Unpublished Disposition, 860 F.2d 1090 (9th Cir. 1988)

MEMORANDUM^* 

This is a case involving three defendants who were charged with engineering an illegal tax scheme to purchase master tape recordings at low prices and lease them at high prices derived from false, greatly inflated purchase prices. The lessees took Income Tax Credits ("ITC's") based on what the defendants told them was the purchase price. The Government indicted the three men for conspiracy in violation of 18 U.S.C. § 371 (1982), aiding and abetting the preparation of false income tax forms in violation of 26 U.S.C. § 7206(2) (1982), and mail fraud in violation of 18 U.S.C. § 1341. The defendants were convicted on all counts. We affirm.

The defendants, Forrest F. Andreason, Jerry W. Hendricks, and Bryson R. Reinhardt, basically present three issues to the court. First, they contend that the evidence was insufficient to support the verdict and, thus, their Fed. R. Crim. P. 29 motion for judgment of acquittal and their Fed. R. Crim. P. 33 motion for a new trial were improperly denied by the district court. Second, they contend that the district judge incorrectly instructed the jury on the mail fraud count and, in general, erred in failing to use the defendants' numerous proffered jury instructions. Third, the defendants argue that the district court erred by failing to grant Reinhardt's Fed. R. Crim. P. 14 motion for severance.

When reviewing a denial of a motion for judgment of acquittal pursuant to Rule 29, " [t]his court must affirm the district court if it applied the correct standard of law and if, 'after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.' " United States v. Shortt Accountancy Corp., 785 F.2d 1448, 1453 (9th Cir.), cert. denied, 478 U.S. 1007 (1986) (citations omitted; emphasis in original). A motion for a new trial pursuant to Rule 33 is reviewed for an abuse of discretion. However, the defendant has a significant burden to show abuse of discretion in denying the motion. United States v. Shaffer, 789 F.2d 682, 687 (9th Cir. 1986).

a. Conspiracy

"To establish a conspiracy to defraud the United States, the prosecution must prove the existence of an agreement to accomplish an illegal objective, an overt act in furtherance of the objectives of the conspiracy, and intent on part of the conspirators to agree, as well as to defraud the United States." United States v. Crooks, 804 F.2d 1441, 1448 (9th Cir. 1986) (citations omitted). Viewing the evidence in the light most favorable to the Government, the jury could reasonably have found beyond a reasonable doubt that the defendants conspired to defraud the United States. The defendants place several arguments before this court, all of which are meritless.

The defendants' first argument is essentially that the Count I conspiracy charge is not supported by the evidence because the Government failed to state what the actual fair market value was and, additionally, tried the case on two theories not based on the indictment's allegations.

In the indictment, the Government sufficiently alleged fraud. The fact that the Government did not speculate as to what the specific fair market value was, is irrelevant. The Government alleged in the indictment that the defendants bought at a low price, sold to themselves at greatly inflated prices, and leased to taxpayers based on that inflated price, thereby encouraging them to take an ITC based on the inflated price. Additionally, there was no contradiction between the indictment and the Government's theory of the case. The Government, contrary to what the defendants assert, put forth evidence which was directly within the terms of the indictment. The fact that the proof showed that the fraud affected the individual taxpayers as well as the Government did not vitiate the claim of fraud against the United States.

The defendants next argue that they were not given due notice that their conduct was illegal. They cite United States v. Dahlstrom, 713 F.2d 1423 (9th Cir. 1983), cert. denied, 466 U.S. 980 (1984), which reversed a conviction for conspiracy to defraud the United States. In Dahlstrom, we reasoned that the "unsettled legality" of the tax shelter scheme denied due notice to the defendants under the Fifth Amendment and thus made it impossible for them to have a specific intent to willfully violate the code. The defendants' actions here were more than mere advocacy as in Dahlstrom; they involved the implementation of a complex scheme that was clearly illegal.

The defendants orchestrated the purchase of master recordings at low prices, ran them through hollow corporations, involving transactions which lacked any arm's-length negotiations or economic substance, and then valued the recordings at highly inflated prices to generate ITC's for the lessees. These were clearly sham transactions. The indictment adequately notified the defendants of the offenses for which they were charged. See United States v. Solomon, 825 F.2d 1292, 1297 (9th Cir. 1987), cert. denied, 108 S. Ct. 782 (1988) (defendant's administration of mechanics of limited partnership was blatantly illegal).

b. Mail Fraud

The defendants contend that the indictment was improperly duplicitous and contained a variance, citing United States v. Mastelotto, 717 F.2d 1238 (9th Cir. 1983). The defendants argue that the case as presented allowed the jury to find fraud committed on either the taxpayers or the Government. The defendants argue that the indictment, therefore, did not properly allege a single unitary scheme, but rather, that it alleged a fraud against taxpayers and a fraud against the United States.

The test in determining duplicity is whether the indictment itself may be fairly read as charging only one crime in each count. United States v. Morse, 785 F.2d 771, 774 (9th Cir.), cert. denied, 476 U.S. 1186 (1986). The fraud alleged in the indictment is one against the United States, with the taxpayers used as mere conduits in the scheme. Specifically, the indictment reads:

The Object of the Conspiracy 15. The object of the conspiracy was to defraud the United States of America by causing taxpayers to take improper credits and deductions on taxpayers' income tax returns.

There is only one scheme mentioned--that of a fraud against the United States. Clearly, the indictment may be fairly read to be a single scheme.

Even if not duplicitous, however, the defendants argue that evidence at trial established that there was more than one scheme giving rise to a fatal variance between the pleadings and the proof. Morse, 785 F.2d at 774. Their argument fails. Viewing the evidence in the light most favorable to the Government, there was sufficient evidence from which a rational jury could have found beyond a reasonable doubt the existence of a single scheme. Id.

Reinhardt individually asserts that he was merely a salesman. He argues that he was not in the mainstream of the conspiracy and, therefore, he was unaware of any wrongdoing. Although Reinhardt portrays himself as a minor player, the evidence shows otherwise. He was in charge of the sales organization, not just a mere salesman. Additionally, he had substantial imput into the operation of the organization.

Reinhardt also argues that only a minor portion of the evidence pertains to him. The fallacy with this argument is that in addition to the sufficient specific evidence against Reinhardt, all of the evidence concerning the scheme itself is applicable to him as well. We conclude that the evidence against Reinhardt was sufficient, viewing the evidence in the light most favorable to the prosecution, for any rational jury to have found the essential elements of the crime beyond a reasonable doubt.

When this court reviews challenges to jury instructions, it considers the instructions as a whole and reviews them for an abuse of discretion. United States v. Polizzi, 801 F.2d 1543, 1549 (9th Cir. 1986). A district court's refusal to give an instruction on the defendant's theory of the case is reviewed de novo, United States v. Doubleday, 804 F.2d 1091, 1093 (9th Cir. 1986), cert. denied, 107 S. Ct. 1628 (1987) and if the instruction is legitimate and supported by the evidence, failure to do so is reversible error. Polizzi, 801 F.2d at 1549.

Viewed as a whole, the defendants' proffered jury instructions were covered by the instructions given. The instructions given were thorough, thoughtful, and in accord with the law. The defendants' proffered instructions went beyond what was appropriate for fair adjudication of the charges, containing unnecessary and irrelevant language. Refusal to give them to the jury was not an abuse of discretion.

Reinhardt was the only defendant who renewed his motion for severance at the conclusion of the Government's case. Thus, as the Government correctly points out, Hendricks and Andreason have failed to preserve this argument on appeal. United States v. Burgess, 791 F.2d 676, 678 (9th Cir. 1986).

A motion to sever under Fed. R. Crim. P. 14 is reviewed for an abuse of discretion. United States v. Patterson, 819 F.2d 1495, 1501 (9th Cir. 1987).

Rule 14 provides:

If it appears that a defendant or the government is prejudiced by a joinder of offenses or of defendants in an indictment or information or by such joinder for trial together, the court may order an election or separate trials of counts, grant a severance of defendants or provide whatever other relief justice requires....

The trial judge is required to balance the inconvenience and expense to the Government against the prejudice to the defendants which might occur in a joint trial. The balancing is strongly weighted in favor of judicial economy. 1 C. Wright, Federal Practice and Procedure Sec. 223 (1982). The defendant has the burden of proving a prejudice so strong that it violates his right to a fair trial. United States v. Vaccaro, 816 F.2d 443, 449 (9th Cir.), cert. denied, 108 S. Ct. 295 (1987). "The primary concern is whether the jury will be able to segregate the evidence applicable to each defendant and follow the limiting instructions of the court as they apply to each defendant." Id. at 448-49.

There was one indictment charging Reinhardt, Hendricks, and Andreason with participating in a series of acts constituting a conspiracy. See Fed. R. Crim. P. 8(b).¹  Reinhardt argues that the trials should have been severed because his confrontation right was violated when the Government read Andreason's deposition into evidence but did not put Andreason on the stand. Reinhardt says that if the trials had been separate, Andreason's deposition would have been inadmissible without Andreason additionally taking the stand. Reinhardt also argues that the trial was too complex for the jurors adequately to compartmentalize the evidence, even with cautionary instructions.

The Confrontation Clause is primarily concerned with securing for the defendant the opportunity to cross-examine. Delaware v. Van Arsdall, 475 U.S. 673, 678 (1986). Reinhardt essentially argues that the deposition is an admission into evidence of a statement made by a non-testifying codefendant in violation of Bruton v. United States, 391 U.S. 123 (1968). The Court in Bruton held that receipt at a joint trial of a confession by a non-testifying codefendant who implicated Bruton deprived Bruton of his right to cross-examine an adverse witness. Id. at 126. Reinhardt's case differs from Bruton. First, Andreason's statements concerning Reinhardt did nothing to implicate him further in the conspiracy. It was not the devastating kind of testimony involved in Bruton. The judge instructed the jury not to consider Andreason's statements with regard to Reinhardt's case. In this case, there is no reason to believe that the jury could not follow the court's instruction relative to the slight mention of Reinhardt in Andreason's deposition.

Reinhardt's name comes up in the Andreason deposition in only one short series of questions. Andreason mentions Reinhardt on the last page of the deposition, which was read out in court. In the over 200 pages of Transcript of Record containing the Andreason deposition, only one-half of a page involved Reinhardt.

Moreover, the most damaging thing that Andreason said about Reinhardt was that Reinhardt was going to be involved with Sound Leasing. This, however, was minor. Reinhardt was connected with Sound Leasing numerous other times during the course of the trial. Moreover, twice--once before the deposition was read and once near the middle of the reading--the judge instructed the jury to consider the deposition only with respect to Andreason and not with respect to the other defendants.

Considering the curative instructions and the relatively minor references to Reinhardt, the Andreason deposition did not prejudice Reinhardt. Even if the admission of the portion of the deposition referring to Reinhardt was error, it was harmless beyond a reasonable doubt under the standards of Chapman v. California, 386 U.S. 18 (1967). See Harrington v. California, 395 U.S. 250 (1969) (Bruton errors can be harmless).

Reinhardt's second argument for severance is that the case was too complex for the jury adequately to compartmentalize the evidence. His case is like Sandra Vaccaro's and Bond's in Vaccaro.

The defendant, Sandra Vaccaro, argued that her role was relatively minor in comparison to the other defendants and, thus, her case should have been severed. Vaccaro, 816 F.2d at 449. The court found, however, that Vaccaro had only considered the evidence which directly implicated her. She had not considered the great percentage of the evidence which "showed the nature of the scheme in which she was allegedly involved and how the scheme was executed." Id. Reinhardt makes the same error. Additionally, the judges in both the Vaccaro case and this case cautioned the jury numerous times to separate the defendants' cases. Jurors are presumed to follow curative instructions. United States v. Escalante, 637 F.2d 1197, 1203 (9th Cir.), cert. denied, 449 U.S. 856 (1980).

Bond, also a defendant in Vaccaro, argued that the complexity of his case would not allow adequate compartmentalization by the jurors. Vaccaro, 816 F.2d at 449. The Vaccaro court came to the same conclusion in Bond's case as it did in Vaccaro's case. It found that the evidence relating to the incidents, in which Bond was not personally involved, were relevant to him because they showed the nature of the scheme. Id. Additionally, the court found that the evidence against Bond was clear enough to allow the jurors to separate his case from the other defendants. Id. at 449-50. We also conclude in this case that there is no reason why the jurors would be unable to compartmentalize the evidence that pertained to Reinhardt.

Reinhardt has not proven any " 'clear,' 'manifest' or 'undue' prejudice from the joint trial." Escalante, 637 F.2d at 1201 (citations omitted). "When many conspire, they invite mass trial by their conduct." Vaccaro, 816 F.2d at 449 (citations omitted).

We have considered the defendants' other arguments, not mentioned above, and find them meritless.

AFFIRMED.