Even More on Principals, Accomplices, Causers and Pinkerton Conspirators - the Daugerdas Case (5/10/11)

I have previously written on derivative criminal liability for the enablers in the tax shelter game (lawyers, CPAs, financial wizards). See here. I have just today read the transcript for the instruction conference on 5/5/11 in the Daugerdas criminal case.  Daugerdas involved the same basic pattern as the Larson and Coplan cases (previously discussed here and here). That pattern is the prosecution of the enablers but not the taxpayers (or taxpayer advisors), with even a concession that for purposes of the submission to the jury the taxpayers are not guilty of the crime of evasion. In these cases, the prosecutors trot out several redundant or just not applicable theories of liability as if they were different than criminal liability for the underlying criminal offense of tax evasion.  They are not.

Judge Pauley, the trial judge in Daugerdas, gets it. My bullet point summary of the charging conference is: (i) the prosecutors may have abandoned 2(a) accomplice liability, (ii) Judge Pauley wants to conflate 2(b) causer liability directly into the substantive offense, and (iii) Judge Pauley is not enamored with Pinkerton liability. Judge Pauley defaults to the real issue -- either these defendants are guilty as direct principals of tax evasion or they are not guilty of tax evasion at all (regardless of what theory is used).

Now, here are some of the snippets, but I add some items in brackets to identify the parties.  Mr. Okula is the prosecutor and the parties other than the Court are defense counsel.  This is good stuff and I am sure I did someone a disservice in the snippets I choose to present:

[MR. GAIR]

So on top of everything else we've said, there's the confusion of multiplying an instruction that really makes it sound like it's something different than the principal instruction, when it's not. The principal instruction is if we committed an act of evasion with respect to a taxpayer, then we're guilty. And that's really the essence of what Mr. Okula is trying to get at, but he's asking for a separate instruction that's bound to confuse.

THE COURT: Mr. Okula, why doesn't the substantive charge itself essentially incorporate the causing concept, if you will, that's at the heart of your aiding and abetting charge?

MR. OKULA: Because I don't think with the elaboration that Section 2(b) emphasizes it has causing language, your Honor. Yes, it's true that they can be liable as the principals under the 7201 for the tax evasion if they committed the act. But if they caused the commission of those acts, which is not set forth sort of in any sort of elaborate way, I think, in the underlying tax evasion charge, then they can also be liable.

What Section 2(b) makes clear is as opposed to directly committing the act themselves, if they caused the commission of acts or acts even by others, then they are responsible as the principal. So if your Honor wants to elaborate on the underlying charge, making it clear that they can commit the acts of evasion or cause the commission of acts by others, then that would be fine.

But I think that, you know, using the standard 2(b) charge, which is applicable I think in this very context, it 20 makes it clear that if you set in motion the series of acts that are a substantial cause in the commission of the crime, then you're responsible under Section 2(b). That's the principal reason, your Honor. You need some elaboration under the causing element, and that's what Section 2(b) is. The essence of 2(b), causing the commission of the act.

MR. GAIR: Your Honor, if we think about this in terms of common sense, their theory is not that we caused someone else to commit a tax evasion, because they say that that someone else didn't commit a tax evasion; their theory is that we committed a tax evasion. And that is the way this case has been tried. And I think that that's fairly encompassed by the Court's instruction.

* * * *

THE COURT: I'm really continue to think, Mr. Okula, that a Pinkerton charge here only multiplies the confusion concerning the willfulness concept. I'll give you another opportunity to persuade me why I should include such a charge.

* * *

[MR. OKULA]

And with respect to Mr. Gair's point, that, you know, we're asking for, you know, everything and more, I go back to the point that we made earlier, your Honor. Our requested charge on Section 2 was not predicated on 2(a). It was predicated more on, you know, 2(b), the causing thing. And given the choice, we would happily forego the 2(a) theory, if the Court is going to charge under aiding and abetting and proceed with the 2(b).

* * * *

[MR. SCHOEMAN]

What the government wants to ultimately say is you did shelters, shelters are tax evasion, everybody did it, here is all the stuff I'm going to throw up there and hope the jury comes out in their favor. They still haven't said what it is they are really going to argue, and that's why this charge that they keep proposing is so incomprehensible.

* * * *

It says that a conspirator has to have committed a crime. Obviously, if I'm a tax preparer and I conspire with the taxpayer and that person commits a crime, then I could have Pinkerton liability because we conspired and they are the ones who committed the acts of evasion. But here the people who were doing the filing, filing returns, are not committing acts of evasion, because they don't have the mental state.

Again, the government has charged an overarching conspiracy, they have charged obstruction, they have charged mail fraud, and they seem to be going through all kinds of acrobatics to try and get substantive count convictions on extremely precarious theories of liability where the evidence just doesn't support it.

[MR. OKULA]

I want to make clear again, your Honor, that we are not necessarily wedded to the notion of the 2(a) charge that was given. Our request is predicated on the 2(b) charge rather than under 2(a).

The point I'm making is, is there a lot for the jury? Yes. But is it appropriate in the context of this case? Yes.Has it been done before in even a sort of more layered way through four separate theories by Judge Kaplan in Larson? Yes.

We are not asking for four theories. We are asking for three theories: 2(b), Pinkerton, and direct liability, your Honor.

* * * *

THE COURT: Right. Just to tie up one last thing from this morning, on aiding and abetting -- and this is a question for the government -- could you describe for me a situation in which any defendant -- let's just say Daugerdas -- could be convicted on the substantive count but not convicted of aiding and abetting, or vice versa, convicted of aiding and abetting but not the substantive count?

[MR. OKULA sidesteps the question]

* * * *

THE COURT: What is the difference between 2(b) and the substantive tax evasion charge?

MR. OKULA: Because I think that 2(b) -- I'm sorry. The substantive tax evasion charge really just focuses on what the acts of the person in Daugerdas' situation alone are. It moves it apart from really the focus on what he set into motion and what he caused through the causing. Because a straight jury charge from your Honor on liability on 7201 does not have a lot of causing language. And it's the causing language that we want from Section 2(b) that is important to drive home really the way that this was carried out; the setting in motion, the causing of these acts by the taxpayer.

So as I suggested earlier, your Honor, if your Honor wanted to essentially engraft certain of the 2(b) language into the substantive tax evasion charge to make it clear not only through the language that you currently have, but he could, using Mr. Daugerdas as an example, be responsible if he causes that taxpayer to do it, essentially conflate them into one charge, I think that that would suffice.

But otherwise I think some -- you know, 2(b) is not an extensive charge at all. It's a fairly straightforward and one- or two-page charge. I think getting across the causing language is what our principal concern is.

THE COURT: All right. I would like the government to submit a grafted or conflated charge that takes the causing element from 2(b) and incorporates it in the substantive charge on tax evasion.

MR. OKULA: Very well, your Honor.

THE COURT: And I will take a look at that.

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JAT Postscript (late evening of 5/10/11 after 2 glasses of wine):  As I develop in my article, I think when you scratch the surface of 2(b) liability, it only applies where the substantive offense can directly apply to a particular class of persons and the defendant potentially subject to 2(b) liability is not a member of the class that could otherwise make him or her guilty as a direct principal.  Section 7201 tax evasion, however, is not limited to any class (specifically taxpayers in particular) and can apply directly to enablers such as the Daugerdas defendants if the Government proves the elements beyond a reasonable doubt.  Section 2(b) causer liability is just irrelevant.  Judge Pauley gets it, although I articulate it differently than he does.  I am not suggesting that my articulation is better than Judge Pauley's.  He is, after all, the judge and I'm not.  However, he says it, Judge Pauley gets it and the prosecutors don't.

JAT Postscript from Judge Pauley's final charging decisions on 5/9/11 (please note that I have highlighted some of Judge Pauley's reasoning):

THE COURT:

* * * *

This Court also declines to instruct the jury on a Pinkerton theory of liability for the tax evasion counts. A Pinkerton theory of liability masks the specific intent element of the tax evasion charges and is very likely to confuse the jury as to the mens rea required for the various crimes charged in the indictment. Moreover, the substantive counts are, in this Court's view, inchoate in the conspiracy count, and that's why I have exercised my discretion and declined to give a Pinkerton charge as to any defendant.

This Court also declines to instruct the jury on a separate theory of aiding and abetting liability for the tax evasion charges. Like the charges given in similar tax shelter prosecutions, this Court's instructions on the substantive tax evasion counts require the jury to examine the conduct of two separate individuals to determine a defendant's guilt on each count: (1) the taxpayer's motives for entering into the tax shelters and (2) the defendant's knowledge and willfulness.

Thus, the substantive tax evasion instructions already incorporate an aiding and abetting concept of liability. A separate aiding and abetting charge, in addition to being unnecessary, is also likely to confuse the jury as to the mens rea required for the tax evasion charges.

Accordingly, this Court has incorporated a modified version of the government's suggestions as to the second element of the tax evasion charges which incorporates the causation language of 18 U.S.C. section 2(b).

JAT Comments on Judge Pauley's conclusions:

1.  On Pinkerton, bravo to Judge Pauley.  It is confusing.  And keep in mind that the jury in Larson acquitted on the conspiracy charge thus mooting Pinkerton liability for the substantive offenses which were the alleged objects of the conspiracy.

2.  On aiding and abetting, again bravo to Judge Pauley.  I would have articulated the reasoning a bit differently.  Since they could not be aiding and abetting the taxpayers, aiding and abetting made sense only if they were aiding one another (or others similarly situated), but they were either all accomplices or all guilty as direct principals.

3.  On causing, it has always been the law that persons causing tax evasion are guilty directly as principals and do not need derivative principal status under 2(b) to be found liable.  See my comments above.

4.  See the separate blog on Judge Pauley's rejection of a conscious avoidance instruction.

5.  So what was left was an instruction to the jury on tax evasion without any alternative "theories" that would get the jury there if they could not find the defendants directly as direct principals for the crime.