,000 or imprisoned not more than five years,
or both.
18 U.S.C. § 1343.
a 22
deductible or that the Swaffham payment was ever made,
much less that it was not deductible. We disagree, finding
ample evidence to support a finding of the requisite intent.
The evidence against Ashton here is similar in nature and
weight to the evidence in United States v. Treadwell, 760
F.2d 327 (D.C. Cir. 1985), cert. denied, 474 U.S. 1064 (1986),
in which this court affirmed the conviction of Treadwell, a
real estate firm’s chief executive officer, for conspiring with
subordinates to violate federal law even though Treadwell
exercised little control over day-to-day operations and
claimed to have reimbursed the project and fired one of her
subordinates after she learned of the misconduct. The
Treadwell court upheld the conviction based on the following
circumstantial evidence: *' (1) Treadwell’s close personal and
business relationships with the malfeasant subordinates, (2)
her regular meetings with them, (3) her extensive experience
“as a government-grant entrepreneur” and (4) her attempt to
conceal the misconduct by altering and destroying documents.
Id. at 333-35. The court concluded: “Combining these fac-
tors with the sheer magnitude of the [illegal acts], many
involving other businesses that she controlled, would fully
support a reasonable inference that Treadwell knew of and
condoned her subordinates’ malfeasance.” Jd at 335. Simi-
lar evidence here, when viewed most favorably to the govern-
ment, supports Ashton’s conviction.
The record yields the following facts to support the finding
that Ashton willingly participated in the frauds alleged: (1)
she was the majority shareholder in all of the corporations;
(2) she took an active role in the corporations, signing autho-
rizations and travelling to the foreign offices; (3) the frauds
conferred a financial benefit on ADM, Swaffham and ADM
H&S, in which she owned controlling interests, as well as on
her personal Bourbonia investment account; (4) these trans-
actions were part of a much larger scheme to defraud the
31 The court noted that “[{iJn determining whether the government
has met its burden of proof, ... no legal distinction may be drawn
between direct and circumstantial evidence.” 760 F.2d at 333
(citing United States v. Davis, 562 F.2d 681, 684 (D.C. Cir. 1977).
a
a 23
government, which included Ashton’s personal withdrawals of
ADM funds which she failed to report as income and misrep-
resentations to government agencies; (5) one of her other .
misrepresentations was the concealment of the existence of
Swaffham, one of the corporations benefited by the frauds;
and (6) she personally assisted in covering up many of the
frauds, including the $316,000 Bourbonia deduction. As in
Treadwell, the combination of these facts suffices to support
the jury’s finding that Ashton willfully and intentionally par-
ticipated in the frauds alleged.
B. Sweeney
Sweeney challenges the sufficiency of the evidence to sup-
port his conviction on counts 1, 3, 4 and 5, advancing two
arguments: (1) the evidence did not establish that the pay-
ments to Bourbonia, or their tax treatment, were fraudulent
and (2) assuming there was fraud, the evidence did not
support a finding of specific intent on his part to evade taxes.
We find neither argument persuasive and conclude the evi-
dence is sufficient to support Sweeney’s conviction on all four
counts.
Sweeney first asserts there was insufficient evidence to
establish that the invoices to Bourbonia were in fact fraudu-
lent. We find, however, that the record contains substantial
evidence that the invoices were issued for the express pur-
pose of diverting tax-free funds for the benefit of Ashton,
Dale and ADM H&S, while conferring a tax benefit on ADM,
and that the services identified in them were never intended
to be performed.”
First, although the December 1986 invoices purported to
charge for “Product Development Consulting for the period
March 86, to December 86” and “for Services rendered in
%2 She signed the August 25, 1988, amended 1986 return which
gave a phony explanation of why the $316,000 payment had been
deducted.
%3 This conclusion also disposes of Dale’s adoption by reference of
the same challenge to his convictions. See Dale Brief at 1.
a 24
accordance with the letter contract as of March 11, 1986 for
Machine Language Translation Research and Development |
Project,” JA 1984-85, Knight, who had been a consultant to
ADM since February 1986, who had frequently spoken by
phone with Wormer during that time, who was the only
employee of ADM H&S as of December 1986, and who was
meeting with Sweeney and Wormer the entire day of Decem-
ber 11, 1986, the date on the invoices, nevertheless “had no
knowledge” that as of December 1986 Wormer had performed |
$316,000 worth of work for ADM H&S or that ADM had
entered any contract with Bourbonia. In addition, despite
government subpoenas, no contract with Bourbonia has ever
been produced and Crystal Day, ADM’s “Director of Con-
tracts,” testified that despite a thorough search she was
unable to find such a contract and was in fact informed by
Sweeney that none existed. Nor was Day able to discover
any actual reports from either year, although the 1987 invoic-
es expressly stated that “specific reports were produced or
are now underway.” Trial Transcript (Tr.) 2573. In fact,
Day herself testified she never heard of Bourbonia before |
December 1988, although she attended weekly meetings with
Ashton, Dale and “mid-level management.” Further, despite
Sweeney’s assertion in a February 19, 1988, memorandum
that Bourbonia “provides invaluable services to me on virtual-
ly a day-to-day basis,” JA 1994, three witnesses who worked
in ADM’s German office between 1986 and 1987, namely
Lyddi Hudson, Yvonne Burr and Sally Frank, testified they
were unaware of any consultation arrangement with Bourbo-
nia, or any Swiss firm, even though Burr had been with the
German office since its establishment and the other two
women had attended weekly meetings with Sweeney and the
other “key players.” Finally, after the federal investigation
began, ADM took steps to reverse the initial tax treatment of
the $316,000 and $102,655 Bourbonia payments as deductible
expenses and Dale and Ashton assumed personal responsibili-
ty for repaying both amounts to ADM, signing promissory
EE
a 25
notes and, according to notations on those notes, paying them
off.*
Sweeney next asserts that even if the invoices were fraudu-
lent, there is no evidence that he personally knew the fraud
was committed for the purpose of tax evasion. In support of
his argument, Sweeney relies heavily on the Ninth Circuit's
opinion in United States v. Salerno, 902 F.2d 1429 (9th Cir.
1990). We find the reasoning in Salerno inapplicable here.
In Salerno the Ninth Circuit reversed the tax evasion
conviction of a former casino manager and his assistant who
had embezzled money from the casino through a scheme that
made it appear that the missing money had been won by
customers, thereby entitling the casino to deduct the stolen
amounts on its tax returns. The Salerno court properly
found the evidence insufficient because it failed to show the
two defendants embezzled the money “not merely for their
own benefit but with a specific intent to cause the casino to
file false tax returns.” Jd. at 1432. In so finding, the court
explained:
The government at trial identified no persons other than
[the defendants], the cashier and the runner as being
involved in the scheme. None of the four individuals was
an officer, shareholder, or director of the taxpayer corpo-
ration. There was no evidence that any of those individ-
uals had anything to do with the preparation of [the
corporation’s] tax returns. There was no evidence link-
ing the embezzlement scheme to any officer, director or
shareholder of the taxpayer corporation. There was no
evidence that the defendants had any motive for conduct-
ing a scheme to defraud the government, or that they
% The government also urges strongly that the alleged consulta-
tion work performed in 1986 is inconsistent with Knight’s testimony
that to the best of his knowledge Sweeney first met Wormer on
December 10, 1986, when Sweeney and Knight drove together to
Wormer’s home. What Knight actually said, however, is that as far
as he knew that was the first occasion Sweeney and Wormer
“physically met,” suggesting they had had previous contact by
telephone or otherwise. See JA 1130.
a 26
ever mentioned their own taxes, much less the tax re-
turns of the casino.
Id. at 1432. In fact, the court concluded: “In this case the
filing of the corporate return appears irrelevant to the defen-
dant’s conduct.” Jd. at 1433. Not so here. Sweeney was a
corporate vice-president who, according to the evidence, may
have been promised an equity position. Further, the fraud,
as alleged, involved a conspiracy among Sweeney and both
principals of the corporation and its only apparent purpose
was to obtain unwarranted favorable tax treatment through
untaxed disbursements to Ashton, Dale and ADM H&S and
unjustified deductions for ADM. Sweeney was certainly in a
position to be aware of such a motive and the jury could
reasonably have so inferred. Accordingly, we find the evi-
dence, taken as a whole, sufficient to support a finding of
specific intent by Sweeney to evade tax liability on ADM’s
behalf.
C. Segal
Finally, Segal challenges the sufficiency of the evidence to
support his conviction on counts 1, 3 and 4 and, in addition,
challenges the trial court’s denial of his motion for a new trial.
We reject both challenges, addressing each separately.
First, Segal contends his convictions should be reversed
because the evidence was insufficient to establish beyond a
reasonable doubt that he knowingly participated in any of the
fraudulent activity, asserting he was merely an innocent
employee performing the accounting responsibilities his job
required. We conclude, however, that the evidence, viewed
most favorably to the government, reveals the following facts
sufficient to support a finding of knowing participation in the
tax frauds: (1) Segal was ADM’s Chief Financial Officer and
as such reported directly to Ashton and Dale and attended
high-level company meetings with them around the world; (2)
Segal failed to disclose to Grant Thornton, ADM’s outside
accounting firm, that the suspect transactions with ADM
Asia, Gemona, Swaffham and ADM H&S were related-party
transactions—in fact, he signed a letter to Grant Thornton,
dated May 27, 1987, stating, inter alia, that “(rjelated party
transactions and related amounts receivable or payable, in-
a 27
cluding sales, purchases, loans, transfers, leasing arrange-
ments and guarantees” had been “properly recorded or dis-
closed in the financial statements,” JA 2298, while as of that
date the $200,000 Arlington payment, the $417,532 payments
to Swaffham and Gemona and the $500,000 Swaffham accrual
had already occurred but not been identified as related-party
transactions; * (3) Segal knew or should have known that the
amount of the $500,000 Swaffham invoice was artificial and
that the invoice itself was not bona fide; * (4) it was Segal
whom Ashton selected to accompany her to Korea in August
1987 and to negotiate with Bowers, even though it was likely,
if not inevitable, that the negotiations would involve discus-
sion of some of the fraudulent activities, as in fact they did; *”
% According to a Grant Thornton accountant, when asked why
the related party transactions had not been disclosed, Segal re-
sponded “No one asked me.” JA 1542.
% Segal wrote Bowers a letter dated March 5, 1987, stating that
“a bill is needed for the consulting work that David Dale requested.
My understanding is that the work was performed last year for a
total cost of approximately $150,000. The consultant’s report is also
needed as backup to the bill.” JA 2055. When Bowers subsequent-
ly received an invoice for $149,000 in mid-March, he made a call to
Dale which he recorded. During that conversation Bowers remind-
ed Dale of a previous agreement regarding the invoice amount:
“We agreed for 750, and then we were to back ... back it down to
500. Remember, I was to prepare some paper work, two or three
exchanges, and, uh, it was to be backed down to 500.” JA 2387.
Later in the conversation, Dale remarked “I don’t know whether
Marty can handle seven hundred and fifty thousand,” JA 2389, and
that they would “have to find out what Marty thinks we can get
away with,” JA 2391. The actual $500,000 invoice arrived at ADM a
week later, back-dated to December 30, 1986. Segal informed
Grant Thornton of the amount sometime before March 15, 1987.
37 During the negotiations, Ashton and Bowers attempted to
persuade Bowers to sign a document agreeing to hand over the
incriminating recordings and acknowledging that the $200,000 pay-
ment to Arlington had been “formally loaned” by ADM Asia. See
JA 2714-15. In addition, handwritten notes made by Segal while in
Korea reveal his knowledge of the tapes and Ashton’s desire to
aii:
a 28
(5) after the Korean sojourn, Segal continued to conceal from
Grant Thornton some of the fraudulent tax transactions of
which he must have known by then; *™ and (6) in 1988 Segal
furnished ADM’s accountants a false explanation of why the
1986 tax return had to be amended to eliminate the deduction
of the $316,000 Bourbonia payment.” Accordingly, we reject
Segal’s first sufficiency challenge.
Next, Segal asserts that even if the evidence was sufficient
to support his conviction, the district court nevertheless erred
in denying his motion for a new trial on the grounds that the
verdict was against the weight of the evidence and that newly
discovered evidence, namely testimony given by Sweeney
after trial but before sentencing, established Segal’s inno-
cence.” A motion for new trial on either of the grounds
asserted is committed to the trial court’s sound discretion and
may be reversed only for abuse of that discretion. See
United States v. Rogers, 918 F.2d 207, 213 (D.C. Cir. 1990);
United States v. Sensi, 879 F.2d 888, 901 (D.C. Cir. 1989).
We conclude there was no abuse of discretion here.
First, we find no error in the district court’s denial of the
motion insofar as it was based on the weight of the evidence.
In considering a new trial motion based on the weight of the
evidence the district judge “weighs the evidence and evalu-
ates the witnesses’ credibility and decides whether ‘a serious
obtain them and expressly indicate that “money was laundered”
through the Korean office. JA 2058.
% He said nothing at that time about the $200,000 Arlington
payment or the $500,000 Swaffham accrual.
3° The accountant testified that “the substance” of Segal’s expla-
nation was that “some bills had been paid by ADM U.S.... and
that the expenses were really incurred by a related corporation,
ADM GmbH,” referring to ADM H&S. Tr. 3176. In fact, the
invoices were unrelated to ADM H&S.
“ At a hearing conducted February 22, 1991, Sweeney, pursuant
to an agreement with the government, provided extensive sentenc-
ing testimony regarding ADM’s business activities, some of which
suggested Segal may not have been directly involved in ADM’s
fraudulent conduct.
a 29
miscarriage of justice may have occurred.’” Rogers, 918
F.2d at 213 (quoting Tibbs v. Florida, 457 U.S. 31, 38 n.11
(1982)). Our review of the district court’s decision is particu-
larly narrow when the court denies the new trial motion
because the court’s decision accords with the jury’s. Hutch-
inson v. Stuckey, 952 F.2d 1418, 1420 (D.C. Cir. 1992) (citing
McNeal v. Hi-Lo Powered Scaffolding, Inc., 836 F.2d 637,
646 (D.C. Cir. 1988)). Given this limited scope of review and
the evidence set out above supporting Segal’s knowing partic-
ipation in the tax evasion scheme, the trial court’s rejection of
Segal’s weight of the evidence argument cannot be character-
ized as an abuse of discretion and must therefore be upheld.
See United States v. Kelly, 748 F.2d 691, 701 (D.C. Cir. 1984)
(holding that, as long as the weight of the evidence clearly
weighs in favor of conviction, not against it, there is no abuse
of discretion in denying a new trial motion).
Nor do we find error in the judge’s refusal to grant a new
trial based on Sweeney’s post-trial testimony. To obtain a
41 Segal maintains that comments made by the trial judge at
sentencing indicate he applied the wrong standard, deferring entire-
ly to the jury’s judgment and abdicating his responsibility to review
the evidence himself. The challenged language states:
(I)n looking at the verdict of the jury, the court cannot sit back
and say to the jury, “I disagree.” Whether I disagreed with
their verdict in your case, and I'm not going to tell you whether
I did or did not, but whether I disagreed with the jury verdict
in your case is of no moment. That isn’t a basis for setting
aside the verdict or giving you a new trial. There are stan-
dards that the court must follow, and with respect to the
evidence, as long as the evidence has been presented to the
jury in a fair manner and under fair and correct instructions,
and as long as the court has decided and concluded that the
jury has considered those matters, it’s a verdict for the jury to
decide, it’s not for the court.
JA 1825-26 (emphasis added). The highlighted language satisfies
us that the judge properly assessed the jury’s verdict in light of the
credible evidence and the weight one could reasonably ascribe to it.
—— il
a 30
new trial based on newly discovered evidence, a convicted
defendant must offer evidence that “‘ha[s}] been discovered
since the trial.’” Sensi, 879 F.2d at 901 (quoting United
States v. Mangieri, 694 F.2d 1270, 1284 (D.C. Cir. 1982)).
The unanimous view of circuits that have considered the
question is that this requirement is not met simply by offer-
ing the post-trial testimony of a co-conspirator who refused to
testify at trial. See United States v. Reyes-Alvarado, 963
F.2d 1184, 1188 (9th Cir. 1992) (“‘[W]hen a defendant who
has chosen not to testify comes forward to offer testimony
exculpating a codefendant, the evidence is not “newly discov-
ered.”’”) (quoting United States v. Diggs, 649 F.2d 731, 740
(9th Cir.), cert. denied, 454 U.S. 970 (1981)); United States v.
Gustafson, 728 F.2d 1078, 1084 (8th Cir.) (finding no abuse of
discretion in denying new trial motion based on probability
that post-trial testimony of convicted co-defendants, who had
agreed to provide government with information in return for
lenient sentence, would deviate from their trial testimony and
no longer implicate defendant-appellant), cert. denied, 469
U.S. 1189 (1984); United States v. Metz, 652 F.2d 478, 480
(5th Cir. Unit A Aug. 3, 1981) (rejecting contention that
“ ‘newly available’ evidence is synonymous with ‘newly discov-
ered’ evidence” and finding no abuse of discretion in denial of
new trial motion based on co-defendant’s post-conviction ex-
culpating affidavits); United States v. Jacobs, 475 F.2d 270,
286 n.33 (2d Cir.) (“{W]e fully agree with the judge’s alterna-
tive ground [for denying a new trial motion], that a court
must exercise great caution in considering evidence to be
‘newly discovered’ when it existed all along and was unavail-
able only because a co-defendant, since convicted, had availed
himself of his privilege not to testify.”), cert. denied, 414 U.S.
821 (1973). We recently acknowledged this principle in the
administrative context to hold that the National Transporta-
tion Safety Board had reasonably concluded the proffered
testimony of an FAA inspector who had invoked his fifth
amendment privilege at a pilot certification hearing but had
since pleaded guilty to charges related to the hearing’s sub-
ject-matter did not constitute “newly discovered” evidence
under an NTSB rule so as to warrant reconsideration of the
SE
a 3l
certification denial. See Chirino v. NTSB, 849 F.2d 1525
(D.C. Cir. 1988). In light of our holding in Chirino and the
holdings of the other circuits in the cited cases, we conclude it
was not an abuse of discretion to deny a new trial based on
Sweeney’s post-trial testimony.
III. Apmission or Tapes
A. Title Il
Title III of the Omnibus Crime Control and Safe Streets
Act of 1968, 18 U.S.C. § 2510 et seq., provides, in relevant
part, that a person may intercept wire, oral or electronic
communications to which the person is a party “unless such
communication is intercepted for the purpose of committing
any criminal or tortious act in violation of the Constitution or
laws of the United States or of any State.” 18 U.S.C.
_§ 2511(2)(d). In their motion to suppress the tape recordings
made by Bowers and Roth, the defendants argued that the
taping violated Title III because the purpose for taping was
to blackmail Dale and Ashton for stock and money. The
government responded with three independent arguments:
(1) Title III does not apply extraterritorially and therefore is
inapplicable to Bowers’ taping in Korea of phone calls to and
from the United States; (2) even if Title III applies extrater-
42In Chirino, this court stated:
To assess the reasonableness of [the NTSB’s) interpretation,
we pause to observe that, in an admittedly different but
analogous context, cases construing Rule 33 of the Federal
Rules of Criminal Procedure governing new trials are instruc-
tive on the question of what constitutes “newly discovered”
evidence. In the Rule 33 setting, several courts have conclud-
ed that post-trial testimony of a co-defendant who initially
asserted his or her Fifth Amendment privilege does not consti-
tute “newly discovered” evidence within the meaning of the
Rule....
These decisions from the criminal law setting provide a direct
analogy to the situation before the Board in this case.
849 F.2d at 1532 (citations to Metz, Diggs and Jacobs omitted).
a 32
ritorially and Bowers and Roth made the tapes for an illegal
purpose, Title III does not mandate suppression where the
government is the innocent recipient of tapes made by unin-
dicted co-conspirators in the course of criminal activity; and
(3) the defendants failed to meet their burden of proving that
Bowers’ or Roth’s primary purpose in taping was either
criminal or tortious. The district court did not state explicitly
why it denied the motion to suppress, explaining only that it
had conducted a three-day evidentiary hearing and that “(a)f-
ter careful consideration of the motion, the opposition thereto
and the entire record in this case,” the motion should be
denied. JA 917. The defendants did not object to the
district court’s failure to state its essential findings of fact on
the record. See Fed. R. Crim. P. 12(e).
On appeal, the defendants and the government repeated
the same arguments regarding suppression of the tapes that
they made to the district court. Normally, where the district
court denies a motion to suppress but fails to make findings
of fact on the record, we may sustain the district court’s
decision “if there is any reasonable view of the evidence that
will support it.” Scarbeck v. United States, 317 F.2d 546, 562
(D.C. Cir. 1962), cert. denied, 374 U.S. 856 (1963); see also
United States v. Mitchell, 951 F.2d 1291, 1299 (D.C. Cir.
1991), cert. denied, 112 S. Ct. 1976 (1992); United States v.
Caballero, 936 F.2d 1292, 1296 (D.C. Cir. 1991), cert. denied,
112 S. Ct. 943 (1992); United States v. Allen, 629 F.2d 51, 57
(D.C. Cir. 1980). However, we declined to exercise this
option here because we did not know which of three separate
legal theories advanced by the government the district court
hadi adopted and what facts, if any, it relied on to support its
choser. theory.
By order dated January 8, 1993, we remanded the record to
the district court for a clarification of its reasons for admit-
ting the tapes and any relevant factual findings made in
support of its admissibility ruling. See United States v.
Williams, 951 F.2d 1287, 1290-91 (D.C. Cir. 1991) (remand to
the district court is appropriate where neither the legal
reasoning nor factual findings supporting the denial of a
motion to suppress are apparent because it is not clear “[oJne,
a 33
that the district court asked the right legal questions in
making its ruling; two, that it actually weighed the evidence
bearing on the facts needed to answer them”). On January
21, 1993, the district court responded with an order explaining
that a memorandum had been prepared subsequent to the
court’s denial of the defendants’ motion to suppress the tapes,
but while “[{iJt was the Court’s understanding that the Memo-
randum had been filed; it now appears that the Memorandum
was not filed. The Memorandum sets forth the reasons the
Court ... denied the motion to suppress tapes.... [A] copy
of the Memorandum has been signed and is attached as Court
Exhibit A.” United States v. Dale, Crim. No. 90-0027,
Memorandum Order at 1-2 (D.D.C. Jan. 21, 1993).
In the memorandum, which was filed and made a part of
the record, the district court expressly eschewed the first two
legal theories pressed by the government, that Title III does
not apply extraterritorially or that it does not apply to the
government’s innocent receipt of recordings made by a co-
conspirator, stating that “(flor the purpose of this motion, the
Court will assume without deciding that Title III applies to all
of the tape recordings at issue.” United States v. Dale, Crim.
No. 90-0027, Memorandum at 2 n.1 (D.D.C. Jan. 21, 1993)
(“Tapes Memorandum”). Instead, the court found that the
evidence supported the government’s third theory and con-
cluded that the “defendants have failed to establish that the
motivation for the taping by either Bowers or Roth was
criminal or tortious.” Jd. at 3. The district court explained
that although Bowers
was a willing participant in the illegality in the beginning,
there came a time when he became an unwilling partici-
pant because he felt that there was a possibility that all
of the responsibility for these activities could be placed
on him. Bowers stated that he began taping conversa-
tions with the defendants at about this time in order to
make sure his interests were protected. Specifically,
Bowers asserted that with the taping he wanted to make
a record which detailed the participation of defendants
Ashton and Dale in the criminal activities taking place in
a 34
Asia and show(ed] that he was receiving directions [from
them] as to those activities. It was important to him
that it was clear on the recordings that he was not acting
alone since he feared that defendants would seek to
portray him in that light.
Id. at 5-6. The district court credited this testimony and
found that the defendants had not rebutted Bowers’ explana-
tion for the taping. Jd Similarly, the district court found
Roth’s explanation that he made the tapes to keep a record of
his employment dispute with ADM and not for purposes of
extortion to be “entirely credible.” Jd at 4. We permitted
the parties to file supplemental briefs addressing these find-
ings, and after reviewing those briefs and the district court’s
memorandum, we conclude that the district court’s factual
findings were not clearly erroneous.
The burden was on the defendants to prove that Bowers
and Roth made the tapes for criminal or tortious purposes,
see Traficant v. Commissioner, 884 F.2d 258, 266 (6th Cir.
1989); United States v. Phillips, 540 F.2d 319, 326 (8th Cir.),
cert. denied, 429 U.S. 1000 (1976), and the evidence supports
the district court’s conclusion that the defendants failed to
meet their burden. In their supplemental brief, the defen-
dants contend that because the district court failed to mention
every bit of evidence allegedly probative of Bowers’ and
Roth’s intent, the court necessarily overlooked or ignored this
evidence. However, the district court was obligated to state
only its essential findings on the record, see Fed. R. Crim. P.
12(e), and we do not find that the district court neglected to
consider any dispositive evidence in the record. Indeed, the
district court noted that “the evidence presented by defen-
dants to support their claim that Roth conspired with Bowers
in a blackmail and extortion plan is scant and unpersuasive,”
and further that it “was not persuaded by defendants’ efforts
to rebut Bowers’ testimony.” Tapes Memorandum at 4, 6.
In any event, simply because the factual record could reason-
ably lead a factfinder to conclude that Bowers and Roth did
have an illegal or tortious purpose in taping does not mean
that the district court’s contrary, and at least equally permis-
a 35
sible, view of the facts is clearly erroneous. See Anderson v.
Bessemer City, 470 U.S. 564, 574 (1985).
Neither do we find that the district court erred in its legai
analysis. Taping phone calls to make an accurate record of a
conversation “in order to prevent future distortions by a
participant” is not illegal, see United States v. Underhill, 813
F.2d 105, 110 (6th Cir.), cert. denied, 482 U.S. 906 (1987), even
when the recording is made in the hopes of producing evi-
dence of an illegal conspiracy, see By-Prod. Corp. v. Armen-
Berry Co., 668 F.2d 956, 959-60 (7th Cir. 1982). A person
may even tape confederates in the hope of obtaining evidence
to reduce his own sentence. See United States v. Ruppel, 666
F.2d 261, 271 (5th Cir. Unit A), cert. denied, 458 U.S. 1107
(1982). Given the district court’s determination that Bowers’
purpose for taping was to protect himself and Roth’s purpose
was to establish a record of his employment dispute, it would
appear that the district court correctly concluded that the
tape recordings were not made in violation of Title III. The
defendants argue, however, that the district court “may well
have applied an erroneous legal standard” by concluding that
Title III is not violated where the primary purpose for taping
is legal, even though a second, unlawful factor also motivated
the taper. Appellants’ Joint Supplemental Brief at 6-7.
The defendants are correct that a violation of Title III is
established when “it is shown either (1) that the primary
motivation, or (2) that a determinative factor in the actor’s
motivation for intercepting the conversation was to commit a
criminal, tortious, or other injurious act.” See United States
v. Vest, 639 F. Supp. 899, 904 (D. Mass. 1986), affd, 813 F.2d
477 (1st Cir. 1987), cert. denied, 488 U.S. 965 (1988). Al-
“In Vest, the court rejected the defendant's position that sup-
pression is appropriate under Title III if any part of the motivation
is criminal or tortious, explaining:
It is characteristic of human experience that individuals usual-
ly—perhaps even always—act with mixed motives. To adopt
the interpretation of the statute advanced by the defendant
would impose on the government the nearly insurmountable
a 36
though the district court at one point in the memorandum
referred to Roth’s “primary” purpose for taping, Tapes Mem-
orandum at 3, it is clear to us that the district court, which
cited Vest, recognized that the defendants were obligated to
demonstrate only that some determinative factor in the tap-
ing was impermissible. Unfortunately for the defendants,
there is no indication that the district court found any of the
purposes motivating Bowers and Roth to be illegal. Instead,
the court quite clearly stated that “defendants have failed to
sustain their burden of proving that Roth acted with an
impermissible purpose,” and that “defendants’ argument that
Bowers’ motivation behind his taping was illegal or tortious is
unconvincing.” Jd. at 5-6. In sum, the district court correct-
ly applied the appropriate legal standard in refusing to sup-
press the tapes.
B. Authentication
The defendants next argue that the district court erred by
failing to make an explicit threshold determination that the
tapes were trustworthy, especially in light of a defense ex-
pert’s report concluding there was a possibility that some
tapes had been altered or recorded over. The admission of
recordings into evidence is committed to the sound discretion
of the trial court, so long as the tapes are authentic, accurate
and trustworthy. See United States v. Sandoval, 709 F.2d
1553, 1554 (D.C. Cir. 1983); United States v. Slade, 627 F.2d
293, 301 (D.C. Cir.), cert. denied, 449 U.S. 1034 (1980);
United States v. Haldeman, 559 F.2d 31, 107 (D.C. Cir. 1976),
cert. denied, 431 U.S. 933 (1977). It was not an abuse of
discretion for the district court to admit the tapes into
evidence without expressly stating that the tapes were reli-
able because the record indicates that the court accepted the
government’s proffer of trustworthiness and rejected the
defendants’ concerns. We believe that in admitting the tapes
into evidence, the district court implicitly found that “ ‘the
burden of eliminating the possibility that an improper motive
played any part in the decision to intercept the communication.
639 F. Supp. at 904.
hn eeeeennenienennneenmen|
a 37
possibilities of misidentification and adulteration [were] elimi-
nated, not absolutely, but as a matter of reasonable probabili-
ty.”” Haldeman, 559 F.2d at 107 (quoting Gass v. United
States, 416 F.2d 767, 770 (D.C. Cir. 1969)).
To meet its burden of demonstrating the authenticity and
accuracy of the tapes, see United States v. King, 587 F.2d
956, 961 (9th Cir. 1978), the government first produced IRS
Special Agent Kenneth Buck who testified and was cross-
examined at length regarding the tapes and in particular,
about how the government had inadvertently damaged one
part of one tape. Next, Bowers described the mechanism by
which he taped telephone conversations, explained the cir-
cumstances under which he handed tapes over to government
agents and testified that the tapes were fair and accurate
recordings of conversations to which he was a party. In
addition, the court engaged in a lengthy colloquy with counsel
on the accuracy and reliability of the tapes, and the findings
of the defense expert regarding potential tampering with the
tapes. Finally, the district court gave the defendants the
option of having the FBI technician who produced noise-
reduced versions of the tapes testify regarding whether the
tapes might have been tampered with prior to receipt by the
FBI, which offer the defendants declined. Only after all of
the foregoing did the district court admit the tapes into
evidence and allow them to be played to the jury.
There is no single rigid standard for determining whether a
tape recording may be admitted into evidence. See United
States v. Lance, 853 F.2d 1177, 1181 (5th Cir. 1988) (federal
courts do not require “conclusive proof of authenticity” before
admitting tapes); Haldeman, 559 F.2d at 107 (evidence of
admissibility of tapes “need not conform to any particular
model”). Tapes may be authenticated by testimony describ-
ing the process or system that created the tape, see United
States v. Sivils, 960 F.2d 587, 597 (6th Cir.), cert. denied, 113
S. Ct. 130 (1992); Haldeman, 559 F.2d at 107-09, or by
testimony from parties to the conversation affirming that the
tape contained an accurate record of what was said. See
Lance, 853 F.2d at 1181-82; Sandoval, 709 F.2d at 15565.
The district court’s decision to admit the tapes was obviously
eee
a 38
based on its conclusion that the testimony of both the origina-
tor Of the tapes and of the IRS agent established the authen-
ticity, accuracy and trustworthiness of the tapes notwith-
standing the misgivings of the defendants’ expert. Given the
extended discussion of the objections and the government’s
evidence in court, we are satisfied that the district court
committed no reversible error in failing to make the basis of
its ruling explicit.
IV. Apmission or Evipence rrom Searcu
On May 18, 1990, the district court denied, without elabora-
tion, the defendants’ motion to suppress evidence seized in a
search of ADM’s offices and warehouse. In responding to
our January 8, 1993 request to set forth its reasons for
denying the defendants’ motion to suppress the tapes made
by Bowers and Roth, the district court has provided this
court with a second memorandum, also mistakenly believed
by the district court to have been filed in 1990, explaining in
detail why the court refused to suppress evidence seized in
the search of ADM’s offices. United States v. Dale, Crim.
No. 90-0027, Memorandum Order (D.D.C. Jan. 21, 1993)
(“Warehouse Memorandum”). In their supplemental briefs,
the parties have addressed the search and suppression issues
in light of the district court’s memorandum.
A. Franks Hearing
The defendants argue that the trial court erred in refusing
to hold an evidentiary hearing under Franks v. Delaware, 438
U.S. 154 (1978), to investigate alleged defects in the affidavit
of Defense Criminal Investigation Service Special Agent
Heidi Shintani supporting the warrant to search ADM’s
offices and warehouse in Washington, D.C. Although a
search warrant is presumptively valid, if the defendant is able
to make
a substantial preliminary showing that a false statement
knowingly and intentionally, or with reckless disregard
for the truth, was included by the affiant in the warrant
affidavit, and if the allegedly false statement is necessary
a 39
to the finding of probable cause, the Fourth Amendment
requires that a hearing be held at the defendant’s re-
quest.
Id. at 155-56; see United States v. Sobamowo, 892 F.2d 90, 94
(D.C. Cir. 1989), cert. denied, 111 S. Ct. 78 (1990). The
defendants contend that they made such a showing before the
district court by proffering evidence that: allegations in the
warrant that ADM illegally substituted products in executing
contracts with the Army were false and the affiant Shintani
acted with reckless disregard for the truth by failing to
investigate the validity of the allegations; the affiant misrep-
resented the credibility of David Bowers by failing to disclose
that Bowers was himself under investigation; and the affiant
lied about information provided by former ADM employees.
We conclude that the district court properly rejected each of
these claims.“
First, the defendants produced affidavits from Army offi-
cials to establish that ADM had approval from the Army to
“ The circuits are split on the question whether a district court’s
decision not to hold a Franks hearing is reviewed under the clearly
erroneous or de novo standard of review. Four circuits adhere to
the clearly erroneous standard. See United States v. Buchanan,
1993 WL 34834 at °6 (8th Cir. Feb. 16, 1993); United States v.
Skinner, 972 F.2d 171, 177 (7th Cir. 1992); United States v.
Hadfield, 918 F.2d 987, 992 (1st Cir. 1990), cert. denied, 111 S. Ct.
2062 (1991); United States v. One Parcel of Property, 897 F.2d 97,
100 (2d Cir. 1990). Two review such decisions de novo. See United
States v. Homick, 964 F.2d 899, 904 (9th Cir. 1992); United States
v. Mueller, 902 F.2d 336, 341 (5th Cir. 1990). We have not
definitively resolved the issue in this circuit. In United States v.
Richardson, 861 F.2d 291, 293 (D.C. Cir. 1988), cert. denied, 489
U.S. 1058 (1989), we invoked the clearly erroneous standard to
review a district court's finding on the good faith belief of the police
officer in executing the disputed affidavit but we did not explicitly
discuss which standard would apply to the ultimate decision not to
hold a Franks hearing. For purposes of this case, we need not
resolve the precise scope of Richardson or take sides in the circuit
conflict because we find that the district court’s decision not to hold
a hearing passes muster under either standard of review.
a 40
substitute Magna hard drives for the Wang or Yipcon hard
drives originally contracted for. According to the defendants,
Agent Shintani’s sole reliance on affidavits from former ADM
employees and her failure to contact any Army officials
amounted to reckless disregard for the truth. But in general,
the failure to investigate fully is not evidence of an affiant’s
reckless disregard for the truth. See United States v. Miller,
753 F.2d 1475, 1478 (9th Cir. 1985); United States v. Mastroi-
anni, 749 F.2d 900, 909-10 (1st Cir. 1984); United States v.
Young Buffalo, 591 F.2d 506, 510 (9th Cir.), cert. denied, 441
U.S. 950 (1979). As the district court explained, probable
cause “does not require an officer to exhaust every possible
lead, interview all potential witnesses, and accumulate over-
whelming corroborative evidence.” Warehouse Memorandum
at 18. In fact, Agent Shintani’s failure to contact Army
officials may have been entirely prudent given the possibility
of a leak back to ADM. According to the affidavit, one
informant “indicated that Dale and ADM President Ashton
would certainly destroy any incriminating records if they
were subpoenaed. She stated Dale would do anything to
avoid detection.” JA 258. Rather than evincing a reckless
disregard for the truth, the agent’s actions amounted to at
most negligence which is insufficient to warrant a Franks
hearing. See Franks, 438 U.S. at 171.
The defendants next argue that the affiant misrepresented
Bowers’ credibility in the affidavit by describing him as a
“Confidential Informant” when Bowers was himself under
investigation.” However, an affiant’s failure to disclose the
backgrounds and alleged biases of informants does not estab-
lish the affiant’s reckless disregard for the truth. See United
* The government asserts that arguments relating to the affiant’s
alleged misrepresentation of Bowers’ credibility have been waived
because they were not raised below. See Government Brief at 44
n.18. However, in their Memorandum in Support of Motion to
Suppress Tangible Evidence and Its Fruits Seized in Search of
ADM Offices, the defense counsel complained of the “bias of
Bowers” who “himself was under investigation.” JA 240-41. Fur-
ther, at the argument on the suppression motion, defense counsel
reiterated this concern.
EE ee
—_
a4l
States v. Wold, 979 F.2d 632, 634 (8th Cir. 1992) (failure to
disclose that informant had been drug dealer, was cooperat-
ing with police in order to receive leniency and was being paid
by police did not amount to misrepresentation); United
States v. Levasseur, 816 F.2d 37, 43-44 (2d Cir. 1987). More-
over, including in the affidavit the fact that Bowers was
himself under investigation would not have defeated probable
cause because Bowers’ information was corroborated by other
informants. According to the district court, “Bowers’ credi-
bility would have been of no moment” to the magistrate since
three other informants had corroborated Bowers’ testimony
with “independent, consistent, interlocking information.”
Warehouse Memorandum at 13; see United States v. Hum-
phreys, 982 F.2d 254, 258-59 (8th Cir. 1992) (defendant “fails
to understand that, while he may believe that the informants
lacked credibility, where the informants’ information is at
least partially corroborated, attacks upon credibility and relia-
bility are not crucial to the finding of probable cause”);
United States v. Coronel, 750 F.2d 1482 (11th Cir. 1985)
(description of informant as “legitimate businessman,” even if
recklessly false, did not defeat probable cause which existed
apart from informant’s status); United States v. Haimowitz,
706 F.2d 1549, 1556 (11th Cir. 1983) (failure to disclose
- informant’s criminal record did not undermine probable cause
where informant’s first-hand information was corroborated by -
other sources); United States v. Dennis, 625 F.2d 782, 791
(8th Cir. 1980).“
“The defendants also argue that the affiant’s failure to disclose
that Bowers had previously given several contradictory statements
to two different government agents also warranted a Franks hear-
ing. However, the district court carefully considered the alleged
discrepancies and found that, by and large, each could be “effort-
lessly harmonized.” Warehouse Memorandum at 10-12. Further,
as indicated above, the district court reasoned that “(elven if [the
magistrate] had rejected Bowers’ statements as coming from a
source unworthy of belief, she would still be left with the sufficient
content in the warrant affidavit to support a finding of probable
cause ‘because the tainted information ... was merely cumulative of
criminal activity.’” Jd at 13 (quoting United States v. Grunsfeld,
enieeienneinieee
a 42
Finally, the defendants charge that the Shintani affidavit
falsely stated that former employee Margo George had
served as an informant because the affidavit of a defense
investigator, William Corboy, reported George as saying that
she had never provided information about ADM to any law
enforcement agency. The district court correctly rejected
this contention as well. A Franks hearing should be justified
by “{a]ffidavits or sworn or otherwise reliable statements of
witnesses ... or their absence satisfactorily explained.”
Franks, 438 U.S. at 171. It is problematical whether a
defense investigator's summary of unsworn statements of an
informant generally fits the description of “otherwise reli-
able.” Here the district court reasonably concluded that
where the “defendants have not made any attempt to explain
the absence of an affidavit from George herself,” an affidavit
from an investigator purporting to describe George’s state-
ments to him was insufficient to warrant a Franks hearing.
Warehouse Memorandum at 20-21. In addition, given the
defendants’ assertion in their motion to suppress that George
was “terminated for incompetence” and that she “bore ill will
toward” ADM, JA 240, it is not surprising that George might
deny to an investigator employed by ADM that she had given
information about ADM to a law enforcement agency. Fur-
ther, the information allegedly provided by George in the
affidavit was so precise, including exact locations of particular
documents at ADM, that in order for the district court to
credit the Corboy declaration, it would have been necessary
for the court to conclude that Agent Shintani had herself
fabricated much of that specific information.”
558 F.2d 1231, 1240 (6th Cir.), cert. denied, 434 U.S. 872 (1977)).
We have no cause to disturb these conclusions.
‘7 The defendants also allege that the agent misrepresented in
her affidavit that informant Charles Roth had knowledge of ADM’s
tax evasion because Corboy reported that Roth told him that he had
no independent knowledge of ADM’s tax evasion. However, Agent
Shintani’s affidavit did not purport to reflect Roth’s independent
knowledge but stated only that Roth knew of the establishment of
dummy corporations for the purpose of evading taxes.
a 43
The Supreme Court has admonished lower courts that
affidavits for search warrants
must be tested and interpreted by magistrates and
courts in a commonsense and realistic fashion. They are
normally drafted by nonlawyers in the midst and haste of
a criminal investigation. Technical requirements of elab-
orate specificity once exacted under common law plead-
ings have no proper place in this area. A grudging or
negative attitude by reviewing courts toward warrants
will tend to discourage police officers from submitting
their evidence to a judicial officer before acting.
United States v. Ventresca, 380 U.S. 102, 108 (1965). Against
this backdrop, it is apparent that the district court correctly
refused to hold a Franks hearing because the defendants
failed to make a substantial preliminary showing that the
government had knowingly, intentionally or recklessly disre-
garded the truth.”
B. Warrant
The Fourth Amendment prohibition against general war-
rants requires the government to provide a particular de-
scription of the items to be seized. See United States v.
Maxwell, 920 F.2d 1028, 1031 (D.C. Cir. 1990). In assessing
particularity, courts “ ‘are concerned with realities of adminis-
tration of criminal justice. It is sufficient if the warrant
“In their supplemental brief, the defendants assert that the
district court may have erroneously subjected them to the higher
burden of actually establishing the affiant’s reckless disregard for
the truth because at one point the court stated that the defendants
had not “shown that the affiant in fact entertained serious doubts as
to the truth of [her affidavit].”. Warehouse Memorandum at 17
(internal quotation omitted) (emphasis added). However, it is abun-
dantly clear to us that the district court, which repeatedly correctly
noted that the defendants were required to make only a substantial
preliminary showing of the affiant’s reckless disregard for the truth,
see Warehouse Memorandum at 5, 7, 8, 21, recognized and applied
the correct legal standard and in the single passage cited by the
defendants was merely substituting the abbreviated “shown” for the
more cumbersome “made a substantial preliminary showing.”
a 44
signed by the judicial officer is particular enough if read with
reasonable effort by the officer executing the warrant.’”
United States v. Vaughn, 830 F.2d 1185, 1186 (D.C. Cir. 1987)
(quoting Moore v. United States, 461 F.2d 1236, 1238 (D.C.
Cir. 1972)). In this case, the defendants urge that the
warrant was not particular enough and therefore that the
district court erred in refusing to suppress the evidence
seized from ADM’s offices.
The search warrant sought “records and documents as
further described in Attachment B.” JA 249. Attachment B
in turn stated that the property to be seized consisted of
documents which “are believed to contain specific information
regarding the false statements and claims made by ADM.”
JA 262. More specifically, Attachment B permitted seizure
of “business records including, but =ot limited to,” various
categories of documents, such as invoices, receipts and corre-
spondence. Each category was divided in the sentence by
semi-colons and at the end of the list, followed by a comma,
was the phrase “and other records which relate to the crimi-
nal scheme outlined in the above affidavit” of Agent Shintani.
Finally, the records to be seized were limited to those that
“relate to the period June 1, 1984 through the present.” The
defendants complain that the warrant was unduly general
because some of the items identified (e.g., “internal docu-
ments, including agenda and minutes of board of directors
meetings”) were too broad, and because the permission to
seize records “including, but not limited to” those listed
exposed any and all documents to seizure.
The district court found that the warrant was not overly
broad because first, the warrant identified specific and limited
categories of records to be seized, and second, the warrant
limited the search to documents associated with the allega-
tions made in the Shintani affidavit. Warehouse Memoran-
dum at 24-25. We cannot agree with the district court’s first
ground for upholding the search. The warrant’s explicit
authorization to the agents to seize “business records includ-
ing, but not limited to” those specifically identified subjected
essentially all of ADM’s records dated after June 1, 1984 to
seizure and therefore the warrant, by itself, was not suffi-
a 45
ciently particular. See Center Art Galleries-Hawaii, Inc. v.
United States, 875 F.2d 747, 749-50 (9th Cir. 1989); Rickert
v. Sweeney, 813 F.2d 907, 908-09 (8th Cir. 1987). However,
we concur in the district court’s view that incorporation of
Agent Shintani’s affidavit into the warrant provided a suffi-
cient limi
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.