Wednesday, February 7, 2018

Second Circuit Makes Limited Remand for Sentencing Court to Explain Tax Crime Fine Variance to $10 Million from High Guideline Amount of $250,000 (2/7/18)

I have previously written on the prosecution of Morris E. Zukerman for tax crimes.  I collect those prior blogs at the end of this blob.  I had not written on his plea and sentencing which are described in highly summary fashion in the Government's appellate brief, here (from which I have also drawn some of the facts later in this blog):
Superseding Indictment S1 16 Cr. 194 (AT) (the “Indictment”) was filed on May 11, 2016, in three counts. Count One charged Zukerman with corruptly endeavoring to obstruct and impede the due administration of the Internal Revenue laws, in violation of Title 26, United States Code, Section 7212(a). Count Two charged Zukerman with tax evasion, in violation of Title 26, United States Code, Section 7201. Count Three charged Zukerman with wire fraud, in violation of Title 18, United States Code, Section 1343. On June 27, 2016, Zukerman pled guilty to Counts One and Two of the Indictment, pursuant to a written plea agreement. 
On March 21, 2017, Judge Torres sentenced Zukerman to a term of 70 months’ imprisonment, to be followed by a one-year term of supervised release. Judge Torres also imposed a fine of $10,000,000, a mandatory $200 special assessment, and an order of restitution in the amount of $37,547,951, payable to Zukerman’s two victims: the Internal Revenue Service (“IRS”) and the New York State Department of Taxation and Finance (“NY Tax”).
The current appellate action -- a Summary Order -- relates to the fine of $10,000,000.  United States v. Zukerman (2d Cir. No. 17-948), here. For those who follow federal criminal sentencing generally and with respect to tax crimes specifically, that is a pretty high fine.  Like the sentencing for incarceration, the Sentencing Guidelines has advisory ranges for fines.  SG §5E1.2. Fines for Individual Defendants, here. For both sentences of incarceration and fines, the Guidelines ranges increase with the offense level.

As stipulated by the parties, recommended by the Probation Office and found by the Court, the offense level was 27 and a criminal history category of 1.  The Guidelines fine range for level 27 is $25,000 through $250,000.  As with the sentencing ranges, the court is authorized to vary above or below the recommended fine ranges.  The Government recommend that the judge make a "substantial variance" upward, but did not make a recommendation of what the fine should be.  Zukerman sought either no fine or at most a modest fine within the stipulated Guidelines range.  The Probation office recommended a fine of $100,000.  The Court imposed a fine of $10 million.

Of course, variances, particularly substantial variances as involved here, require explanations by the sentencing judge imposing the fine.  That was the point of the current Summary Order by the Second Circuit.  The Court of Appeals felt that it did not have enough explanation of the sentence to decide Zukerman's claim that the fine was excessive.

The Summary Order itself is short, and the key portions of it even shorter.  I will nevertheless cut and paste what I think are the key portions:
“We have declined to articulate precise standards for assessing whether a district court’s explanation of its reason for imposing a non-Guidelines sentence is sufficient,” United States v. Pereira, 465 F.3d 515, 524 (2d Cir. 2006), and “are hesitant to require the district court to utter any specific incantation,” United States v. Rattoballi, 452 F.3d 127, 138 (2d Cir. 2006). “The particular weight to be afforded aggravating and mitigating factors is a matter firmly committed to the discretion of the sentencing judge, with appellate courts seeking to ensure only that a factor can bear the weight assigned it under the totality of circumstances in the case.” United States v. Broxmeyer, 699 F.3d 265, 289 (2d Cir. 2012) (internal quotation marks and citations omitted). Nevertheless, district courts “must adequately explain the chosen sentence to allow for meaningful appellate review,” Gall v. United States, 552 U.S. 38, 50 (2007), and it remains “‘uncontroversial’ . . . that a major variance from the Guidelines range ‘should be supported by a more significant justification than a minor one,’” United States v. Jones, 531 F.3d 163, 171-72 (2d Cir. 2008) (quoting Gall, 552 U.S. at 50). 
Because the Guidelines “covering ‘offenses involving taxation’ . . . drastically vary as to the recommended sentence based simply on the amount of money involved,” without a concomitant variation to reflect the “wide variety of culpability amongst defendants,”  such sentences are “reviewed especially deferentially” to allow for sentencing disparities “based on the factors identified in § 3553(a).” United States v. Cavera, 550 F.3d 180, 192 (2d Cir. 2008) (en banc). “Although a judge need not utter robotic incantations repeating each factor that motivates a sentence,” United States v. Park, 758 F.3d 193, 197 (2d Cir. 2014) (internal alterations and quotation marks omitted), we can only defer to a sentencing judge’s justifications “if adequately explained.” Cavera, 550 F.3d at 192. The district court endeavored to explain its reasoning orally at the sentencing hearing and in its written statement of reasons, but the record nevertheless remains unclear as to why and how it settled on $10 million as the fine amount: for example, the relative weight assigned to the various factors cited in its oral and written explanations; to what extent, if any, the district court considered the disparity between the sentence imposed on Zukerman and those imposed in other tax prosecutions; and the basis for its determination that a $10 million fine (in conjunction with other aspects of Zukerman’s sentence) was “sufficient, but not greater than necessary, to comply with the purposes” of criminal sentencing as required by § 3553(a). 
At this stage, we believe this issue is best resolved by means of what is known in this Circuit as a Jacobson remand, in which we remand “partial jurisdiction to the district court to supplement the record on a discrete factual or legal issue while retaining jurisdiction over the original appeal.” Corporacion Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v. Pemex-Exploracion y Produccion, 832 F.3d 92, 115 (2d Cir. 2016) (Winter, J., concurring); see also United States v. Jacobson, 15 F.3d 19, 22 (2d Cir. 1994) (recognizing the authority of federal appellate courts to seek “supplementation of a record without a formal remand or the need for a new notice of appeal before the appellate panel acts on the supplemental record”). Accordingly, we direct the district court to elaborate on its rationale for imposing a fine greater than those typically imposed in tax prosecutions, and for the amount selected. Upon such elaboration by the district court, either party may restore the matter to the active docket of this Court by letter, without filing a new notice of appeal. In the event that either party seeks further action from this Court, the matter will be referred to this panel. 
I also provide, here, the Docket Entries for the proceedings in the Second Circuit as of this morning.

My prior blogs on the Zukerman prosecution in reverse chronological order are:

  • Attorneys as Witnesses Against Clients (Federal Tax Crimes Blog 6/15/16), here.
  • Update on the Zukerman Indictment - Potential Waivable Conflicts of Interest of Advocate as Witness (Federal Tax Crimes Blog 5/28/16; 6/21/16), here.
  • Prominent and Very Rich Investor Indicted in SDNY (Federal Tax Crimes Blog 5/24/16), here.

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