Unpublished Disposition, 862 F.2d 318 (9th Cir. 1988)

MEMORANDUM^* 

David Harris appeals the district court's denial of his motion to dismiss an indictment for tax fraud because of alleged prosecutorial misconduct before the grand jury. Harris contends that the indictment should be dismissed because the government presented to the grand jury testimony mentioning tax shelter partnerships not referred to in the indictment, presented misleading testimony regarding the formation and control of the shell corporations, made an improper comment on a witness' credibility, and presented evidence concerning the defendant's lifestyle. We affirm.

DISCUSSION

The district court's determination of whether a prosecutor's alleged misconduct before a grand jury warrants dismissal of an indictment is reviewed de novo. United States v. De Rosa, 783 F.2d 1401, 1404 (9th Cir.), cert. denied, 477 U.S. 908 (1986); United States v. Sears, Roebuck & Co., 719 F.2d 1386, 1392 n. 9 (9th Cir. 1983), cert. denied, 465 U.S. 1079 (1984).

The grand jury has historically been independent of both the prosecution and the courts, In re Grand Jury Investigation of Hugle, 754 F.2d 863, 864 (9th Cir. 1985), and as an independent entity the grand jury has broad powers to investigate matters before it. United States v. Sells Eng'g, Inc., 463 U.S. 418, 423-24 (1983). Courts very rarely intrude on the conduct of grand jury proceedings. See United States v. Cederquist, 641 F.2d 1347, 1352-53 (9th Cir. 1981); United States v. Samango, 607 F.2d 877, 881 (9th Cir. 1979) (the judicial power to intervene in grand jury proceedings is "frequently discussed, but rarely invoked"). Under limited circumstances, however, a court may dismiss an indictment for prosecutorial misconduct before the grand jury based on due process grounds, see, e.g., United States v. Basurto, 497 F.2d 781, 785-86 (9th Cir. 1974), or the courts' inherent supervisory powers, see, e.g., Samango, 607 F.2d at 881; Basurto, 497 F.2d at 793-94 (Hufstedler, J. concurring).

A defendant who challenges the indictment on either ground bears a heavy burden of demonstrating that the prosecutor engaged in flagrant misconduct deceiving the grand jury or significantly impairing its exercise of independent, unbiased judgment. Costello v. United States, 350 U.S. 359, 363 (1956); De Rosa, 783 F.2d at 1405; United States v. Al Mudarris, 695 F.2d 1182, 1185 (9th Cir.), cert. denied, 461 U.S. 932 (1983); Martin v. United States, 335 F.2d 945, 949 (9th Cir. 1964). Moreover, the defendant must show that the prosecutorial misconduct prejudiced him. Bank of Nova Scotia v. United States, 56 U.S.L.W. 4714, 4715 (U.S. June 22, 1988); Al Mudarris, 695 F.2d at 1186-87; United States v. Owen, 580 F.2d 365, 367 (9th Cir. 1978). We find that Harris did not meet this heavy burden in challenging the indictment.

The indictment only charged Harris with participation in four fraudulent partnerships that marketed an abusive tax shelter. Nevertheless, testimony was elicited that Harris may have been involved in "approximately 150" partnerships and that over four million dollars was lost to the government in fraudulent deductions claimed on 1979, 1980, and 1981 tax returns. Harris claims that this testimony left a clear impression that he and his partners were responsible for substantial losses of government revenue. Harris also claims that because the prosecutors twice cut off grand jurors' questioning about civil liability, the grand jurors were denied the knowledge that civil settlements had been reached and that the government's loss of revenue was not as substantial as it might have seemed.

The grand jury has broad powers to investigate matters before it, Sells Eng'g, 463 U.S. at 423-24, and it has "been allowed to pursue its investigative and accusatorial functions unimpeded by evidentiary and procedural restrictions applicable to a criminal trial." See United States v. Calandra, 414 U.S. 338, 349 (1974). While the indictment pertained to only four partnerships, it was not improper for the government to present evidence of other partnerships that were involved in fraudulent activity. Such evidence was relevant to show the nature of the scheme to defraud the government and would have been admissible even at trial. See United States v. Soliman, 813 F.2d 277, 278-79 (9th Cir. 1987) (evidence of other acts of mail fraud). Harris has, moreover, failed to show any prejudice because only three isolated references were made to the other partnerships in the grand jury proceedings. The matter of civil settlements having been negotiated with the government was irrelevant to this criminal prosecution, see United States v. Buras, 633 F.2d 1356, 1360 (9th Cir. 1980), and would not have negated any "impression" of additional culpability by the defendants, even if that impression had been conveyed. Harris has failed to show that he was prejudiced by the isolated discussion of other fraudulent partnerships not included in the indictment.

Harris claims that the government presented misleading testimony to the grand jury concerning his involvement in the creation of the sham corporations used in the fraudulent tax shelter. To justify dismissal based on allegations of incorrect statements, a defendant must prove that the government "obtained an indictment by knowingly submitting perjured testimony to the grand jury." United States v. Claiborne, 765 F.2d 784, 791 (9th Cir. 1985), cert. denied, 475 U.S. 1120 (1986); see also United States v. Buffington, 815 F.2d 1292, 1304 (9th Cir. 1987). For a statement to rise to the level of perjury, it must be an intentional, voluntary and knowingly false statement. United States v. Flake, 746 F.2d 535, 539 (9th Cir. 1984) (if knowing falsehood is not shown, dismissal of indictment is improper), cert. denied, 469 U.S. 1225 (1985). Although the evidence submitted to the grand jury was not completely consistent as to the extent of Harris's role in forming the shell corporations, the testimony of the former comptroller for a related entity did indicate that Harris was involved in the formation of the shell corporations. There is no indication, therefore, that any false testimony was presented to the grand jury.

Harris claims he was prejudiced when the prosecutor commented on the credibility of a witness, Edwin Hubert, an accountant/attorney who knew and worked with both defendants and whose testimony tended to favor Harris in some respects. After Hubert's testimony, the prosecutor told the grand jurors that "Harris and Winters had different camps" and that " [c]ertain witnesses line up on one side and others on the other." He went on to say that it would be up to the grand jurors to "decide who was telling the truth." Harris claims that this was an undue disparagement of the credibility of the witness.

This claim has no merit. There is no question that it is the grand jurors' function to determine the credibility of witnesses they hear. Al Mudarris, 695 F.2d at 1187. The government is entirely free to comment on the credibility or bias of a witness. Sears, Roebuck, 719 F.2d at 1392; cf. United States v. Thompson, 576 F.2d 784, 786 (9th Cir. 1978) (the government is not under any obligation to present evidence bearing on the credibility of witnesses). The prosecutor's statement was, at any rate, entirely neutral as to the witness, and could not have possibly prejudiced Harris's case.

Finally, Harris complains that testimony about his ownership of expensive automobiles, along with evidence that his salary could not have supported such purchases, was inflammatory and could have had no purpose other than to prejudice the grand jury. As with the discussion of the other fraudulent partnerships not included in the indictment, such evidence was relevant to show that Harris was receiving profits from the scheme and had a motive for engaging in it. It was therefore admissible as proof of criminal intent. See Zamloch v. United States, 193 F.2d 889, 892 (9th Cir.), cert. denied, 343 U.S. 934 (1952). This claim of prosecutorial misconduct is also rejected.

CONCLUSION

Because the appellant has failed to carry his heavy burden of showing outrageous prosecutorial misconduct before the grand jury, we AFFIRM the decision of the district court denying the motion to dismiss the indictment.

AFFIRMED.