Two Opinions on Joinder of Tax Charges and NonTax Charges (3/20/18)

I generally do not write about criminal cases where the gravamen of the case is a nontax crime but with a tax crime charge which, while an important charge, seems to be swamped by the nontax crime..  However, two such cases popped up in my searches recently.  United States v. Sabean, ___ F.3d ___, 2018 U.S. App. LEXIS 6619 (1st Cir. 2018), here, and United States v. Li, 2018 U.S. Dist. LEXIS 40411 (M.D. Penn. 2018), here.  In each case, the defendant objected to the joinder of the tax crime(s) with the nontax crime.  I focus this blog on the issue in each case of whether the tax charge should have been severed from trial from the nontax crime(s).  But, that requires some brief context.

Sabean

I wrote earlier about pre-trial skirmishing in the case.  See District Court Rejects Suppression for Interview of Target of Grand Jury Investigation Without Notifying His Counsel (Federal Tax Crimes Blog 10/4/16), here.  The trial occurred.  The First Circuit decision I write about today is from the conviction on all counts.

Judge Selya wrote the opinion.  He starts the opinion:

This case, which reads like an anthology of pain, pathos, and personal degradation, paints a grim picture of the human condition. It intertwines allegations of an incestuous relationship with criminal charges of tax evasion, unlawful distribution of controlled substances, and health-care fraud. Following a contentious trial, the jury found defendant-appellant Joel A. Sabean guilty on all of the charged counts. 

The defendant strives to convince us, through a wide-ranging asseverational array, that the jury's verdict should not stand. After careful consideration of a tangled record conspicuously free from prejudicial error, we are not persuaded. Consequently, we affirm the judgment below.

The indictment charged :

(i) "five counts corresponding to five different tax years, with knowingly evading nearly $1,000,000 in federal tax liability by claiming fraudulent medical deductions between 2009 and 2013. See 26 U.S.C. § 7201.  

(ii) "fifty-two counts, with having distributed Ambien, Lunesta, and Xanax to S.S. [S.S. is Sabean's daughter with whom he has a sexual relationship] on fifty-two separate occasions between December 15, 2010 to January 4, 2014 outside the usual course of professional medical practice and without legitimate medical purpose.1 See 21 U.S.C. § 841(a)(1); 21 C.F.R. § 1306.04(a)."

(iii) "a single count [of] health-care fraud by writing certain prescriptions meant for S.S. in his wife's name between March 28, 2010 and December 9, 2012. See 18 U.S.C. § 1347."

Sabean was convicted on all counts.  Of course, Sabean could not be charged in federal court with incest or any related crime, because those are not federal crimes.  But, the Government did sweep that conduct into the trial as other acts evidence under FRE 404(b).  The Court does discuss and affirm the use of that evidence, but I won't get into that discussion here because the detail is not directly relevant to the severance issue I discuss.

Judge Selya affirms the district court's decision not to sever the tax charges from the other charges.  His reasoning is:

A. Severance. 

The defendant maintains that the district court erred in refusing to sever the tax-evasion counts. In a criminal case, severance has two dimensions. One dimension is joinder: the government may, in a single indictment, charge a defendant with separate crimes that "are of the same or similar character, or are based on the same act or transaction, or are connected with or constitute parts of a common scheme or plan." Fed. R. Crim. P. 8(a). For this purpose, "'similar' does not mean 'identical.'" United States v. Edgar, 82 F. 3d 499, 503 (1st Cir. 1996) (quoting United States v. Werner, 620 F.2d 922, 928 (2d Cir. 1980)). Our appraisal of similarity is forward-looking, not backward-looking; we assess the similarity of the charges based on what the government reasonably anticipated proving when the charges were lodged, not on what a post-hoc autopsy of the trial transcript might suggest. See id.; United States v. Natanel, 938 F.2d 302, 306 (1st Cir. 1991). 

Rule 8(a) creates "a generous presumption in favor of joinder," and we review the propriety of joinder de novo. United States v. Monteiro, 871 F.3d 99, 107 (1st Cir. 2017). In weighing a claim of misjoinder, we take into account factors such as "whether the charges are laid under the same statute, whether they involve similar victims, locations, or modes of operation, and the time frame in which the charged conduct occurred." United States v. Taylor, 54 F.3d 967, 973 (1st Cir. 1995). 

Misjoinder is not the only basis on which a motion for severance may be granted. Severance is also authorized under the aegis of Federal Rule of Criminal Procedure 14. This latter rule permits severance when a defendant makes a showing that joinder, though compliant with the strictures of Rule 8(a), is nonetheless so prejudicial as to deprive him of a fair trial. See United States v. Richardson, 515 F. 3d 74, 81 (1st Cir. 2008). We review the denial of a motion for severance on Rule 14 grounds for abuse of discretion. See Taylor, 54 F.3d at 974. 

In the case at hand, the defendant asserts — as he did below — that tax-evasion charges may be joined with non-tax counts only when the unreported income underlying the former consists of proceeds from crimes underlying the non-tax counts. To buttress this assertion, he points to cases such as United States v. Randazzo, in which we recognized that "false statement claims" may be joined with tax-evasion charges "where the tax fraud involves failure to report specific income obtained by the false statements." 80 F.3d 623, 627 (1st Cir. 1996); see United States v. Yefsky, 994 F.2d 885, 895 (1st Cir. 1993) (holding that "tax fraud and mail fraud counts could be joined because some of the unreported income was the fruit of the mail fraud scheme"). 

The defendant, however, reads our case law through rose-colored glasses, and we reject his attempt to transmogrify a sufficient condition for the joinder of tax and non-tax charges into a necessary condition. Here, the alleged tax-evasion and drug-distribution offences took place in roughly the same time frame, and the government reasonably could have anticipated when it secured the indictment that the disposition of all of the charges would hinge on common factual issues (including S.S.'s health, prescription history, record of treatment, and relationship with her father). This temporal and factual commonality weighs heavily in favor of allowing joinder. See Taylor, 54 F.3d at 973. To cinch the matter, the government had a solid basis for anticipating that it would be able to prove that all of the charged counts (tax evasion, drug distribution, and health-care fraud) emanated from a single plan to conceal the defendant's past sexual abuse and keep his daughter engaged in salacious communications while minimizing the net cost of providing the drugs and hush money. Given this panoply of facts, we hold that all of the counts were lawfully joined under Rule 8(a). 

The defendant's plea for severance under Rule 14 fares no better. That plea is anchored in the notion that severance was necessary to prevent prejudicial spillover from S.S.'s allegations of sexual abuse. The theoretical premise on which this notion rests is sound: severance may be appropriate when "proof that defendant is guilty of one offense may be used to convict him of a second offense, even though such proof would be inadmissible in a second trial for the second offense." Richardson, 515 F.3d at 81 (quoting United States v. Jordan, 112 F.3d 14, 16 (1st Cir. 1997)). 

Here, however, the conclusion that the defendant seeks to draw from this premise does not follow. The court below found that S.S.'s allegations of sexual abuse were relevant to all of the charges laid in the indictment, and that finding cannot plausibly be termed an abuse of discretion. Consequently, the defendant's allegation of prejudicial spillover is without substance. See id. 

To say more about either joinder or severance would be supererogatory. For the reasons articulated above, we conclude that the defendant has neither rebutted the strong presumption in favor of joinder nor mounted a compelling showing of undue prejudice. It follows inexorably, as night follows day, that the district court's refusal to sever the tax-evasion charges is impervious to the defendant's onslaught.

A Detour:  Readers may have picked up that Judge Selya is a colorful writer.  I have previously written on Judge Selya's writing style.  The Intersection of Conspiracy and Tax Obstruction (Federal Tax Crimes Blog 7212(a)) (1/16/14), here.

Li

In Li, the charges were:

On July 19, 2016, a federal grand jury returned a 24-count Indictment charging Defendant with various violations of federal law. Counts 1 through 15 charge violations of 21 U.S.C. § 841(a)(1), for Defendant's distribution and dispensing of controlled substances outside the usual course of professional practice and not for a legitimate medical purpose. Count 16 charges a violation of 21 U.S.C. § 841(a)(1), for Defendant's distribution and dispensing of a controlled substance resulting in serious bodily injury and death of a person. Count 17 charges a violation of 21 U.S.C. § 861(f), for Defendant's distribution and dispensing of a controlled substance to a pregnant individual. Counts 18 and 19 charge violations of 21 U.S.C. § 856(a)(1), for Defendant's maintaining locations at 104 Bennett Avenue, Suite 1B, Milford, Pennsylvania, and 200 3rd Street, Milford Pennsylvania, for the purpose of unlawfully distributing controlled substances. Counts 20 and 21 charge violations of 18 U.S.C. § 1957, for Defendant engaging in monetary transactions in property derived from a specified unlawful activity. Counts 22 through 24 charge violations of 26 U.S.C. § 7201, for Defendant's tax evasion. The Indictment also included a forfeiture allegation seeking forfeiture of various property and United States currency. (See Doc. 1.)  

A Superseding Indictment was filed on October 17, 2017. This Indictment expanded the scope of the original Indictment insofar that it charged Defendant with an additional eight (8) counts of unlawful distribution and dispensing of a controlled substance in violation of 21 U.S.C. § 841(a)(1) and required forfeiture of Defendant's medical license. The Superseding Indictment also narrowed the time periods for conduct alleged in the original Indictment.2 (See Doc. 47.)

On the motion to sever (one footnote omitted):

C. Defendant Li's Motion to Sever the Offenses 

Defendant has also moved to sever the drug-related charges in the Superseding Indictment, Counts 1 through 29, from the tax evasion charges, Counts 30 through 32. To that end, he argues that he would face considerable prejudice at a joint trial due to: (1) the presentation of evidence that would be inadmissable at a trial solely on the drug charges; and (2) his desire to testify about the drug charges, but not that the tax evasion charges. 

Federal Rule of Criminal Procedure 8(a) provides that an indictment "may charge a defendant in separate counts with two or more offenses if the offenses charged . . . are of the same or similar character, or are based on the same act or transaction, or are connected with or constitute parts of a common scheme or plan." Even where the joinder off offenses is proper under Rule 8 "[i]f the joinder of offenses . . . appears to prejudice a defendant, or the Government, the court may order separate trials of counts . . . or provide any other relief that justice requires." Fed. R. Crim. P. 14(a) (emphasis added.) However, the mere appearance of prejudice is insufficient to justify severance. Instead, severance should be reserved for those cases where "there is a serious risk that a joint trial would compromise a specific trial right of one of the defendants, or prevent the jury from making a reliable judgment of guilt or innocence." Zafiro v. United States, 506 U.S. 534, 538, 113 S. Ct. 933, 122 L. Ed. 2d 317 (1993); see also United States v. Silveus, 542 F.3d 993, 1005-06, 50 V.I. 1101 (3d Cir. 2008); United States v. Colbert, 828 F.3d 718, 728 (8th Cir. 2016). Standing alone, the suggestion that severance would improve the defendant's chance of acquittal is not enough to meet this standard. See United States v. Reicherter, 647 F.2d 397, 400 (3d Cir. 1981). Stated differently, a defendant bears a "heavy burden" to demonstrate that he or she will suffer "clear and substantial prejudice resulting in a manifestly unfair trial." United States v. Shaw, No. 8-476, 2009 U.S. Dist. LEXIS 104692, 2009 WL 3790310, at *8 (E.D. Pa. Nov. 9, 2009), aff'd 476 Fed. App'x. 970 (3d Cir. 2012).

"The decision of whether to sever rests in the sound discretion of the trial judge, who is best situated to weigh potential prejudice of a joint trial to the defendant against the interests of judicial economy." United States v. Young, No. 74040, 2015 U.S. Dist. LEXIS 74040, 2015 WL 3604194, at* (E.D. Pa. June 5, 2015) (citing Reicherter, 647 F.2d at 400). 

First, Defendant Li argues that a separate trial is necessary to avoid substantial prejudice because "the seized currency at [his] home may be evidence admissible to tax evasion offenses, but inadmissible to the controlled substance related offenses since the seized . . . currency is irrelevant as to . . . the controlled substance related offenses." (Doc. 60, at 5.) This is incorrect. I would find that the cash seized is admissible with respect to both sets of offenses. n9 See Fed. R. Evid. 401. Additionally, a jury instruction could cure any concerns Defendant may have about the misconstruction of evidence. See United States v. Lore, 430 F.3d 190, 205-206 (3d Cir. 2005) (explaining that prejudice may be avoided when a court instructs the jury to consider evidence separately for each count presented). For this reason, no prejudice would flow from the decision to conduct a joint trial.
   n9 The Superseding Indictment describes the cash seized as a fruit of Defendant's unlawful medical practice. Further, that same cash has been described as unreported income, which serves as the basis for the Counts alleging tax evasion. Thus, the cash at issue is relevant to both offenses. 

Second, Defendant Li argues that a separate trial is necessary to avoid substantial prejudice because he wishes to testify to the controlled substance related charges, but not to the tax evasion charges. He concludes if forced to participate in a joint trial he would be required to choose to testify as to both or to neither, which he claims results in substantial prejudice. 

There is no question that prejudice may result if the defendant wishes to testify to one, but not other joined offenses. See Reicherter, 647 F.2d at 400; see also Cross v. United States, 335 F.2d 987, 118 U.S. App. D.C. 324 (D.C. Cir. 1964). To obtain severance in such a situation, the Third Circuit requires defendants make a "convincing showing" that he or she has "important testimony" to give on one charge, and a "strong need to refrain from testifying on the other [charge.]" Reicherter, 647 F.2d at 400-01 (quoting Baker v. United States, 401 F.2d 958, 977, 131 U.S. App. D.C. 7 (D.C. Cir. 1968)). For example, in United States v. Shaw, the Third Circuit affirmed a district court's finding that a defendant was not entitled to severance. Shaw, 476 Fed. App'x at 972-73. There, the defendant argued—like Defendant Li—that he was owed severance because he wished to testify to one, but not both counts contained within the indictment. See Shaw, 2009 U.S. Dist. LEXIS 104692, 2009 WL 3790310 at *8-9. But, he "failed to present any information about the nature of the testimony he would give regarding [the one count] other than expressing a desire to explain his version of what happened in that incident." 2009 U.S. Dist. LEXIS 104692, [WL] at *9. For this reason, the district court found, and the Third Circuit affirmed, that severance would be inappropriate. 

Here, Defendant Li offers little, if any, more than the defendant in Shaw. While Defendant has stated unequivocally that he "will testify to the drug distribution charges," he offers no explanation regarding the importance of his testimony. (Doc. 78, at 6.) Instead, he states his testimony "will include anything about [the] drug distribution charges," and lists a wide arrange of potential topics for his testimony. (Doc. 78, at 6-7.) Such a statement parallels the Shaw defendant's desire to "explain his version of what happened." Shaw, 2009 U.S. Dist. LEXIS 104692, 2009 WL 3790310 at *9. The Third Circuit found such a statement insufficient in Shaw, and I refuse to find differently here. 

Therefore, Defendant's Motion will be denied.