Petition for a Writ of Certiorari — Mitchell v. United States

supreme Court of the United States

OCTOBER TERM, 1953.

DAVID H. MITCHELL, PETITIONER,

VS.

UNITED STATES OF AMERICA.

PETITION FOR A WRIT OF CERTIORARI TO THE

„

INDEX

5 Opinions Below

, Jurisdiction

Questions Presented

Statement

(1) Relative to Failure of Net Worth Proof ee

(2) Relative to Use of Petitioner’s Financial State-

ments 6

(3) Relative to Petitioner’s Tax Payments Before

Indictment Period .

(4) Relative to Improper Argument and Instructions 9

Specifications of Error 11

Reasons for Granting the Writ 11

(1) Conflict of Decisions and Constitutional Ques-

tion Respecting Burden of Producing Evidence

in Net Worth Prosecutions 11

(2) Erroneous Admission into Evidence and Instruc-

tion upon Petitioner’s Financial Statements 16

(3) Erroneous Admission into Evidence of Peti-

tioner’s Prior Tax Payments 19

(4) Erroneous Application of Harmless Error Rule_ 21

(5) Conflict of Decisions and Erroneous Applica-

tion of Plain Error Rule

(6) Erroneous Instructions and Argument

Conclusion

oa FPN N WN

8 8 K

1 INDEX

CrraTIONS

Cases

Barnes vs. U. S., (C. A. 8) 8 F. 2d 832, 834 28

Bell vs. U. S., (C. A. 4) 185 F. 2d 302 14

Bihn vs. U. S., 328 U. S. 633 8 21, 22

Bollenbach vs. U. S., 326 U. S. 607 21, 22, 23

Boyer vs. U. S., (C. A. D. C.) 132 F. 2d 1

Brown vs. Allen, 344 U. S. 443, 460 22

Bryan vs. U. S., (C. A. 5) 175 F. 2d 223, 227 12-13

Clawson vs. U. S., (C. A. 9) 198 F. 2d 792, 794 12

Cock vs. U. S., (C. A. 8) 14 F. 2d 833 27

De Mayo vs. U. S., (C. A. 8) 32 F. 2d 472, 475 28

Demetree vs. U. S., (C. A. 5) 207 F. 2d 892, 893-4 — 13

Echert vs. U. S., (C. A. 8) 188 F. 2d 336, 341 24

Eiseman vs. Penn. R. Co., (C. A. 3) 151 F. 2d 222 28

Eisner vs. Macomber, 252 U. S. 189, 214, 215 17

Finnegan vs. U. S., (C. A. 8) 204 F. 2d 1d —T 24

Hanson vs. U. S., (C. A. 8) 186 F. 2d 61 20

Kotteakos vs. U. S., 328 U. S. 750, 76516, 21, 22

Krulewitch vs. U. S., 336 U. S. 440, 456-8 14

Leeby vs. U. S., (C. A. 8) 192 F. 2d 331 20, 21, 24

Lurding vs. U. S., (C. A. 6) 179 F. 2d 419, 421 29

McNutt vs. U. S., (C. A. 8) 267 Fed. 670, 673 — 27

23

14

Meeks vs. U. S., (C. A. 9) 163 F. 2d 598, 602

Morissette vs. U. S., 342 U. S. 246, 275

Myers vs. U. S., (C. A. 8) 174 F. 2d 329, 339 24

Quercia vs. U. S., 289 U. S. 466 27

Remmer vs. U. S., (C. A. 9) 205 F. 2d 277, 287, 346

U. S. 884 11, 12, 16

Schuermann vs. U. S., (C. A. 8) 174 F. 2d 397, 399 _14, 15, 20

Shelton vs. U. S., (C. A. D. C.) 165 F. 2d 241, 244-5 — 16

State vs. Davies, 101 Ohio St. 487, 129 N. E. 590 —— 28

Strickland vs. U. S., (C. A. 5) 155 F. 2d 167 16

Terminiello vs. City of Chicago, 387 U. S. 1,5 16

INDEX Hl

Tot vs. U. S., 319 U. S. 463, 469 13, 15, 16

U. P. R. Co. vs. Burnham Co., (C. A. 10) 124 F. 2d

500, 502 : 28

U. S. vs. Antonelli Fireworks Co., (C. A. 2) 155 F. 2d

631, 650 23

U. S. vs. Caserta, (C. A. 3) 199 F. 2d 908, 907 1

U. S. vs. Fenwick, (C. A. 7) 177 F. 2d 488, 490 13

U. S. vs. Kelinson, (C. A. 2) 205 F. 2d 600, 601 18

U. S. vs. Norton, (C. A. 2) 179 F. 2d 527 16

U. S. vs. Renee Ice Cream Co., (C. A. 3) 160 F. 2d 353 16

U. S. vs. Rubenstein, (C. A. 2) 151 F. 2d 915, 9212 — 23

13

22

13

26

28

U. S. vs. Smith, (C. A. 3) 206 F. 2d 905, 911

U. S. vs. Wicoff, (C. A. 7) 187 F. 2d 886, 811

U. S. vs. Williams, (C. A. 3) 208 F. 2d 437, 433

Viereck vs. U. S., 318 U. S. 236, 248

Wilson vs. U. S., 149 U. S. 60

Wolcher vs. U. S., (C. A. 9) 200 F. 2d 493, 497 — aC

Books and Articles

42 Harvard Law Review 422, 425 28

Schwerdtfeger, “Federal Prosecution of Income Tax

Cases,” 40 Ky. L. J. 400, 404, n. 10 17

2 Shepard’s Federal Reporter Citations, 2128; Supple-

ment, January, 1954, 347

2 Thompson on Trials, Sec. 2417, pp. 1763-4

2 Wigmore on Evidence (3d Ea.), Sec. 664, pp. 781-2__

Statutes

18 U. S. C., Federal Rules of Criminal Procedure, Rule

52 (a) 3, 21, 24, 28, 26

18 U. S. C., Federal Rules of Criminal Procedure, Rule

52 (b) — 8, 24, 25, 26

26 U. S. C., Sec. 145 (b) 4

& N

23 U. S. C., Sec. 1254 2

No.

IN THE

supreme Court of the United States

OCTOBER TERM, 1953.

DAVID H. MITCHELL, PETITIONER,

VS.

UNITED STATES OF AMERICA.

_ PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE EIGHTH CIRCUIT.

To THE HonoraBLe, THE CHIEF JUSTICE AND THE ASSOCIATE

JUSTICES or THE Surah Court or THe Unrrep STATES:

Petitioner David H. Mitchell, by his counsel, prays

that a writ of certiorari issue to review the judgment of

the United States Court of Appeals for the Eighth Circuit,

_ affirming the judgment of the United States District Court

_ for the Western District of Missouri. :

OPINIONS BELOW.

The District Court wrote no opinion. The opinion of

the Court of Appeals (R. 122) is reported in 208 F. 2d

854.

JURISDICTION.

The judgment of the Court ot Appeals was entered

January 6, 1954 (R. 129). An order denying a petition

for rehearing was entered February 8, 1954 (R. 143). An

order staying mandate was entered February 18, 1954 (R.

143). The jurisdiction of this Court is invoked under 28

U. S. C., Sec. 1254.

QUESTIONS PRESENTED.

(1) Is trial court authorized in income tax prosecu-

tion, under Federal criminal law and constitutional guar-

antees of Due Process, to permit an inference of unreported

income to arise from Government’s evidence of increase in

taxpayer's assets in excess of his reported income?

(2) Does Government fail to make a Net Worth

criminal case of unreported income when it offers no testi-

mony relative to taxpayer’s receipts from gifts or inherit-

ances during tax period involved, and offers evidence as

to loans only from banks in which taxpayer kept deposits;

or does the defendant have the burden of

(3) in income tax prosecution by Net Worth method,

is taxpayer's net worth, taken from his financial statements

and based on inarket values $150,000 in excess of 7 :

3

missible to corroborate Government’s closing Net Worth

Statement, based on cost?

(4) Are the trial court’s instructions correct when

it computes taxpayer’s income By comparing beginning

net worth, based on cost, with ending net worth, based

on market values $150,000 in excess of cost, and states that

said purported income is evidence of willful tax evasion?

(5) Are income tax payments for twelve years prior

to indictment period admissible to construct beginning net

worth or for any other purpose, when Government agent

testifies they have no bearing on such net worth, and

when they create suspicion of tax evasion long prior to in-

dictment period?

(6) Does Court of Appeals properly construe Rule

52(b) of Rules of Criminal Procedure when it establishes

local rule of decision that failure of proof and errors in

argument and instructions cannot be considered unless

brought to the attention of the trial court; and, if so, what

is the purpose and effect of Rule 52(b)?

(7) Does Court of Appeals properly construe Rule

52(a) of Rules of Criminal Procedure, and the controlling

decisions of this Court, when it establishes local rule of

decision that conviction will not be reversed for errors at

trial if Court of Appeals believes guilt was established N

by “abundant competent proof”?

iat AS Must record of trial convince appellate court

that there was a miscarriage of justice and that defendant

oS is innocent before it will reverse a conviction?

ee Should conviction be reversed, despite defend-

ant's failure to object at trial, when Government's closing

Pe aes

end erroneous statement that trial court had ruled that

4

evidence, favorable to defendant, was “not the facts and

the truth”; and when trial court instructs that testimony

that disputed payments were not made is legally “negative

testimony” which is “weak testimony” as compared with

positive testimony of payment, and refuses to give defend-

ant’s requested instruction that negligence of third persons

is a defense to criminal charge of income tax evasion?

STATEMENT.

Petitioner was convicted in the United States District

Court for the Western District of Missouri on the first

four counts (1945-1948), and acquitted as to the last two

counts (1949-1950), of an indictment charging violations

of Section 145 (b) of the Internal Revenue Code, 26 U.S. C.,

in which it was alleged that petitioner knowingly filed

false and fraudulent income tax returns for the calendar

years 1945 through 1950 (R. 1:4, 79-80, 86). He was sen-

tenced to total imprisonment of four years, and fined in

the sum of $20,000 (R. 80-82); and upon appeal the judg-

ment was affirmed by the Court of Appeals for the Eighth

Circuit (R. 129). Rehearing was denied February 8, 1954

(R. 143).

Prosecution was based on two distinct theories: First

the Net Worth method of establishing income in excess

that reported in the tax returns; and Second proof of

ific items of alleged income not reported (R. 5). The

Government’s Net Worth conclusions appear in its Net

Worth Statement (R. 9), which shows reported income

during the four years for which petitioner was convicted

averaging $32,000 per year, and, the Government contends,

unreported income in almost the same amount. The spe-

cific omissions claimed by the Government average about of

$8,000 per year (R. 23-5, R. 124).

and reported in-

come, based on 10% of such receipts (R. 22-5). Receipt of

the alleged $50 payments was sharply contested (R. 16-

21, 41-47); proof of the alleged 20% receipts in 1947 was,

at best, in balance (R. 105-6, 115-6, 51); and the omitted

rentals in 1945 were admitted and explained (R. 44).

(1) Relative to Failure of Net Worth Proof.

The Government’s Net Worth case as to 1949 and 1950

Was met, and defendant was

proof of errors in

tioner’s tax ret

by it, omitted all proof

inheritances during said period

offered testimony of loans only from banks in

which petitioner kept deposits and no proof as to loans

from other sources (R. 15-16, 96, 102), and the Revenue

Agents confessed complete inability to explain or identify

the increases shown on Government’s Net Worth State.

(2) Relative to Use of Petitioner’s Financial

Statements.

In offering the Government’s Net Worth proof, the

Revenue Agent testified repeatedly that all assets listed

in the Net Worth Statement were valued at cost, and that

it would be a mistake to use market values in making such

a computation (R. 8, 11, 26). In alleged corroboration of

said proof, however, the Government was permitted to

offer in evidence, over vigorous objection, figures as to

petitioner’s net worth in March, 1949, and February and

October, 1950, as listed by him in financial statements

given to a bank in order to obtain loans, despite testimony

that such statements are made upon present market value

rather than cost, and despite the direction on the face of

said statements that real estate be listed “at actual mar-

ket value.” (R. 29-41, 11-14). Analysis of individual prop-

erties listed in the October, 1950, financial statement

(R. 37, 38), as compared with the Government’s Net Worth

Statement for December 31, 1950 (R. 9), discloses that the

former contains market values in excess of cost valuations

in an amount exceeding $150,000. This appears as follows:

Oil and Gas Wells $ 75,000.00 — 3 23,699.77

1801 Holmes 18,000.00 18,531.75

1109 Broadway (1111 Broadway) 12,000.00 — 3,650.00

1117 Broadway 15,000.00 — 10,431.70

1114-16 Wyandotte 75,000.00 43,692.25

1217 Wyandotte 60,000.00* 63,225.53

1513 Main (1523 Main) 7,500.00* — 6,500.00

711 West 12th St. 8,500.00 9,272.90

3732 Main 50,000.00 — 29,515.43

1617 Genessee 12,000. 0 0 5,596.69

3501-09 Troost (Jewell Bidg.—R. 15) 62,557.35** — 59,661.35

3114 Karnes 9,200.00** — 3,446.71

405 East Armour (Richelieu Apt.—

R. 15) 70,540.53** — 46,412.91

Total $475,297.88 $323,636.99

*Listed by appellant at “cost”

Net value, after deducting mortgage to conform with Govern-

ment values based on net equities (R. 15),

The trial judge instructed the jury that petitioner’s

income could his 1945 begin-

ning net worth (based on cost) with his 195) ending net

worth as contained in said market-value financial state-

ments, and proceeded to compute said purported income

as being approximately $60,000 a year

leged income, based on unrealized

judge compared with appellant’s

ing less than $40,

no controversy about

and that said comparison pro-

vides a (basis to determine whether * * there was eva-

sion, an attempt * * * wilfully made, to defeat and evade a

portion of his tax” (R. 70-72).

(3) Relative to Petitioner's Tax Payments Before

Indictment Period.

Over objection, the trial court admitted in evidence a

record of petitioner’s income tax payments from 1933

through 1950, the payments before 1945 being admitted on

the theory that they were used to construct the beginning

net worth (R. 6). In ruling on the objection, the judge

volunteered that, “the jury will be instructed, of course,

to disregard it save only as it may relate to the net worth

statement in the beginning of the period” (R. 7). The

Revenue Agent subsequently testified that taxes paid prior

to 1945 would have no bearing upon the Government's Net

Worth Statement (R. 25).

The prior tax evidence was that petitioner had paid no

income taxes prior to 1940; that taxes were paid for 1940

in the amount of $57.59; for 1941, in the amount of $429.02;

and that two, three, and four thousand dollars were paid

for 1942, 1943, and 1944, respectively (R. 6-7). After said

testimony, the Government’s next witness testified that

prior to 1942 the petitioner had acquired the following

properties: 1941 Packard automobile, costing $1,300 (R.

11); 1941 Willys automobile, costing $600 (R. 11); Holly-

wood Buffet, for which he paid $2,000 in 1939 (R. 14-15);

real estate at 3708 Flora, for which he paid $1,000 in 1940

(R. 15); Buckhorn Bar, for which he paid $4,000 during

“the thirties” (R. 14); real estate at 15th and Belmont,

for which he paid $4,100 in 1927 (R. 15); residence at

3114 Karnes, purchased for $4,500 in 1941, partly by loan

and mortgage (R. 15); and Richelieu Apartments, pur-

chaser for $71,525.26 in 1941, partly by loan and mort-

gage (R. 18). e

9

(4) Relative to Improper Argument and Instructions.

witnesses Ruby McIntosh and John David McIntosh, tavern

operators (R. 16, 18), Mrs. McIntosh testified that she

paid $50 only intermittently, and the Government was

“minimum rent” (R. 18, 20); and further stated that they

did not report any $50 payments as deductions on their

tax returns (R. 18, 20). Petitioner did not testify at the

ee “There was evidence on the part of the lessees

dat the $50.00 per month (sic) was paid * * *, There

10

was evidence on the part of some of the witnesses that

they did not observe it was paid. That kind of tes-

timony is what the courts would call negative testi-

mony, and it is testimony that is not strong. It was

weak testimony as compared with the positive testi-

mony of witnesses who said the $50.00 per month (sic)

was paid” (R. 73).

Relative to appellant’s failure to testify, there was the

following comment in Government's closing arguments:

“Not one single solitary witness denied it (the al-

leged $50 payments which petitioner’s wife denied

were paid in her presence)” (R. 61).

“I felt sorry for Mrs. Mitchell when she was on

the stand the other day * * * here is a lawsuit where

a man tries to save his own bacon by hiding behind

the skirts of his own dear, little wife” (R. 62).

In commenting on testimony by petitioner’s wife that

she had negligently omitted to include certain rents in the

tax returns (R. 44), and testimony as to mistakes of book-

keepers and accountants (R. 47-55), the Government’s

closing argument stated:

“They can't * come into court and say * * *

‘The bookkeeper came in and put it on. My wife came

in and put it on. It is her fault not mine. You can’t

escape in that way. If you could there would be no

man ever prosecuted for tax evasion” (R. 65).

The Court refused (R. 65) petitioner’s request for an

instruction to correct the above-stated erroneous rule—

that negligence of third persons would be no defense to a

tax evasion prosecution—and instructed the jury gen-

erally (R. 70) on the issue of willfulness, without refer-

ring to the specific situation where, as here, the books,

(R. 44, 43, 46, 48-51). f :

11

SPECIFICATIONS OF ERROR.

The Court of Appeals erred:

(1) In sanctioning submission to jury of Govern-

ment’s Net Worth case.

(2) In sanctioning admission into evidence of peti-

tioner's financial statements, and instructions thereon.

(3) In sanctioning admission into evidence of record

of petitioner's income tax payments for twelve years prior

(5) In disregarding errors at trial, on theory com-

petent proof was sufficient to sustain conviction,

(6) In sustaining conviction despite errors in in-

structions and argument.

(7) In affirming the judgment of the trial court.

.

>

54

12

the period in question with a statement similarly prepared

for the beginning of said period, and treating the net

worth increase, so computed, as income. In the Remmer

case, as stated by the Court of Appeals, the Government

failed to prove the amount of cash in a safe deposit box

t the beginning of the period, and thereby failed to ex-

ude prior accumulated assets as a non-income source of

the apparent net worth increase. 205 F. 2d 277, 287. In

the instant case, there was no evidence offered relative to

gifts ces

tax Ge t failed to exclude

those sources oc non-income iIncrene 5, Wit! Would ac-

count for the indicated net worth increas kewise, bor-

Owed money as a source Woe nor exc) Med. as the Wern-

2

In this case, as in the Rémmer case, petitioner con-

tends that the Government must prove unreported income

by excluding non-income items, such as prior accumula-

tions, gifts, inheritances, loans, etc. It is likewise neces-

sary to exclude market valuations and to use cost values

in making calculations, so as to exclude unrealized market

value increases in computing the net worth increase which

is considered to be income. See Point Two, infra. Many

authorities rule that the Government cannot make a show-

ing of increase in assets, and then throw upon a taxpayer

in a criminal prosecution the burden of producing evidence

that the increases are not income.

“* * * The prosecution has the burden of estab-

lishing any money received as being true income.”

Clawson v. U. S., (C. A. 9) 198 F. 2d 792, 794.

“* * * the case should not have been auhbenitted

to the jury since it did not exclude the hypothesis that a

“In using this net worth test to determine dis-

ayer’s return of

U.S. v. Caserta, (C. A. 3) 199 F. 2d 905, 907.

Demetree v. U. S., (C. A. 5) 207 F. 2d 892, 893-4.

U. S. v. Fenwick, (C. A. 7) 177 F. 2d 488.

U. S. v. Smith, (C. A. 3) 206 F. 2d 905, 911.

. culat on the

withdrawn from

——

?

mption of nnocence ids ne. ir 7

matter and thus req the issue to be

the Jury. Bryan v. U. S., supra; U. & v. F.

Kaskins the burden on a defendant to disprove the same, is

14

even more patently intolerable. Krulewitch v. U. S., 336

U. S. 440, 456-8; Morissette v. U. S., 342 U. S. 246, 275.

In Net Worth prosecutions, there exists a contrary line

of authority, recently criticized by Chief Judge Hutcheson

when he stated that some courts have been “more con-

cerned with easing the difficulties attending the proof of

guilt by (the Net Worth) method than with preserving un-

impaired the constitutional rights of a defendant * * *”

Demetree v. U. S., supra, 894. While that opinion refrains

from citing criticized decisions of other courts, the adverse

comment clearly applies to the controlling decision in the

Eighth Circuit, where the Court permitted the jury to

convict a taxpayer although stating, “The evidence of the

government does not exclude the possibility that the de-

fendant had some substantial accumulation of capital (at

the beginning of the tax period, or that he acquired dur-

ing the period) a large amount of capital out of which he

made the loans, investments and expenditures which the

government contends reflect income.” Schuermann v. U.

S., (C. A. 8) 174 F. 2d 397, 399. In other words, no proof

was made that the increases were income. While the

Court attempted to rationalize the decision by stating the

untenable proposition that proof of increased assets “will |

justify a conclusion that a taxpayer had income which he ©

deliberately failed to include in his return,” the burden 5

of the Court's remarks shows that the inference is pri-

marily a rule of convenience to aid the prosecution. I. e. sg

399. The most extensively-considered authority contrary

to the Bryan-Fenwick decisions, supra, is Bell v. U. S., (C.

A. 4) 185 F. 2d 302; but even in that case there was proof,

contrary to the situation here, that the defendant had not

received gifts or inheritances during the tax period. I. e.

307. : sigs

,

The Court may note that, while this question was

presented to the Court of Appeals (R. 119), that Court held

it was disabled from considering the same because it had

not been presented to the trial court (R. 127). This was

proper relief, being bound by the decision of the Court of

Appeals in the Schuermann case, supra. It would have been

worse than useless to request relief at the trial level, since

‘Petitioner would have been urging the trial judge to commit

error, under the rule presently controlling him. Moreover,

‘At is settled that a failure of proof should be corrected by

16

there can be no plainer or more substantial error than a

failure of proof. U. S. v. Norton, (C. A. 2) 179 F. 2d 527; U.

S. v. Renee Ice Cream Co., (C. A. 3) 160 F. 2d 353; Strick-

land v. U. S., (C. A. 5) 155 F. 2d 167. See Point Five, infra.

The case was submitted to the jury on two theories, one of

which was not made: and the judgment must be reversed,

because on such a record the Court cannot know but what

petitioner’s conviction rested on the case not made. Termi-

niello v. City of Chicago, 337 U. S. 1, 5; Shelton v. U. S.,

(C. A. P. C.) 165 F. 2d 241, 244-5; see Kotteakos v. L. S.,

328 U. S. 750, 765; Point Four, infra. This raust be par-

ticularly true where, as here, the failure of proof affected

the principal theory. As noted in the Statement, page 4,

the alternative (specific omissions) theory involved rela-

tively small amounts of money.

Having granted certiorari in the Remmer case, supra,

where a similar question exists, and with the plain failure

of proof in the instant case how before the Court, peti-

tioner respectfully submits that the time is ripe for a

solution to the conflict between the appellate courts on

the burden of proof in Net Worth prosecutions, wherein _

conviction now depends upon the accident of residence; ‘

and further submits that the principles of the Tot case,

supra, be applied to all criminal cases, without special ad-

vantages being granted to the prosecution of income taRx

charges. i

(2) Erroneous Admission into Evidence ang Instructien~., 8

Petitioner presents herewith a strikingly erroneous

misuse of purported evidence, preventing a fair trial, and

method. As previously noted, Net Worth calculations of

income require that the Net Worth statements so tised be

17

Net Worth prosecutions. Schwerdtfeger, “Federal Prosecu-

tions of Income Tax Cases,” 40 Ky. L. J. 400, 404, n. 10.

“Enrichment through increase in value of capital invest-

ments is not income in any proper meaning of the term.”

Eisner v. Macomber, 252 U. S. 189, 214-15.

Notwithstanding the settled basic requirement of val

{tion at cost in a prosecution of this charscter, the Geren.

ment supported its Net Worth theory with evidence which

directly conflicted with the cost premise, and the trial judge

departed therefrom by attempting to calculate petitioner’s

income by comparing Government's beginning’ net

any manner transferred—and into convicting peti

for failing to report as income such increases which

not income.

values over cost, as contained in petitioner’s financial state-

ment of October, 1950, two months before the end of the

six year period involved in this trial. The same tabulation

was presented below (R. 121) and is unchallenged; but

the opinion of the Court of Appeals erroneously stated,

(R. 126). Likewise, although petitioner twice ob-

‘to comparison of a Government's cost-value Net

18

Worth Statement with petitioner’s financial statements,

based on market values, the trial judge overruled the ob-

jections, and calculated purported income by means of such

erroneous comparison (R. 12-14, 30, 72). The objections

made to the evidence fully preserved petitioner’s right to

challenge the instructions. U. S. v. Kelinson, (C. A. 2) 205

F. 2d 600, 601. Only this Court can prevent petitioner’s

viction, arrived at by the flagrantly erroneous method

treating $150,000 in market value increases as unreported

income.

The error here complained of was expressly conveyed

to the jury in the trial judge’s instruction, wherein he de-

ducted the (cost).net. worth at the beginning of the period

from the (market value) net worth at the end of the

period, computed petitioner’s income as being approxi-

mately $60,000 a year (R. 72), compared same with peti-

tioner’s reported income averaging some $35,000 a year

(R. 71-72), emphasized that these calculations were based

on petitioner’s own financial statements concerning which

“there is no controversy,” and specifically urged the jury

to consider said facts on the question of willful evasion (R.

72). It should be further noted that the $150,000 increase

in market values over cost, ascertainable from said financial

statements, fully explains the unreported increase of $25,000

a year, as computed above, and marks the difference be-

tween evidence supporting the Government’s case and evi-

dence supporting petitioner. See further calculation in

petition for rehearing (R. 133).

The highly prejudicial error herein discussed cannot

be passed over with the slighting comment that the same

“could not be prejudicial” (R. 126) because there was suf-

ficient proof, other than that here challenged, to present a

question for the jury. Point Four, infra. Judgment 0

be reversed, to preserve petitioner’s right to a fair trial, and

19

to prevent further misuse of market value financial state-

ments in Net Worth computations of income.

1 Erroneous Admission into Evidence of Petitioner's

Petitioner presents herewith erroneously-admitted evi-

dence creating improper suspicion of tax evasion in years

long prior to the period for which petitioner was indicted,

preventing a fair trial, and likely to recur in prosecutions

of this nature. Over objection, testimony was admitted in -

evidence that petitioner paid io income taxes for the years

1933-1939, that he paid only $57.59 for 1940 and $429.02 for

1941, and that he paid more substantial taxes, amounting

ta two, three and four thousand dollars for 1942, 1943, and

1944, respectively (R. 6-7). Immediately after this testi-

mony, there was testimony that prior to 1942 petitioner

had acquired two automobiles, including a Packard; two

taverns, costing $6,000; miscellaneous real estate costing

$9,600; and a $70,000 apartment building, purchased in

May, 1941, partly by loan and mortgage (R. 11, 14, 15).

No comment need be made to establish the prejudicial

nature in an income tax prosecution of such evidence, show-

ing large acquisitions of property by a defendant who paid

little or no taxes. The legal impropriety of such prejudicial

matter relating to years long prior to the indictment period

is well settled. Wolcher v. U. S., (C. A. 9) 200 F. 2d 493,

497; Boyer v. U. S., (C. A. D. C.) 132 F. 2d 12, 13.

The Government's purported justification for offering

said prior tax payments in evidence was that they could

be used to construct the beginning net worth (R. 6). Sub-

sequently, the Government's Revenue Agent disavowed

and disapproved the above justification, when he testified

__ that taxes paid prior to 1945 would have no bearing upon

the Government’s Net Worth Statement (R. 25). On the

7

20

present record, no justification has been offered, nor can

be offered, for the admission of this highly prejudicial

matter.

In reviewing this objection (R. 127), the Court of

Appeals demonstrated the recurring nature of this type

of alleged proof in Net Worth prosecutions, by relying on

three recent decisions in the Eighth Circuit, alone. Leeby

v. U. S., 192 F. 2d 331; Hanson v. U. S., 186 F. 2d 61; Schuer-

mann v. U. S., 174 F. 2d 397. Petitioner does not argue

with the holding in the Hanson case, supra, where defend

ant's failure to pay taxes in prior years was admitted in

rebuttal to his contention that he had accumulated ex-

tensive assets prior to the tax period involved. I. c. 66. In

the instant case, the occasion for such rebuttal never arose,

case, supra, is not in point, because we was no prejudice

from the introduction of the prior tax returns, there being

no testimony of accumulated assets during said period. I. e.

399. In Leeby v. U. S., supra, the evidence of nontaxable

returns (I. e. 333) was admissible to rebut the disputed

evidence by defendant that he had accumulated substan-

tial assets during said years (I. c. 332); and petitioner need

not argue with the result of that case. The Court there

stated in dictum that the prior returns would have some

bearing on defendant’s intent (I. c. 334), but this dictum

is inconsistent with the trial court’s instructions in that

case which were favorably quoted, to the effect that the

defendant’s prior returns are presumed to be in compliance

with the law, and that there is no charge of evasion dur-

ing said years. I. c. 333. The question of fraudulent intent

cannot sustain the introduction of such evidence in the

instant case, since there is a break of four years between

the last year for which returns are suspiciously ‘small and

21

the first year of the indictment. This break is too long to

support use of said evidence on the question of intent,

even assuming that prior returns are sometimes admissible

on said theory. Wolcher v. U. S., supra, Boyer v. U. S.,

supra.

One statement in the Leeby case, supra, should be

considered. That is the statement, quoted in the present

opinion (R. 127), that, “In estimating defendant’s income

* * * on the net worth basis, the witness considered the

question of his income or want of income prior to 1944 and

we think the testimony was admissible for that pur-

pose * .“ J. e. 333. This vague statement finds no sup-

port in the Court’s reasoning, and appears to be a conclu-

Lion on a question of accounting, induced by the opinion

E the Government’s expert witness,” or by counsel’s |

interpretation thereof. In the present case, this erroneous

statement is clearly answered by the Government’s wit- ~

ness who testified that the prior tax payments: had no

bearing on beginning net worth (R. 25). The Court’s

erroneous statement in the Leeby case, supra, should be

corrected on the basis of the present record, so that the

Government will not have a meaningless pretext for intro-

ducing prejudicial evidence into all Net Worth prosecu-

tions. For this reason, judgment should be reversed.

(4) Erroneous Application of Harmless Error Rule.

Rule 52(a), Federal Rules of Criminal Procedure, 18

U. S. C. (1946), provides that, Any error, defect, irregu-

larity or variance which does not affect substantial rights

shall be disregarded.” The leading authorities interpret-

ing and applying this “harmless error” rule likewise date

from 1946. Bollenbach v. U. S., 326 U. S. 607; Bihn v. U. S.,

328 U. S. 633; Kotteakos v. U. S., 328 U. S. 750. This Court

recently stated the harmless error rule in the following

22

cautious language: “Where it is made to appear affirma-

tively * * * that the alleged error could not affect the re-

sult, such errors may be disregarded even in the review

of criminal trials.” Brown v. Allen, 344 U. S. 443, 460.

The Court of Appeals for the Eighth Circuit, however, has

made sweeping use of the harmless error rule in the in-

stant case, in violation of the above authorities, and of

petitioner’s right to a fair, substantially unprejudiced

trial.

The most that can be said for the Government’s side

of this case is that “the scales were quite evenly bal-

anced”; certainly fair analysis would not reveal an “open

and shut” case. Bihn v. U. S., supra, 638. See Statement,

pages 4-6 herein. The acquittal as to two years (R. 80) in-

dicates the jury was in some doubt. U. S. v. Wicoff, (C. A.

7) 187 F. 2d 886, 891. Since petitioner is not relying on

mere formalities or technicalities, the burden of estab-

lishing an overwhelming case such as would override the

errors is upon the Government. Kotteakos, supra, 760.

This Court has clearly advised the courts of appeal that the

Government cannot escape reversals for substantial errors

by claiming that there was proof, apart from the errors,

which would support a conviction. Bollenbach, supra,

614; Kotteakos, supra, 765. “Nor is it enough for us to

conclude that guilt may be deduced from the whole record.

Such a course would lead to serious intrusions on the his-

toric functions of the jury under our system of govern-

ment.” Bihn v. U. S., supra, 638-9. “From presuming too

often all errors to be ‘prejudicial,’ the judicial pendulum

need not swing to presuming all errors to be ‘harmless’ if

only the appellate court is left without doubt that one who

claims its corrective process is, after all, guilty * * * it is

not to be supposed that Congress intended to substitute —

the belief of appellate judges in the guilt df an accused,

however justifiably engendered by the dead record, for

: ascertainment of guilt by a jury under appropriate judicial

guidance, however cumbersome that process may be.”

Bollenbach v. U. S., supra, 615. See Meeks v. L. S., (C. A.

9) 163 F. 2d 598, 602.

. Despite the above guiding rules, the Court of Appeals

departed completely from said standards in ruling that the

improper admission and use of appellant's financial state-

ments (Point Two, supra) “could not be prejudicial” be-

cause “there was abundant competent proof aside from

these questioned exhibits” to support the conviction (R.

126). In addition, the Court confused the bare minimum

of evidence sufficient to prevent a directed verdict with

stein, 151 F. 2d 915, 921-2, and U. S. v. Antonelli Fireworks

Co., 155 F. 2d 631, 650, was forgotten by the Court when

it seized upon petitioner’s quite proper failure under the

circumstances to move for a directed verdict as an element

in finding the errors at trial to be harmless (R. 126-7).

The errors complained of, and their substantiality, are

discussed at length under petitioner’s Points One, Two,

| Three, and Six, and will not be repeated under this topic.

Petitioner concludes that the errors are substantial, preju-

dicial, and destructive of his right to a fair trial, that the

harmless error rule cannot properly give appellate courts

pause in reversing this conviction, and that the clear mis-

construction of Rule 52(a) by the Court below should be

corrected by this Court.

24

(5) Conflict of Decisions and Erroneous Application

of Plain Error Rule.

Rule 52(b), Federal Rules of Criminal Procedure, 18

U. S. C. (1946), provides that, Plain errors or defects af-

fecting substantial rights may be noticed although they

were not brought to the attention of the Court.” Despite

this controlling rule of procedure, the Court of Appeals

for the Eighth Circuit has ruled that it cannot consider

the sufficiency of the evidence to sustain the conviction

unless raised below (R. 127); and, likewise, that errone-

ous instructions and arguments to the jury will not be con-

sidered unless “objections were made or exceptions saved”

in the trial court (R. 128). These rulings are now the set-

tled law of said Circuit under recently decided cases:

Leeby v. U. S., supra; Finnegan v. U. S., 204 F. 2d 108;

Myres v. U. S., 174 F. 2d 329, 339.

Except for incidental quotation in a case involving

Rule 52(a) (Echert v. U. S., 188 F. 2d 336, 341), Rule 82 (b),

permitting plain error to be noticed and corrected, | |

not raised below, ‘has not even been honored by citation

by the Court of Appeals for the Eighth Circuit. 2 Shepard's

Federal Reporter Citation 2128; Supplement, January,

1954, 347, tabulating citations of Rule 52(b) by this Court

and the other Federal Courts, reveals that since its adop-

tion in 1946, the Rule has been cited in fifty decisions.

This Court and all courts of appeal except those for the

Fourth, Sixth, and Eighth Circuits, have applied the Rule.

It is apparent that, if the Rule gives appellate courts a

measure of discretion, the courts of appeal have been using

widely varying standards of discretion, and that the latter

courts (C. A. 4, C. A. 6 and C. A. 8) have been applying

standards which effectively abolish the Rule. Petitioner

Urges this Court to use this case as an appropriate method

in his petition for rehearing, petitioner cited decisions

to join harmoniously with this Court and the other eight

circuits,

In the instant case, the Court of Appeals for the Eighth

Circuit gave its initial express consideration to Rule 52(b);

and adopted a limitation from the Fourth Circuit (which

has never cited the Rule) which effectively destroys the

“We exercise the power to notice plain error not assigned

(eie) only where necessary to prevent a miscarriage of

justice * * (R. 129). In paraphrasing Rule 52(b),

said Court likewise added the qualification that the error,

to be considered though not presented to the trial court,

must be “plain error affecting substantial rights and re-

sulting in a miscarriage of justice” (R. 129), the words

italicized by us not being contained in the Rule. Thus,

unless convinced of an appellant’s innocence—an unusual

situation, surely, after indictment, trial and conviction by

a jury—the Court of Appeals for the Eighth Circuit will

refuse to consider the error. The area of discretion is

thereby severely limited in a manner which mocks the Rule.

lied upon, and in refusing to consider the nature of said

errors, the Eighth Circuit failed to note that the only issue

under Rule 52(b)—distinguishing it from Rule 52(a)—is

“plain” errors; i. e., whether such errors are clear, or too

obscure for the trial court to understand and recognize,

without being told. Rule 52 (a), (b), 18 U. S. C. Where

the error is plain,“ the trial court's responsibilities for

fair conduct of the trial do not cease merely because

objection is heard. The situation is not uncommon when

“the trial judge should have stopped counsel’s discourse

without waiting for an objection.” Viereck v. U. S., 318

U. S. 236, 248.

The issue under Rule 52(b) is whether the errors com-

plained of are “plain”; this requires consideration of the

nature of the specific errors urged upon the appellate court.

In direct opposition to the practice indicated by the Rule,

the Court below refused to look at the cited points of error

in argument and instructions, and directed its attention

toward all matters in the Record except the errors cited

(R. 128-129). Then, acting as a jury and concluding that

guilt “was established beyond a reasonable doubt by sub-

stantial competent evidence” (R. 129), the Court brushed

aside eight of the eleven issues presented in petitioner’s

brief (Points I(b), Ne), I. IV(b), IV(c), V(a), V(b),

V(c)—R. 119-120). The seriousness and substantiality

oi the erroneous instructions on petitioner’s financial

statements, and the failure of proof as to the Net

Worth method have already been indicated (Points

One, Two, supra). The other matters are briefly

stated under Point Six, infra. For the procedural error

of the Court of Appeals in refusing to consider the nature

of the cited errors, and because of the plainness and

substantiality of those errors, as discussed elsewhere,

the judgment should be reversed.

27

(8) Erroneous Instructions and Argument.

Relative to the sharply disputed evidence as to peti-

tioner’s alleged receipt of payments of $50 a week from

taverns, in addition to reported income of a percentage of

gross receipts (R. 16-21, 41, 47), and to Government’s

cross-examination of the tavern operators on the claimed

theory of “surprise” (R. 16, 19), the Government’s clos-

ing argument erroneously and prejudicially contained the

following: “Here were this Mr. and Mrs. McIntosh * * *,

They * * * started to lie to you, and started to tell you

they didn’t pay this $50.00 * * *. The Court let us cross

examine on the theory they were unwilling and weren't

telling the facts and the truth” (R. 64-65). The argument

as to the theory on which the trial court allowed cross ex-

amination attributed to the trial judge the position of in-

vading the province of the jury. McNutt v. U. S., (C. A.

8) 267 Fed. 670, 673. Such an emphatic conclusive state-

ment, if made by the judge, would be reversible error even

though he also stated that the jury is the ultimate trier

of the facts. Quercia v. U. S., 289 U. S. 466; Cook v. U. S.,

(C. A. 8) 14 F. 2d 833. The jury was justified from these

comments, acquiesced in by the trial judge, to conclude

that during the course of the trial a final decision had

been made by the judge that “the facts and the truth”

were that said payments had been made.

; Supporting the above erroneous and prejudicial con-

cept, the trial judge instructed that Mrs. Mitchell’s testi-

mony that such payments were not made in her presence,

and that she was always present when profits were

divided between petitioner and the operators (R. 41-47)

“is what the courts would call negative testimony, and it

is testimony that is not strong. It was weak testimony as

compared with the positive testimony of witnesses who

said the $50.00 per month (sic) was paid” (R. 73). This

28

instruction on “negative testimony,” without precedent in

any reported Federal criminal trial, was clearly erroneous. —

State v. Davies, 101 Ohio St. 487, 129 N. E. 590. Even in

a civil case, the instruction was improper, on the facts

herein. 42 Harvard Law Review 422, 425; 2 Wigmore on

Evidence (3rd Ed.), Sec. 664, pages 781-2; U. P. R. Co. v.

Burnham, (C. A. 10) 124 F. 2d 500, 502; Eiseman v. Penn.

R. Co., (C. A. 3) 151 F. 2d 222. Under no circumstances

should instructions on negative evidence, as artificially

light-weight testimony, be permitted in criminal trials in

Federal Courts. 2 Thompson on Trials, Sec. 2417, pp.

1763-4.

In view of the testimony by Mrs. Mitchell that the

alleged $50 payments were not made in her presence, the

Government’s argument that, Not one single solitary wit-

ness denied it” (R. 61) must be taken as a reference to

the possibility that payments were made to petitioner se-

cretly, out of his wife’s presence. As such, and since peti-

tioner did not testify, it was an illegal reference to his

failure to testify. Barnes v. U. S., (C. A. 8) 8 F. 2d 832,

834. Another such illegal reference is contained in the

argument that, by having his wife testify, petitioner was

“hiding behind the skirts of his own, dear little wife” (R.

62). This is reversible error. Wilson v. U. S., 149 U. S. 60;

DeMayo v. U. S., (C. A. 8) 32 F. 2d 472, 475.

In commenting upon testimony by petitioner's wife

that she had negligently omitted to include certain rents

in the tax returns (R. 44), and testimony as to mistakes

of bookkeepers and accountants (R. 47-55), the Govern-

ment’s closing argument stated:

“They can’t * * * come into court and aa

The bookkeeper came in and put it on. My wife came

in and put it on. It is her fault not mine.’ pcan’t

escape in that way. If you could there be no

man ever prosecuted for tax evasion” (R. 65).

"hie argument makes petitioner criminally liable for the

) negligence of his agents, and was clearly erroneous. —

Lurding v. U. S., (C. A. 6) 179 F. 2d 419, 421. A consid.

erable portion of defendant n evidence concerned itself with

the fact that petitioner did not personally control or have

knowledge of his bookkeeping and tax-reporting system

(R. 43, 46, 48-51). In view of said testimony, and the

aforesaid improper argument, it was reversible error for

the trial court to reject petitioner’s suggested instruction

(R. 65), correcting said argument and informing the jury

of the law applicable to said defense. Lurding v. U. S.,

supra,

CONCLUSION.

For the foregoing reasons, it is respectfully submitted

that this petition for writ of certiorari should be granted.

PNAs ROSENBERG,

Howarp F. Sacns,

Hartow B. Ka,

Trat W. Seay,

Attorneys for Petitioner.

Monxtockx, Hosxins & Kine,

Of Counsel.

March, 1954.