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United States v. Kerr

United States District Court, Ninth Circuit

August 16, 2013

United States of America, Plaintiff,
v.
1. Stephen Kerr; 2. Michael Quiel; Defendants.

ORDER

JAMES A. TEILBORG, Senior District Judge.

Pending before the Court are: Defendant Stephen Kerr's ("Kerr") Renewed Motion for Rule 29 Judgment of Acquittal or, in the alternative, a New Trial (Doc. 302), and Defendant Michael Quiel's ("Quiel") Motion for a Judgment of Acquittal or for a New Trial (Doc. 301).[1] The Court now rules on these Motions.

I. Background

In the Indictment (Doc. 3), Kerr was charged with Conspiracy to Defraud the United States (Count 1), Willful Subscription to False Individual Tax Returns for 2007 and 2008 (Counts 2 and 3), and Failure to File Foreign Bank and Financial Accounts (FBARs) for 2007 and 2008 (Counts 6 and 7). Count 1 charged Kerr, Quiel, and Christopher Rusch ("Rusch"), their former attorney, with conspiring to establish companies and bank accounts in Switzerland to move money out of the United States and defraud the IRS. Counts 2 and 3 charged Kerr with intentionally omitting income from the foreign accounts on his 2007 and 2008 tax returns and intentionally failing to mark the box in Schedule B indicating an interest in a foreign bank account. Counts 6 and 7 charged Kerr with willfully failing to file FBARs to report his interest in the foreign accounts. On April 11, 2013, a jury acquitted Kerr of Count 1, and convicted him of Counts 2, 3, 6, and 7. Kerr now moves the Court to set aside the jury verdicts and enter judgments of acquittal, or, alternatively, grant a new trial. Quiel was charged with Conspiracy to Defraud the United States (Count 1), Willful Subscription to False Individual Tax Returns for 2007 and 2008 (Counts 4 and 5), and Failure to File FBARs for 2007 and 2008 (Counts 8 and 9). Count 1 charged Kerr, Quiel, and Rusch with conspiring to establish companies and bank accounts in Switzerland to move money out of the United States and defraud the IRS. Counts 4 and 5 charged Quiel with intentionally omitting income from the foreign accounts on his 2007 and 2008 tax returns and intentionally failing to mark the box in Schedule B indicating an interest in a foreign bank account. Counts 8 and 9 charged Quiel with willfully failing to file FBARs to report his interest in the foreign accounts. On April 11, 2013, a jury acquitted Quiel of Count 1, and convicted him of Counts 4 and 5. The jury was unable to reach a verdict on Counts 8 and 9, which the Government later dismissed. Quiel and Kerr now moves the Court to set aside the jury verdicts and enter judgments of acquittal, or, alternatively, grant a new trial.

II. Legal Standards

A. Judgment of Acquittal

"A defendant may move for a judgment of acquittal... within 14 days after a guilty verdict or after the court discharges the jury." Fed. R. Crim. P. 29(c)(1). The Court may set aside the jury verdict and enter an acquittal. Id. at 29(c)(2). Courts review a motion for judgment of acquittal applying the same test as a challenge to the sufficiency of the evidence. United States v. Ladum , 141 F.3d 1328, 1337 (9th Cir. 1998). In considering whether there is sufficient evidence to deny a motion for judgment of acquittal, courts "review the evidence presented in the light most favorable to the government to determine whether any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Id.

B. New Trial

With respect to a motion for new trial, "the court may vacate any judgment and grant a new trial if the interest of justice so requires." Fed. R. Crim. P. 33(a). A district court has greater discretion to grant a new trial than to grant a judgment of acquittal. United States v. Kellington , 217 F.3d 1084, 1097 (9th Cir. 2000). Thus, in considering a motion for new trial, "[t]he court is not obliged to view the evidence in the light most favorable to the verdict, and it is free to weigh the evidence and evaluate for itself the credibility of the witnesses." Id. More specifically, "[i]f the court concludes that, despite the abstract sufficiency of the evidence to sustain the verdict, the evidence preponderates sufficiently heavily against the verdict that a serious miscarriage of justice may have occurred, it may set aside the verdict, grant a new trial, and submit the issue for determination by another jury." Id . (internal quotations omitted). However, the authority to grant a new trial should be used "only in exceptional cases." United States v. Rush , 749 F.2d 1369, 1371 (9th Cir. 1984).

III. Kerr's Motion for Judgment of Acquittal and New Trial

Kerr claims that the Government "failed to meet its burden as to willfulness on each of the substantive counts." (Doc. 302 at 3). Kerr moves for judgment of acquittal or new trial because: 1) Rusch's testimony should be excluded when determining the sufficiency of the evidence; 2) Kerr was acquitted of conspiracy, and the overt acts of the substantive offenses were required elements of the conspiracy count; 3) the Government failed to prove Kerr had a legal duty to report income from the foreign corporations; and 4) the Government committed prosecutorial misconduct by using the term "fraudulent" in closing arguments. Furthermore, Kerr lists eight additional grounds for acquittal or for a new trial without providing any factual support or legal authority for his arguments, including: 1) the admission of Government exhibits on redirect violates Kerr's Sixth Amendment right to confrontation;[2] 2) the indictment erroneously indicated Kerr's Failure to File FBAR forms under Schedule B, Section II, Line 7a; 3) the Court failed to provide Kerr's proposed "theory of the case" jury instruction; 4) the Government misstated in closing arguments that Kerr owed taxes; 5) the Government committed prosecutorial misconduct by accusing defense counsel of tampering with the impeachment tape of Rusch; 6) the Court improperly denied Kerr's request that the Court order the Government to provide Special Agent Giovannelli's Report; 7) the Court failed to provide jury instructions about expenses rightfully deductible from income; and 8) the Court erroneously allowed the Government to use the definitions in the FBAR form in the jury instructions.

A. Rusch's Testimony

Kerr argues that Rusch's testimony should be excluded in determining the sufficiency of the evidence on the substantive counts because it is inadmissible under the crime-fraud exception to attorney-client privilege and under the co-conspirator exception to hearsay.

1. Attorney-Client Privilege

Kerr claims that the Court admitted Rusch's testimony under the crime-fraud exception to attorney-client privilege. (Doc. 302 at 4). Because Defendants were acquitted of Count 1, Conspiracy to Defraud the United States, Kerr argues that the crime-fraud exception does not apply; therefore, Rusch's testimony violates attorney-client privilege and should be excluded when determining the sufficiency of the evidence on the substantive counts. ( Id. ) However, in its July 17, 2012 Order, the Court held that Defendants waived attorney-client privilege by claiming that their failure to file FBARs and their filing false tax returns was based on the advice of counsel. (Doc. 96 at 5). Furthermore, the Court denied Kerr's Motion to Preclude Admission of Items Protected by Attorney-Client Privilege (Doc. 118), and noted that "the Court found that... implicit waiver had occurred for any information relating to Kerr filing FBARs, and filing tax returns for tax years 2007 and 2008." (Doc. 145 at 8 n.1). Therefore, the Court did not permit Rusch's testimony under the crime-fraud exception.[3]

Kerr argues that the advice of counsel defense may waive the privilege "as to documents presented early on[, ]" but does not waive the privilege regarding Rusch's testimony because the advice of counsel defense did not require Rusch to testify. (Doc. 302 at 4 n.2). Kerr does not cite any legal authority in support of this argument. ( Id. ) The Government was entitled to the specified privileged information because Kerr implicitly waived attorney-client privilege. (Doc. 96). Kerr offers no cases suggesting that Kerr may waive privilege as to the communications, but preserve privilege regarding Rusch's testimony about the same information. Furthermore, Kerr never objected to the testimony at trial.[4] Kerr also claims that he was "considering using [advice] of counsel as a possible defense, " but instead "put on no defense." (Doc. 314 at 4). This claim is inaccurate because Kerr presented this defense in both opening and closing arguments and requested and received a jury instruction encapsulating that defense. ( See e.g. Doc. 325 at 124) ("Now this is their lawyer. This is a tax expert. They believe him. They rely upon this advice."); (Doc. 338 at 79) ("a very, very important jury instruction in the case... that's basically the instruction regarding the reliance on counsel"); (Doc. 287 at 35) (jury instruction for advice of counsel defense). Accordingly, the Court can find no error in the admission of Rusch's testimony, and such testimony will not be excluded when determining the sufficiency of the evidence under Rule 29(c)(2) or Rule 33(a).

2. Co-Conspirator Exception to Hearsay

Kerr argues that Rusch's testimony should not be admitted under the co-conspirator exception to hearsay (Fed. R. Evid. 801(d)(2)(E)). (Doc. 302 at 8-10). However, Kerr fails to cite to any part of the Record where such admission of evidence occurred. Kerr's failure to indicate where in the Record error occurred prevents the Court from making any meaningful analysis of this issue. In his Reply, Kerr asserts that "the majority of statements" allegedly admitted under the co-conspirator exception were "Rusch's [with regard to his] understanding of the Defendants [sic] knowledge as to the legality of their actions[;]" however, he does not cite any specific statements. (Doc. 314 at 6).

Without any specific statements that were allegedly admitted pursuant to the exception, the Court is skeptical of Kerr's arguments for the following reasons. First, Rusch's knowledge is not hearsay. Second, the Court can envision circumstances in which the testimony would be admissible. For example, if Rusch testified to statements made by Kerr, the testimony is admissible under Fed.R.Evid. 801(d)(2), an opposing party's statement. Furthermore, if the statements were not asserted for the truth of the matter, but to establish the effect on the listener or basis in fact for the Rusch's subsequent actions, then the statements would be allowed based on Fed.R.Evid. 801(c). See United States v. Payne , 944 F.2d 1458, 1472 (9th Cir. 1991) (holding that out-of-court statements introduced to show the effect on the listener are not hearsay); United States v. Walling , 486 F.2d 229, 234 (9th Cir. 1973) (holding that statement was not hearsay because it was offered to demonstrate the "circumstances which served as a foundation for [witness's] own observations and actions"). Because Kerr does not cite to the record indicating where the Court admitted the testimony under Rule 801(d)(2)(E), and does not cite to the specific statements in Rusch's testimony that he allegedly objected to at trial (Doc. 314 at 7), the Court will not exclude Rusch's testimony in determining the sufficiency of the evidence under Rule 29(c)(2) or Rule 33(a).

B. Willful Intent

Kerr argues that the "overt acts of the substantive offenses were required elements of the conspiracy count." (Doc. 314 at 10). Kerr claims that the Government failed to prove "any other knowledge or intent of illegality except for that required to prove the conspiracy-that the Defendants did this to defraud the IRS." ( Id. at 11). Because the jury acquitted Kerr of conspiracy, he alleges that the elements of the substantive counts cannot be proven; therefore, the government "failed to prove the required illegal intent." ( Id. at 10). "[I]t is well-established that inconsistent verdicts may stand, even when a conviction is rationally incompatible with an acquittal, provided there is sufficient evidence to support a guilty verdict.'" United States v. Suarez , 682 F.3d 1214, 1218 (9th Cir. 2012) (internal citations omitted). In this case, the jury was instructed that they must find Kerr acted "willfully" to be guilty of the substantive counts. (Doc. 287 at 25, 28). The jury could have acquitted Kerr of conspiracy for reasons unrelated to Kerr's intent. For example, the jury could have determined that the Government did not prove there was an agreement between the co-conspirators. The jury was properly instructed about Kerr's intent for the substantive counts; thus, by finding Kerr guilty, the jury found that Kerr acted willfully. Therefore, the Court denies Kerr's motion for judgment of acquittal or a new trial under this theory.

C. Legal Duty to Report Income

Kerr claims that the Government failed to prove a legal duty to report income and foreign accounts; therefore, the Government did not prove willfulness. (Doc. 314 at 11). To prove willfulness, the Government must show the "voluntary, intentional violation of a known legal duty." Cheek v. United States , 498 U.S. 192, 201 (1991). In Cheek , the United States Supreme Court held:

Carrying this burden requires negating a defendant's claim of ignorance of the law or a claim that because of a misunderstanding of the law, he had a good-faith belief that he was not violating any of the provisions of the tax law. This is so because one cannot be aware that the law imposes a duty upon him and yet be ignorant of it, misunderstand the law, or believe that the duty does not exist.

Id.

Kerr argues that the Government did not meet their burden because there was "no expert testimony or evidence" that proved the income was reportable on Kerr's personal tax return. (Doc. 302 at 16). Kerr does not cite to any legal authority requiring expert testimony to prove a legal duty to report. Furthermore, the Government presented evidence at trial from which the jury could conclude that Defendants had a legal duty to report income and foreign accounts.

In addition, during the settling conference for jury instructions, Defendants objected that the FBAR instruction "presuppose[s] that the defendants did have a legal obligation to file an FBAR." (Doc. 337 at 15). The Government responded that the instructions require that the jury first determine that Defendants had an obligation to file the FBAR based on the evidence, and the Court agreed and overruled Kerr's objection. ( Id. at 18). Viewing the evidence in the light most favorable to the Government, the Government met its burden in proving that Kerr had a legal duty to report income and foreign accounts, and knew of the duty. Therefore, a jury could have found that Kerr acted willfully beyond reasonable doubt. Furthermore, the evidence does not preponderate heavily against the verdict and there was no miscarriage of justice. Accordingly, the Court denies Kerr's motion for judgment of acquittal or a new trial under this theory.

D. Prosecutorial Misconduct

Kerr asserts that the Government committed prosecutorial misconduct by continually referring to stock transactions as "fraudulent." (Doc. 302 at 25). The Court ordered the Government not to describe the securities transactions in terms of "SEC violations" or "violations of security laws." (Doc. 337 at 19). The Court permitted the Government to describe particular conduct as "fraudulent" under Fed.R.Evid. 404(b)(2) because "that conduct helps establish a motive on [Defendants'] part to violate the tax laws." ( Id. at 22-23). The Government complied with the Court's ruling; therefore, there was no prosecutorial misconduct. Accordingly, the Court denies Kerr's motion for judgment of acquittal or a new trial under this theory.

E. Erroneous Indictment

Kerr argues that the Indictment erroneously indicated that Kerr failed to file FBAR forms under Schedule B, Section II, instead of Schedule B, Section III. (Doc. 302 at 29). The Court overruled Kerr's objection to correcting this typographical error during the jury instructions conference. (Doc. 337 at 15). Kerr has not presented any argument that would cause the Court to reconsider its prior decision. Thus, the Court denies Kerr's motion for judgment of acquittal or a new trial under this theory.

F. Instructions on Defendant's Theory of the Case

Kerr argues that the Court failed to provide a jury instruction on Kerr's theory of the case. (Doc. 302 at 29). Kerr raised this issue during the jury instructions conference, and the Court rejected it. (Doc. 337 at 18-19). The jury was properly instructed on Kerr's theory of the case regarding "advice of counsel" and "good faith misunderstanding of the law." (Doc. 287 at 33-35). Accordingly, the Court denies Kerr's motion for judgment of acquittal or a new trial under this theory.

G. Misstated Evidence in Closing Argument

Kerr claims that the Government misstated evidence that Kerr owed taxes during the closing argument. (Doc. 302 at 29). Kerr did not object at trial, so the Court will review for plain error. See United States v. Cabrera, 201 F.3d 1243, 1246 (9th Cir. 2000). In Response to Kerr's argument, the Government argues that no evidence was misstated because the Government presented evidence that Kerr "failed to report significant income" in 2007 and 2008, that Kerr had a "tax liability even though [he] failed to report this income, " that the Government stated in closing arguments that the jury did not need to find a tax liability in order to convict Kerr on the false returns, and that a jury instruction was given in relation to this matter. (Doc. 311 at 23); (Doc. 303 at 47); (Doc. 287 at 27). Because Kerr presents no legal support for his arguments, Kerr's motion for judgment of acquittal or a new trial under this theory is denied.

H. Accusation of Evidence Tampering

Kerr asserts that the Government committed prosecutorial misconduct by accusing defense counsel of engaging in evidence tampering. Kerr argues that the Government prejudiced the jury by accusing counsel of doctoring the impeachment tape of Rusch, and suborning perjury by Rusch. (Doc. 302 at 29). However, Kerr does not provide any factual support or legal authority to support this argument. Furthermore, Kerr did not object at trial; therefore, the claim is subject to plain error review. United States v. Cabrera, 201 F.3d at 1246. A claim for prosecutorial misconduct is viewed in context of the entire trial. Id. "Reversal on this basis is justified only if it ...


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