United States v. Powers , 702 F.3d 1 ( 2012 )

United States Court of Appeals
For the First Circuit
Nos. 11-2295, 11-2359
UNITED STATES,
Appellee,
v.
MICHAEL POWERS; JOHN MAHAN,
Defendants, Appellants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Lynch, Chief Judge,
Selya and Stahl, Circuit Judges.
Dana A. Curhan for appellant Michael Powers.
Robert L. Sheketoff, with whom David R. Yannetti was on brief,
for appellant John Mahan.
Vassili N. Thomadakis, Assistant United States Attorney, with
whom Carmen M. Ortiz, United States Attorney, was on brief, for
appellee.
December 14, 2012
LYNCH, Chief Judge. Michael Powers and John Mahan, who
ran an employment agency from 1998 to 2004 supplying temporary
workers, were both convicted after an eight-day jury trial of
conspiracy to defraud the United States by impeding the functions
of the Internal Revenue Service ("IRS") and mail fraud. Powers was
also convicted of subscribing false tax returns and Mahan of
procuring false tax returns. All told, the tax fraud amounted to
$7,592,003.55. As part of the fraud, they underreported the amount
of the payroll to the agency's workers' compensation insurance
carriers. Powers is serving a total term of imprisonment of 84
months; Mahan, a term of 76 months. Each was ordered, jointly and
severally, to pay total restitution of $8,805,277.36 to the IRS and
two insurance carriers.
Their appeals do not contest the sufficiency of the
evidence but rather allege that there were serious errors at trial
which require that they be given a new trial.
There is a common theme to the arguments: that each error
undercut a major theory of defense. The theory was that they in
good faith believed their agency, Commonwealth Temporary Services
("CTS"), was not an employer of any of the temporary workers and
that they did not knowingly defraud the government of payroll taxes
by paying the workers in cash and not reporting their payments to
the government or to the insurers. They pointed out that they
conceded that payments were made in cash, that no Forms W-2 were
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given to the workers, that no Forms 1099 were given to anyone,
including their recruiters and subcontractors, and that Federal
Insurance Contributions Act ("FICA") tax was not withheld. Their
position was that CTS was no more than a broker for the hiring
company which needed the workers and that CTS was not the employer
who owed the taxes; rather, the CTS subcontractors were.
Most seriously, they complain that the trial judge failed
to give a defense instruction on advice of counsel, inappropriately
placing too high a burden on them to justify the instruction. They
also assert that various witnesses were allowed to testify as to
the ultimate issues, invading the role of the jury, and they should
have been allowed to call witnesses to support their defense.
I.
Because there is no challenge to the sufficiency of the
evidence, we do not recite it in the light most favorable to the
verdict. United States v. Hardy, 37 F.3d 753, 755 (1st Cir. 1994).
Rather, we provide a more neutral recitation to give context for
the claims of error. United States v. Morla-Trinidad, 100 F.3d 1,
2 (1st Cir. 1996).
A. CTS's Mode of Operation
In 1998, Powers and Mahan started CTS. CTS's Articles of
Organization listed Powers and Mahan as the agency's sole
directors, with Mahan as President and Powers as Treasurer and
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Clerk. Before starting CTS, Powers and Mahan had both worked at
another temporary employment agency, Daily A. King ("DAK").
CTS provided temporary workers to facilities such as
warehouses and recycling plants to perform manual labor. CTS
entered into contracts with client companies that set out the rates
which the clients would pay CTS per worker hour. Clients called
CTS to request a particular number of workers and CTS communicated
the client order to "recruiters," some of whom had been temporary
workers themselves before CTS approached them to recruit workers
for CTS. CTS told the recruiters how many men and women were
needed, what clothes the workers should wear, and how to get to the
client facilities. The recruiters then found workers for CTS.
Powers set the workers' rate of pay and CTS informed the
recruiters what the rate was. CTS did not ask recruiters how much
it would cost to find workers, and recruiters did not provide a
quote to CTS for how much workers would cost. Recruiters did not
send CTS invoices for finding workers. CTS paid the recruiters a
commission of fifty cents per hour for each worker, plus an extra
fifty cents per hour if the recruiters transported the workers to
the client company.
CTS provided client companies with blank timesheets that
the clients filled out and returned to CTS each week. CTS then
created invoices listing workers' names, the hours they worked, and
the billing rate, and submitted them to clients. After CTS had
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collected and added up the timesheets each week, Powers or Mahan
wrote a check for the total amount, sometimes above $100,000, that
would be cashed and the cash distributed to the workers. Powers
and Mahan divided the cash into separate quantities for each
recruiter and placed the cash in bags, working from paysheets that
listed workers' names, the hours they worked, and their pay rate.
Each bag was then given to a recruiter with a paysheet so the
recruiters could pay the workers. CTS also paid recruiters and
some CTS office workers in cash. Between January 1, 2000 and June
30, 2004, CTS cashed checks totaling $26,563,854.
B. CTS's Failure to Pay Payroll Taxes or File Forms 1099
Employers report payroll paid to employees to the IRS
each quarter using a Form 941. Employers pay FICA taxes, also
known as payroll taxes, in connection with the filing of Form 941.
The total payroll tax rate during the relevant period was 15.3% of
an employee's wages; employers are to withhold half of the payroll
tax amount from employees' paychecks, and to pay the other half
themselves. Employers are also supposed to withhold federal income
tax from employees' wages. CTS filed Forms 941, but it did not
report the cash wages paid1 and did not pay payroll taxes or
withhold any taxes. Powers and Mahan did not instruct recruiters
to withhold taxes from wages paid to temporary workers. Joseph
1
CTS filed Forms W-2 disclosing wages paid to Powers, Mahan,
and four or five other CTS employees, but did not file Forms W-2
for temporary workers or recruiters.
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Guidoboni, a revenue agent in the IRS Special Enforcement Program,
estimated at trial that the total tax due on the unreported payroll
was $7,592,003.55.
When a company uses contract laborers rather than
employees, it is still required to file a Form 1099 whenever it has
paid an individual or unincorporated business more than $600 in a
calendar year. In 2000, Powers and Mahan hired Joyce Christensen,
a certified public accountant, to prepare their corporate and
personal tax returns. Powers and Mahan told Christensen that
$1,923,155 was to be deducted on CTS's tax return as contract
labor, and that these contract laborers were temporary workers.
Christensen told the defendants that CTS needed to file a Form 1099
for anyone classified as a contract laborer and explained how to
determine if someone was an employee (requiring the filing of a
Form W-2) or a contract laborer (requiring the filing of a Form
1099). Christensen sent a letter to the defendants on March 9,
2000, reiterating that "properly classified independent contractors
should receive a Form 1099 at the end of each calendar year. If
you fail to provide the proper forms, you could have exposure to a
large tax liability." Christensen stopped working with the
defendants for the 2000 tax year because they would not follow her
advice. During the charged conspiracy period, from 2000 to 2005,
CTS did not file any Forms 1099 with the IRS.
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C. CTS's Underreporting of Payroll to Insurance Carriers
With certain exceptions not relevant here, Massachusetts
employers are responsible for maintaining workers' compensation
insurance for everyone to whom the employer makes payments. Upon
the expiration of each policy term, the insurance company audits
the employer and reviews the employer's records to determine, inter
alia, the actual remuneration paid by the employer to individuals
and businesses during the previous year, including payments to
subcontractors or contract labor. The audit then arrives at a
final premium figure for the policy term that determines whether
the employer owes additional money to the insurer or the insurer
owes the employer a rebate.
CTS was audited by its workers' compensation insurance
carriers several times. CTS failed to report all of its payroll to
its auditors, resulting in its carriers underbilling it by more
than $200,000 between June of 2000 and February of 2005.
D. Powers' and Mahan's Statements in the DAK Investigation
In April of 2000, Powers met with Federal Bureau of
Investigation ("FBI") agent Nancy McCormick and a representative of
the U.S. Attorney's office to discuss the business practices of
DAK, his previous employer. Powers explained that DAK was a
temporary employment agency, and said that the majority of DAK's
payroll involved off-the-books cash payments. Powers described how
he cashed checks for DAK, and how this cash was then divided into
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envelopes and given to "lieutenants" to distribute to temporary
workers. Powers provided Agent McCormick with a hard drive
containing Excel spreadsheets recording cash payments to temporary
workers that were not disclosed on DAK's Forms 941, and also said
that DAK's cash payments were designated as contract labor on DAK's
tax returns. Powers stated that DAK's cash payments had not been
reported to DAK's workers' compensation insurance carriers and that
DAK had withheld no tax from these cash payments. Powers was the
first person to meet with Agent McCormick and provide information
about DAK, and he ultimately spoke with Agent McCormick five times
between April of 2000 and May of 2001.
In 2002, Mahan met with Joel Burman, an IRS Criminal
Investigation special agent, to discuss DAK. During Mahan's
interview, he explained that DAK and its affiliated companies paid
their employees with cash and used "managers" to recruit, pick up,
transport, and pay their employees. Mahan stated that DAK
underreported its payroll to its workers' compensation carriers in
order to reduce its premiums.
Federal agents then obtained a search warrant on June 25,
2001 to search the offices of DAK and its affiliated companies.
The investigation culminated in the indictment, trial, and
conviction of DAK's owners for mail fraud, procuring false tax
returns, and conspiring to defraud the United States of employment
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and income taxes and to commit insurance fraud. See United States
v. McElroy, 587 F.3d 73, 74, 76 (1st Cir. 2009).
E. Massachusetts Department of Unemployment Assistance
Proceedings Against CTS
Massachusetts employers are required to contribute to the
state unemployment assistance fund in an amount determined, in
part, by how many employees they have. Employers report the
information upon which their contributions to employment assistance
are based to the Massachusetts Department of Unemployment
Assistance ("DUA") each quarter, and some employers are then
selected to be audited.
In July of 2000, Roberta Davis of the DUA notified CTS
that it had been selected for an audit focusing on CTS's operations
during 1998. CTS retained attorney Edward DeFranceschi with
respect to the DUA matter. On September 1, 2000, CTS provided
Davis with a "transaction report" that reflected a number of cash
disbursements. During a follow-up meeting with Davis, DeFranceschi
and Powers characterized the recipients of these disbursements as
"subcontractors."
Davis requested additional "documentation, whether it's
business cards, invoices, contracts, Yellow Pages, something to
show me that these people are in business for themselves," as well
as Forms 1099 and other back-up documentation. Davis asked for
more documentation about one of CTS's recruiters, Jose Gramajo, and
his wife, Delmy Gramajo, who transported workers for CTS.
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In February of 2000, DeFranceschi sent Davis a letter,
with a copy to Powers, in which he stated:
CTS routinely calls Delmy and Jose to handle certain jobs
that it has acquired. Delmy and Jose, however, are not
CTS employees. Each of them and several others quote a
price. If the price is within the profit targets CTS
quotes the customer, they complete the job and are paid.
On February 21, 2000, DeFranceschi sent Davis another letter
stating that:
You asked about invoices from the persons who had
received large payments from Commonwealth Temp Services
(CTS). I have enclosed three invoices from 1998 and a
current invoice. . . . CTS solicits situations requiring
unskilled labor. . . . If CTS successfully bids the job,
it contacts various parties that it has done business
with in the past and inquires if they are interested in
doing the job at a fixed rate for labor and
transportation. CTS usually finds someone to organize
the labor for the job. The invoices I have enclosed
represent the billing for the jobs to CTS. . . . Please
note the detail in the February 4, 2001 invoice from
K & S Comm & Domestic Services. The job, the labor and
the transportation are all separately stated.
Two of the enclosed invoices purported to be from Delmy Gramajo.
Powers had faxed the enclosed invoices to DeFranceschi on an
undisclosed date with the note: "3 early and 1 recent invoice --
These are good representatives of the type of invoices we rec'd
then and now."
In fact, Delmy Gramajo never submitted any invoices to
CTS, much less the "invoices" that DeFranceschi provided to Davis.
Neither did Jose Gramajo. The invoice that DeFranceschi identified
as "from K & S Comm & Domestic Services" was actually a paysheet
that CTS had originally provided to Jose Gramajo.
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On April 6, 2004, the DUA issued a determination to CTS
that twelve listed individuals "and others similarly employed" were
"in 'employment,'" making "them your employee(s) and not
independent contractor(s)."
CTS appealed and hearings were held on June 9, 2004 and
July 1, 2004, which Powers, Mahan, and attorney DeFranceschi
attended. Powers testified under oath that he did not know the
"medium of payment" between the recruiters and the temporary
workers; that for each new job he contacted the recruiters to
solicit a price from them for which they would be willing to find
workers; that the recruiters, at least initially, invoiced CTS for
the services they performed; and that he did not have direct
knowledge of the amount the temporary workers were paid. The DUA,
in an undated decision signed by review examiner Scott E. Pachico,
affirmed the determination that "an employer-employee relationship
existed between [the listed] individuals [and others similarly
employed] and Commonwealth Temporary Services, Inc." This decision
made CTS liable for unemployment contributions for its temporary
workers, and Powers and Mahan then shut down CTS's operations in
December of 2004.
F. Powers' Statements to IRS Criminal Investigators
During a 2006 interview with IRS Agent David Butka,
Powers stated that CTS used "subcontractors," but had no contracts
with these "subcontractors" and paid them in cash, which the
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"subcontractors" paid to the workers. Powers stated that the
"subcontractors" requested that the payments be in cash and that he
did not know whether the temporary workers were paid in cash.
Powers said that the "subcontractors" initially submitted invoices
to CTS but that CTS eventually began directly incorporating
information from the "subcontractors" into its internal
spreadsheets.
Powers admitted that CTS did not issue Forms 1099 to the
"subcontractors," but insisted that accountants never discussed
Forms 1099 with him and that he was not familiar with the Form 1099
filing requirements.
II.
We treat each of the claims presented on appeal.
A. Refusal to Give Advice-of-Counsel Instruction
Although the government, in its initial proposed jury
instructions given to the district court on the fourth day of
trial, requested that an advice-of-counsel instruction2 be given,
2
The government's proposed instruction stated in part that:
You have heard evidence that the defendants received
advice from a lawyer and you may consider that evidence
in deciding whether the defendants acted willfully and
with knowledge of wrongdoing.
The mere fact that the defendants may have received legal
advice does not, in itself, constitute a complete
defense. Instead, you must ask yourselves whether the
defendants:
(1) honestly and in good faith sought the advice of a
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this was apparently based on defense counsel's representation in
his opening statement that he would call attorney DeFranceschi to
testify that he advised the defendants that their position -- that
neither recruiters nor temporary workers were employees of CTS --
was "litigable" and "reasonable." By day seven of trial, the
defense had not called DeFranceschi, and the defense never did so.
At the charge conference the government stated that it was
withdrawing the request. Defense counsel asked that the
instruction be given.
The district court decided not to give an advice-of-
counsel instruction, giving two reasons: (1) "the defendants have
presented no evidence that they fully advised Attorney DeFranceschi
of their plan, received advice regarding that plan before 2000, and
followed that exact advice in good faith"; and (2) "even if there
were some basis for an advice of counsel instruction, that
instruction is subsumed by the general good-faith instruction that
the Court will give."
It is a basic tenet of criminal law that a defendant is
entitled to an instruction on his theory of defense provided that
lawyer on legal questions about which they were in
doubt;
(2) whether they fully and honestly laid all the facts
before their lawyer; and
(3) whether in good faith they strictly followed such
advice, relying upon it and believing it to be
correct.
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the theory is a legally valid one and there is evidence in the
record to support it. United States v. Rodriguez, 858 F.2d 809,
812 (1st Cir. 1988) (instruction regarding entrapment). In making
this determination, the district court is forbidden from weighing
the evidence, making credibility determinations, or resolving
evidentiary conflicts. Rather, the court must take the evidence in
the light most favorable to the defendant, to see if the inferences
and evidence can plausibly support the theory of the defense. Id.These same rules are used for the defense of good faith
reliance on the advice of counsel. See United States v.
Christopher, 142 F.3d 46, 55 (1st Cir. 1998). We review these
determinations de novo. See United States v. Howard, 687 F.3d 13,
18 (1st Cir. 2012); United States v. Sánchez-Bérrios, 424 F.3d 65,
76 (1st Cir. 2005); Rodriguez, 858 F.2d at 812. This is different
from the abuse of discretion standard in some other circuits. See,
e.g., United States v. Bush, 626 F.3d 527, 538-39 (9th Cir. 2010).
There is no claim the good-faith instruction was flawed.
Here, it was essential to the prosecution to show beyond
a reasonable doubt that the defendants had knowingly committed the
charged offenses. The crimes with which defendants were charged
required an intent to impede or defraud, or wilfully making or
aiding a false representation. See United States v. Mubayyid, 658
F.3d 35, 57 (1st Cir. 2011) (conspiracy to defraud the IRS); United
States v. Stergios, 659 F.3d 127, 132 (1st Cir. 2011) (mail fraud);
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26 U.S.C. § 7206(1) (subscribing false tax returns), (2) (procuring
false tax returns). If the defendants had acted pursuant to advice
of counsel, this would have been very useful evidence for them of
lack of fraudulent intent or wilfulness. See United States v.
Ibarra–Alcarez, 830 F.2d 968, 973 (9th Cir. 1987).
The circuits have provided some guidance as to the types
of facts which will warrant giving an advice-of-counsel
instruction. Some have suggested a defendant must show that he or
she fully disclosed all material facts to his/her attorney before
the advice was given, that the attorney gave that advice, and that
the defendant actually relied on counsel's advice in a good faith
belief that his/her conduct was lawful. See Bush, 626 F.3d at 539;
United States v. Rice, 449 F.3d 887, 897 (8th Cir. 2006). We have
been clear that the defense "is not available to one who omits to
disclose material information to advisors or dictates imprudent
outcomes to advisors." Janeiro v. Urological Surgery Prof'l Ass'n,
457 F.3d 130, 140 (1st Cir. 2006). That principle disposes of this
claim.
At trial, the defendants chose not to testify and not to
call DeFranceschi -- whom they first consulted in 2000 to represent
them before the DUA -- as a witness. The prosecution introduced
exhibits demonstrating that Powers had faxed phony invoices to
DeFranceschi and represented to him that they were "good
representatives of the type of invoices we rec'd then and now" from
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recruiters. The government also introduced evidence that
DeFranceschi represented to Davis, copying Powers, that CTS's
recruiters "quote a price. If the price is within the profit
target CTS quotes the customer, they complete the job and are
paid." DeFranceschi would have no first-hand knowledge of this and
was likely repeating representations made to him. Legal advice
made based on material misrepresentations to counsel does not
qualify for the defense. There was no evidence that Powers
corrected this statement, which he knew to be a misrepresentation.
Defendants assert that "[i]t is clear from the record
evidence that Attorney DeFranceschi knew the material facts about
the CTS business model and advocated that the model was
appropriate." They have pointed to no evidence that this was so,
that DeFranceschi advised them that their actions were legal, or
that they relied on such advice. In light of the evidence that
attorney DeFranceschi was not told needed information and was given
false information, the instruction was unavailable.
We add that the ample good-faith instructions cured any
possible harm to the defendants. The good-faith instructions given
were as follows: concerning the general meaning of "knowingly":
"[i]f the defendant acted in good faith . . . that is a defense to
the charge that he acted in a knowingly criminal manner";
concerning the mail fraud charge: "if the defendant acted in good
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faith, he cannot be guilty of the crime"; and concerning the
charges of subscribing or procuring false tax returns:
if the defendant then under consideration in good faith
believed that he paid all the taxes he owed, he cannot be
guilty of criminal intent to evade taxes. Therefore, if
you find that the defendant then under consideration
honestly believed that he owed no taxes, even if that
belief was unreasonable or irrational, then you should
find him not guilty. However, you may consider whether
the defendant's belief was actually reasonable as a
factor in deciding whether he held that belief in good
faith.
These instructions adequately conveyed that an absence of intent to
defraud, or an honest belief that taxes were not owed, would shield
defendants from conviction. The defendants have not argued that
the instructions would not encompass a situation in which their
good-faith belief was based on the advice of counsel. We do not
suggest that the presence of a good-faith instruction invariably
eliminates the need for a court to consider an advice-of-counsel
instruction. But here, there could have been no prejudice to
defendants. See United States v. Allen, 670 F.3d 12, 15 (1st Cir.
2012).
B. Admission of Testimony on Conclusions Purportedly Related
To Ultimate Issues
We review a trial court's rulings admitting or excluding
evidence for abuse of discretion where the appellant lodged a
contemporaneous objection on the proper ground; where no such
objection was made, we review these rulings for plain error.
United States v. Perez-Ruiz, 353 F.3d 1, 10 (1st Cir. 2003).
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1. Testimony of IRS Agent Guidoboni
Agent Guidoboni was called as a summary witness who
presented calculations of the payroll taxes due and owing after
examination of voluminous exhibits. In the course of this, he
referred to the cash payments as "cash payroll." Defendants filed
an unsuccessful pretrial motion in limine to exclude Agent
Guidoboni's testimony and renewed it at trial, again
unsuccessfully. Defendants argue that the agent's characterization
of the cash distributions to workers as "unreported payroll" was
improper. They say this was a legal conclusion reserved to the
jury.
The objection is foreclosed by United States v.
Stierhoff, 549 F.3d 19 (1st Cir. 2008), and United States v.
McElroy, 587 F.3d 73 (1st Cir. 2009). Indeed, in McElroy we
approved exactly this type of testimony, and Guidoboni was the
witness there, as well. 587 F.3d at 81-83. IRS agents may testify
as summary witnesses in tax evasion cases to "analyze facts already
introduced into evidence and spell out the tax consequences that
necessarily flow from those facts." Stierhoff, 549 F.3d at 28.
One "limitation on this type of evidence is that the agent may not
testify about the defendant's state of mind." United States v.
Mikutowicz, 365 F.3d 65, 72 (1st Cir. 2004). Nor may he testify as
to the meaning of provisions of the Internal Revenue Code. Id. at
73. Agent Guidoboni did neither.
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Agent Guidoboni "ma[d]e assumptions concerning the proper
attribution of the income from the transactions in this case" in
identifying the tax consequences of these transactions, but his
assumptions were supported by evidence in the record. United
States v. Diez, 515 F.2d 892, 905 (5th Cir. 1975). Agent Guidoboni
calculated CTS's cash payroll by adding the value of the checks CTS
cashed during this period. His method was supported by the
testimony of Manuel Deaguiar, CTS's office manager, that CTS cashed
checks in order to pay recruiters and temporary workers and the
fact that his figure roughly matched CTS's own deductions, reported
to the IRS, for "contract labor" over this period.
Agent Guidoboni then calculated the taxes owing on this
amount by assuming that these payments went to workers who were CTS
employees. This assumption was supported by testimony at trial
that defendants: (1) controlled where and when recruiters and
temporary workers worked; (2) determined how much recruiters and
temporary workers earned; (3) distributed cash to recruiters for
direct payment to recruiters and temporary workers; (4) addressed
problems that client companies had with temporary workers; (5)
addressed temporary workers' complaints about their pay; (6)
oversaw treatment of injured temporary workers; (7) had no
contracts with recruiters; and (8) permitted recruiters and
temporary workers to quit at any time. See 26 U.S.C. § 3121(d)
(defining employee as "any individual who, under the usual common
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law rules applicable in determining the employer-employee
relationship, has the status of an employee"); Nationwide Mut. Ins.
Co. v. Darden, 503 U.S. 318, 323-24 (1992) (enumerating thirteen-
factor common-law test for determining whether a hired party is an
employee); Rev. Rul. 87-41, 1987-1 C.B. 296 (enumerating twenty
factors to consider in determining whether an individual is an
employee or an independent contractor). Further, Agent Guidoboni
explicitly conceded that his analysis rested on this assumption and
defense counsel cross-examined him on this point. The district
court did not abuse its discretion in admitting Agent Guidoboni's
testimony.
2. Testimony of Deaguiar, Novick, Brady, McKenna,
Soto, and Davis
Defendants challenge the testimony of several witnesses
on the basis that they "expressed legal or factual conclusion[s] on
key disputed issues that should have been left to the jurors." A
lay witness may offer an opinion so long as it is "(a) rationally
based on the witness's perception; (b) helpful to clearly
understanding the witness's testimony or to determining a fact in
issue; and (c) not based on scientific, technical, or other
specialized knowledge within the scope of Rule 702." Fed. R. Evid.
701; see also United States v. Sanabria, 645 F.3d 505, 515-16 (1st
Cir. 2011). "An opinion is not objectionable just because it
embraces an ultimate issue." Fed. R. Evid. 704(a).
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Deaguiar over objection described the individuals who
recruited temporary workers for CTS as "recruiters." Defendants
argue that this term "strongly suggested the conclusion that the
government was attempting to prove." Deaguiar's term accurately
describes what these "recruiters" did for CTS, and he testified
that Powers and Mahan themselves used this term. Deaguiar also
testified that defendants used the terms "'recruiters' and
'independent contractors' . . . interchangeably." His testimony
was not on any ultimate conclusion.
Defendants argue that Bruce Novick, an accountant who
prepared tax returns for Mahan and Powers between 2000 and 2004,
expressed the opinion that the only legitimate reason for CTS not
to file Forms 1099 would be on the condition that CTS was paying
the claimed amounts to corporations. Defendants overread Novick's
testimony. In reality, Novick merely testified, over objection,
that (1) payments in excess of $600 to individuals who are not
corporations require filing of a Form 1099, and (2) Powers told him
CTS was not filing Forms 1099 because the payments for contract
labor were to other corporations. Neither statement invaded the
province of the jury.
John Brady, plant manager and human resources manager at
a CTS client, testified, over objection, that his understanding was
that temporary workers "work for the agency that I'm hiring them
through." He did so only after testifying that the temporary
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workers were not employees of his company. Mahan argues that this
was inadmissible opinion testimony on the ultimate factual issue in
the case. We see no abuse of discretion. Brady merely stated his
understanding of whom the temporary workers "worked for," and did
not attempt to explain the legal significance of this
understanding.
Andrea McKenna, a human resources manager at another CTS
client, testified, over objection, that she understood that the
recruiters "worked for" CTS. Defendants challenge this testimony
for reasons similar to those advanced regarding Brady's testimony.
Admitting this testimony was likewise not an abuse of discretion.
Mahan also argues that McKenna "opine[d], over the
defendant's objection, that with temporary workers the agency was
responsible for the payroll taxes." She did so after testifying
that temporary workers were not on the payroll of her company.
Mahan argues that she should not have been permitted to go further,
that the jury was in a better position to decide this, and that her
views were not helpful to the jury. To the extent that McKenna
expressed an opinion, it helped the jury understand why clients pay
a premium to temporary employment agencies. Further, the contract
between CTS and this client -- which was introduced without
objection -- stated that CTS "will pay all applicable local, state
and federal payroll taxes on all labor provided." McKenna's
testimony buttressed that the parties' conduct was consistent with
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the contract. It could not have been prejudicial to the
defendants.
Jose Soto, a recruiter for CTS, testified, over
objection, that he did not consider himself an independent
contractor. He explained that he understood an independent
contractor to be "somebody who works for himself and pays his own
taxes," and stated that he was not such a person because CTS was
"paying me in cash." To the extent that this statement offered a
lay opinion, it was helpful to the jury and the criteria on which
Soto relied were explicit and subject to attack. Indeed, defense
counsel cross-examined Soto on this subject, eliciting that "you
knew that the term 'independent contractor' meant that you were
responsible to pay your own taxes" and that "if you admitted you
were an independent contractor . . . that would not be a very good
thing for you."
Defendants challenge as inadmissible Davis's testimony
that temporary employment agencies often provided inaccurate
information to the DUA. In a separate argument, defendants also
argue that the court erred in (1) permitting Davis to testify that
certain individuals, including Delmy Gramajo and Jose Gramajo, were
employees of CTS; and (2) refusing to permit defense counsel to
cross-examine Davis about this conclusion.
Davis testified, over objection, that temporary
employment agencies "don't always give you the correct amount of
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names and numbers." Defendants argue that in eliciting this
testimony "the government asked the jurors to assume, based on the
past experiences of Ms. Davis with other companies in the same
business, that CTS and its agents were engaged in the same pattern
of wrongful conduct." While "[t]he threat of guilt by association
is perhaps greatest where the defendant has done little but is
closely associated with others already known to have been
convicted," Allen, 670 F.3d at 16, it is a leap too far to find
that threat here. Davis did not testify that furnishing incorrect
names or numbers to the DUA, without more, could constitute
"wrongful conduct" warranting conviction, and she did not claim
that defendants were closely associated with persons who had
committed wrongful conduct. Instead, her testimony helped the jury
understand why lengthy DUA audits were sometimes necessary. And
there was ample evidence that defendants had submitted inaccurate
reports, rendering this testimony harmless. The court did not
abuse its discretion in admitting this testimony.
On the second point, Davis did agree that "the
individuals you highlighted, including Delmy Gramajo and Jose
Gramajo, were employees," but she did so in response to a question
from defense counsel. "[A]n 'attorney can . . . waive his client's
right to raise an error on appeal by deliberately eliciting or
relying on inadmissible evidence,'" United States v. Vachon, 869
F.2d 653, 658 (1st Cir. 1989) (second alteration in original)
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(quoting J. Weinstein & M. Berger, Weinstein's Evidence ¶ 103 [02]
(1988)). Defense counsel did just that here for sensible tactical
reasons: to elicit from Davis that attorney DeFranceschi indicated
he "did not agree with that assessment and that these people,
including Delmy Gramajo and Jose Gramajo, were subcontractors."
As for the challenge to restrictions on the cross-
examination of Davis, "[w]e review this challenge de novo to
determine whether defense counsel was afforded a reasonable
opportunity to impeach adverse witnesses. Should that threshold be
reached, any restrictions that were placed on the extent and manner
of the cross-examination will be reviewed for abuse of discretion."
Mikutowicz, 365 F.3d at 72-73 (citations omitted). Defense counsel
were afforded ample opportunity to cross-examine Davis about her
conclusion that Delmy Gramajo and Jose Gramajo were CTS employees.
Defense counsel were permitted to ask Davis whether a number of
factors -- including that Jose Gramajo had business cards, had
registered businesses at city hall and with a contractors
association, "was running" between six and twelve passenger vans to
transport workers, owned a garage to maintain these vans, could
accept or reject job requests, and actually paid temporary workers
-- would have been relevant to her determination.
The district court sustained objections to only three
defense questions, and its rulings did not meaningfully constrain
the defense's cross-examination of Davis. Further, to the extent
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the district court refused to permit defense counsel to question
Davis about the legal test for identifying independent contractors,
it "impose[d] reasonable limits on cross-examination in order to
avoid confusion of the issues," id. at 72 (quoting United States v.
Gonzalez–Vazquez, 219 F.3d 37, 45 (1st Cir. 2000)). "[I]t is for
the judge, not the lawyers or the witnesses, to inform the jury of
the law applicable in the case. . . ." Nieves-Villanueva v. Soto-
Rivera, 133 F.3d 92, 100 (1st Cir. 1997).
C. Exclusion of Pachico's Testimony and Draft Opinion
Powers and Mahan sought to introduce the testimony and
draft decision of DUA Hearing Officer Pachico, who conducted two
hearings and prepared a draft opinion. That early, non-final draft
tentatively concluded that it had not been shown that an
employee-employer relationship existed between CTS and certain
workers. The DUA ultimately determined that these certain workers
were CTS employees, contrary to Pachico's preliminary conclusion.
The standard of review is not favorable to defendants.
Before trial, the government moved to exclude testimony by Pachico
about the DUA hearings, as well as Pachico's draft opinion. The
district court provisionally granted the government's motion as to
Pachico's testimony and definitively granted the motion as to
Pachico's draft opinion. At trial defendants did not renew their
objection to the government's motion and did not attempt to
introduce Pachico's testimony. Because defendants failed to
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preserve the issue, review of the district court's provisional
ruling regarding Pachico's testimony is for plain error. See
United States v. Raymond, 697 F.3d 32, 38 (1st Cir. 2012); United
States v. Whitney, 524 F.3d 134, 140 (1st Cir. 2008). We review
the district court's definitive ruling regarding Pachico's draft
opinion for abuse of discretion. See Fusco v. General Motors
Corp., 11 F.3d 259, 262-63 (1st Cir. 1993).
There was very limited evidence as to the DUA proceedings
put in by the prosecution. That evidence pertained to Powers' and
DeFranceschi's statements in response to Davis's requests for
information and Powers' testimony before the DUA. Indeed, the
conclusion of the DUA was not admitted, so it is difficult to see
how a preliminary draft opinion could be admissible under the rule
of completeness. See United States v. Millan, 230 F.3d 431, 434
(1st Cir. 2000). Further, the evidence was that the preliminary
draft's conclusion was itself based on factual misrepresentations.
The district court quite correctly concluded that further
inquiry in this area would have resulted in a mini-trial sideshow
which would have distracted attention from the real issues in the
trial. That is true, whatever minimal value the preliminary draft
(soon reversed by the final opinion) would have had in shoring up
defendants' good faith argument. To the extent that defendants are
arguing that the purpose of the offered preliminary draft was not
for its conclusion, but only for Pachico's personal conclusions
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about the defendants' good faith, that latter purpose was
impermissible. In a criminal case, "whether the defendant did or
did not have a mental state or condition that constitutes an
element of the crime charged or of a defense" is "for the trier of
fact alone." Fed. R. Evid. 704(b).
One more observation: admitting Pachico's draft opinion
likely would have harmed defendants under the very doctrine of
completeness they rely on. Had the preliminary draft come in, it
would have laid the basis for the admission of the final draft
affirming that certain workers were CTS employees. Defendants'
argument would fail even if all issues had been preserved.
III.
We affirm the defendants' convictions and sentences.
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