The opinion is lengthy and complex, and resists easy summarization. It is well worth reading because it discusses in detail a kaleidoscope of issues relevant to any "white collar" criminal trial, from evidentiary rulings to jury instructions to sentencing. This commentary is limited to the sufficiency of evidence claims, and some of their implications for lawyers as potential defendants.
The panel in Coplan displayed a remarkable willingness to comb through an extremely complicated trial record and test every nuanced inference that the government urged could be drawn from the evidence in support of the verdicts. The bottom-line holding of the panel was that, after making all inferences in favor of the government, the convictions had to be vacated because the evidence of guilt was at best in equipose.
Although this general principle can be stated easily, its practical application in Coplan involved the panel conducting a particularized review of the evidence that appellate courts often forego. For example, one important fact for Shapiro was that a tax opinion letter provided to shelter clients stated that, for the purposes of the "economic substance" test governing tax-related transactions, the clients had a "substantial nontax business purpose" (OK, per the Coplan panel), rather than stating, as it had before Shapiro’s revisions, that the clients had a "principle" (sic - principal) investment purpose. Likewise, although Shapiro had reviewed letters and attended phone conferences deemed incriminating by the government, his involvement in such conduct was not "habitual" or otherwise substantial. As for Nissenbaum’s Section 7212(a) conviction, his response to the IDR that the government characterized as obstructive – a partial explanation of the clients’ subjective business reasons for participating in the tax shelters – could not sustain the conviction because the IDR drafted by the IRS had sought all reasons held by the clients, rather than their primary reason. If this sounds somewhat murky and convoluted, it is. The point is that multiple convictions for very significant offenses were vacated after much effort at extremely fine line-drawing.
The implicit theme running throughout the discussion of the evidence was that it was not sufficiently clear that these lawyers had crossed the line while attempting to assist their clients, to whom they owed a duty. The competing tensions that lawyers can face was encapsulated in a jury instruction discussed later in the opinion. Although the trial court instructed the jury as requested by the defense that "[i]t is not illegal simply to make the IRS’s job harder[,]" it declined to instruct the jury on the larger defense point that "[t]his is particularly true for the defendants, whose professional obligations as attorneys or certified public accountants required them to represent the interests of their clients vigorously in their dealings with adversaries, such as the IRS."Other practitioners reactions reported in Shamik Trivedi, Second Circuit Reverse Convictions of 2 Former E&Y Shelter Promoters, 2012 TNT 231-1 (11/30/12).
Members of the defense bar said they were pleasantly surprised by the court's decision. Bryan C. Skarlatos of Kostelanetz & Fink LLP said the court's decision "shows that the government cannot rely on the fact that somebody simply reviewed some e-mails or documents -- in this case templates of some letters or some [information document request] responses -- and therefore must necessarily have been involved in a conspiracy to defraud the government."
He said the decision bodes well for practitioners who are often involved in only parts of transactions or who are present on e-mail chains or meetings. Those individuals may sometimes be pulled into a conspiracy based on such tangential involvement but had no scheme to defraud the government, he said. "The government needs to prove some more active participation in the wrongdoing."
Skarlatos said it is not enough to use Pinkerton to convict someone of a conspiracy "just because they were on an e-mail exchange or just because they were in the room when someone talked about something that could potentially be perceived as part of a larger scheme to defraud, but in and of itself isn't clearly a bad, bad thing."
Not every conversation or statement implies a malicious purpose to defraud the government, said Mark D. Allison of Caplin & Drysdale. But while "there may very well have been inappropriate purpose behind these statements, at least in isolation, it's hard to see how you can pool [them] together to create a motivation that wasn't present on its face," he said.
Peter D. Hardy of Post & Schell PC said he "was struck by how willing -- because it's unusual -- the court of appeals was to really parse through, in painful detail, the evidence." Generally, appellate courts are apt to defer to the jury's decision, especially given how high the standard for reversal is, he said.
But Hardy warned how easy it is for a practitioner in the same situation to be convicted. In this case, the liberties of Shapiro and Nissenbaum turned on the phrasing of language in an opinion letter, specifically that "the clients had a substantial nontax business purpose, which apparently was sufficiently OK for the court of appeals, but not the jury, as opposed to whether or not the clients had a principal investment purpose."
That slight difference was important, and the Second Circuit took pains to parse it, he said. "At the same time, I find it alarming as a professional to think that whether or not you're going to be charged and convicted can turn on really, just a turn of phrase," he said. "Let's not lose sight of the fact that [they] were actually convicted."
Josh O. Ungerman of Meadows, Collier, Reed, Cousins, Crouch & Ungerman LLP had a similar view. "It is distressing to think that with insufficient evidence, the government was able to convince the jury at trial that Shapiro engaged in a conspiracy by 'coaching' other E&Y partners on the nontax reasons for the transaction that the government had advocated was not true."
And despite the reversals, the "government has accomplished much of what it set out to do, namely punish high functioning tax professionals who participated in both planning and defending the same transactions the government deemed to be tax shelters," he said. Practitioners may think twice about planning and defending the same transactions in the future, he said.
Edward M. Robbins Jr. of Hochman, Salkin, Rettig, Toscher & Perez PC warned, however, that practitioners should probably temper their enthusiasm. "I would not get too excited about this case until we see whether the Second Circuit grants the government's request for en banc review," he said. Robbins said he thought the request is "inevitable in a 2-1 decision of this importance."As for a possible petition for rehearing en banc, I am not sure there will be one. Given the factual analysis by the Court, much of what it said was not outcome determinative. And, should the rehearing en banc get to the propriety of the Klein doctrine, Judge Cabranes seems ready to vote to do what he can to rein the Klein conspiracy in to the extent that he can (even the en banc panel would be bound by Hammerschmidt). The rehearing thus might take away any pro-Government spins in the original Klein case and virtually invite the Supreme Court to reconsider Hammerschmidt and leave the Government without this feature of conspiracy, the "darling of the modern prosecutor's nursery." Harrison v. United States, 7 F.2d 259, 263 (2d Cir. 1925) (Hand, L., J.)