United States v. Veksler ( 1995 )

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
8-9-1995
United States v Veksler
Precedential or Non-Precedential:
Docket 94-1982
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UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
__________________
No. 94-1982
__________________
UNITED STATES OF AMERICA
v.
IGOR VEKSLER,
Appellant
__________________
No. 94-2079
__________________
UNITED STATES OF AMERICA
v.
RICHARD MCNAUGHTON,
Appellant
__________________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Criminal Nos. 93-cr-00147-8, 93-cr-00147-10)
__________________
Submitted Pursuant to Third Circuit LAR 34.1(a)
July 21, 1995
Before: SLOVITER, Chief Judge,
SCIRICA and McKEE, Circuit Judges
(Filed: August 9, 1995)
Joel I. Fishbein
Law Office of Jack Meyerson, Esq.
Philadelphia, PA 19103
Attorney for Appellant Igor Veksler
Robert E. Welsh, Jr.
Philadelphia, PA 19103
1
Attorney for Appellant Richard McNaughton
Loretta C. Argrett
Assistant Attorney General
Robert E. Lindsay
Alan Hechtkopf
Gregory V. Davis
United States Department of Justice
Tax Division
Washington, DC 20044
Robert E. Courtney, III
Mary E. Crawley
Of Counsel:
Michael R. Stiles
United States Attorney
Office of United States Attorney
Philadelphia, PA 19106
Attorneys for Appellee
___________________
OPINION OF THE COURT
___________________
SLOVITER, Chief Judge.
Richard McNaughton and Igor Veksler appeal from the
judgments of conviction and sentences entered against them by the
district court. For the reasons set forth below, we will affirm
the district court's orders.
I.
Facts and Procedural History
During 1991 and 1992, McNaughton and Veksler were
involved in a scheme to evade federal and state taxes on sales of
number two oil, a product that can be used as either home heating
oil or diesel fuel. During this period, no taxes were imposed by
the federal government or either New Jersey or Pennsylvania on
the sale of number two oil for use as home heating oil. In
2
contrast, the United States, New Jersey and Pennsylvania did tax
the sale of number two oil when it was to be used as diesel fuel,
and imposed that tax on the producer or importer who first sold
the oil to a purchaser that did not hold a Registration for Tax-
Free Transactions (IRS Form 637).
The tax evasion scheme in which McNaughton and Veksler
participated involved the use of "daisy chains," a series of
paper transactions through numerous companies, some of which were
largely fictitious. In each "daisy chain," the change in
characterization of number two oil from tax-free home heating oil
to taxable diesel fuel was effected through the use of a "burn
company," which would purchase number two oil as tax-free home
heating oil and then sell it to another company as diesel fuel.
The burn company, which typically held an IRS Form 637, would
produce invoices to its purchaser reflecting that the diesel fuel
taxes had been paid and that the taxes were included in the
price. Although the burn company was liable for the payment of
taxes on the oil, it paid no taxes and typically existed for a
brief time and then disappeared. The participants in the scheme
took commissions on the sales at the step in which each
participated.
On September 19, 1993, the United States filed a
superseding indictment charging eighteen different defendants
with various offenses related to the "daisy chain" operation.
Both McNaughton and Veksler were charged with one count of
conspiracy. McNaughton was also charged with twenty-three counts
of wire fraud, three counts of attempted tax evasion, and RICO
3
conspiracy.1 In addition to the conspiracy count, Veksler was
charged with six counts of wire fraud and one count of attempted
tax evasion.
On May 23, 1994, after a twenty-day trial, the jury
convicted McNaughton on all counts. Veksler was convicted of the
conspiracy and wire fraud counts and acquitted on the tax evasion
counts. McNaughton was sentenced to a prison term of forty
months, five years of supervised release, and a special
assessment of $1,400.00. Veksler was sentenced to a prison term
of twenty-six months, followed by three years of supervised
release. These appeals followed.
II.
Discussion
A. Appeal No. 94-2079--McNaughton
McNaughton was the president of BELL/ASCO, a
Pennsylvania corporation that was in the business of making
purchases and sales of number two oil. Prior to April 1, 1992,
BELL/ASCO allegedly played a dual role in the "daisy chain"
scheme by both supplying number two oil to the chain and buying
oil at the end of the chain. After April 1, 1992, BELL/ASCO
served only as a supplier and a new company, ASCA/NOVA, purchased
oil at the end of the chain. ASCA/NOVA, however, operated from
the same office as BELL/ASCO.
1. Did the district court err in refusing to
suppress McNaughton's statement to Perry on
December 1, 1992?
1
A RICO forfeiture count under 18 U.S.C. § 1963(m) was also
brought against McNaughton.
4
On November 24, 1992, the government executed a search
warrant at Atlantic Heating and Oil, BELL/ASCO's parent
corporation. During the course of the search, McNaughton was
interviewed in his office by an FBI Agent and a Pennsylvania
Revenue Enforcement Officer. Sometime during the interview,
McNaughton left his office to speak with Mr. Thomas Smida, an
attorney who had arrived to represent Atlantic in connection with
the execution of the search warrant. After conferring with
Smida, McNaughton informed the agents that Smida did not want him
to make any more statements. Later, Smida was present when an
agent elicited background information from McNaughton. Smida,
however, halted the interview when an agent asked McNaughton
about his tax returns. Smida was also present when McNaughton's
briefcase was searched.
On November 30, 1992, FBI Agent Sid Perry called
McNaughton and invited him to the FBI office in Philadelphia to
review the evidence against him. On December 1, 1992, McNaughton
went to the FBI office, where he was interviewed by Agent Perry.
During the course of the interview, McNaughton admitted (1) that
he was involved in "daisy chain" deals, (2) that the price of oil
purchased through the "daisy chains" was too low for taxes to
have been paid, (3) that ASCA/NOVA was established in order to
avoid BELL/ASCO's appearance at both ends of the chains, and (4)
that he had received commission payments for his participation in
the "daisy chain" scheme. At no time during the interview did
McNaughton state that he was represented by Mr. Smida or any
other counsel.
5
McNaughton contends that because he was represented by
Smida at the time of Agent Perry's questioning, the district
court erred by refusing to suppress his statement. McNaughton
argues that Perry violated Rule 4.2 of the Pennsylvania Rules of
Professional Conduct by questioning him,2 and that suppression is
the appropriate sanction.
Rule 4.2 of the Pennsylvania Rules of Professional
Conduct provides, in relevant part, that:
In representing a client, a lawyer shall not
communicate about the subject of the representation
with a party the lawyer knows to be represented by
another lawyer in the matter, unless the lawyer has the
consent of the other lawyer or is authorized by law to
do so.
Pa.R.P.C. 4.2. As the district court concluded, in order for
McNaughton to prevail on his motion to suppress the court would
have to find (1) that the Rule applied to Agent Perry, although
he is not an attorney, (2) that McNaughton was represented by
counsel when Perry interviewed him on December 1, 1992, or that
McNaughton is otherwise entitled to protection under the Rule,
and (3) that suppression of the statement is an appropriate
remedy for a violation of the Rule.
The district court concluded that McNaughton was not
represented by counsel at the time of the interview. There is
adequate support in the record for this conclusion. During the
execution of the search warrant at Atlantic, Smida represented
2
The Pennsylvania Rules of Professional Conduct are applicable to
all actions before the United States District Court for the
Eastern District of Pennsylvania. See Rule 14.IV(B) of the Local
Rules of Civil Procedure for the United States District Court for
the Eastern District of Pennsylvania.
6
himself as the "company" attorney, and never suggested that he
represented McNaughton. App. at 722. McNaughton also referred
to Smida as his employer's attorney, and never suggested that
Smida represented him in a personal capacity. App. at 723. In
addition, on November 25 or 26, 1992, Atlantic informed
McNaughton that it would not represent him in connection with
this matter and that he should retain personal counsel. App. at
722. Indeed, at the conclusion of the December 1, 1992,
interview, McNaughton suggested to Perry that he might retain an
attorney and asked for Perry's opinion of two possible
candidates. App. at 725. Finally, and most significantly,
McNaughton testified at the suppression hearing that Smida was
not representing him personally at the time of the December 1,
1992 interview. App. at 2869-70. In light of these facts, we
cannot characterize the district court's conclusion that
McNaughton was not represented at the time of the interview as
clearly erroneous. Thus, McNaughton may not invoke the
protections of Rule 4.2.
Nor does McNaughton have standing to invoke Rule 4.2 on
Atlantic's behalf. See, e.g., Rakas v. Illinois, 439 U.S. 128,
133-34 (1978); United States v. Fortna, 796 F.2d 724, 732-34 (5th
Cir.) (defendant lacks standing to assert violation of a third-
party's attorney-client privilege), cert. denied, 479 U.S. 950(1986). Although Rule 4.2 applies to communication with persons
having managerial responsibility on behalf of a represented
organization, see Pa. R.P.C. 4.2 (Comment), we need not decide
whether Perry's questioning of McNaughton violated Rule 4.2 as it
7
applies to Atlantic, because McNaughton could not invoke any such
violation as a basis for his suppression motion.
It follows that the district court did not err in
denying McNaughton's motion to suppress his statements to Perry
on December 1, 1992.3
2. Did the district court err in denying
McNaughton's motion to suppress the wiretap
information?
McNaughton contends that the district court erred by
refusing to suppress the wiretap information in this case because
the warrant for those wiretaps was granted on the basis of
information obtained through the use of a pen register. While
McNaughton acknowledges that the United States Supreme Court
upheld the use of pen registers without a warrant in Smith v.
Maryland, 442 U.S. 735 (1979), he contends that the Smith
decision was based upon the fact that pen registers were
incapable of intercepting conversations. McNaughton argues that
modern technological advances, which have permitted the
development of pen registers that can be turned into listening
devices with the mere turn of a switch, merit reconsideration of
the Supreme Court's position. At a minimum, he reasons, he
should be permitted to conduct discovery regarding the use of the
pen register and the government policies regarding such use.
3
Because we find that McNaughton was neither represented at the
time of the interview nor otherwise entitled to the protections
of Rule 4.2, we need not address whether suppression is the
appropriate remedy for a violation of Rule 4.2.
8
We would not be so presumptuous as to limit Smith, a
Supreme Court decision, in the manner suggested by McNaughton. In
any event, McNaughton concedes that he has no evidence that the
pen register was used to record any information other than
telephone numbers. The mere suggestion that pen register
equipment is now capable of misuse does not give us a basis to
depart from the controlling precedent of the Smith case. The
district court therefore did not err in failing to suppress the
wiretap and in concluding that McNaughton is not entitled to
additional discovery on that issue.
3. Did the district court err in declining to
order the government to disclose information
regarding Hurchalla's status as a subject of
a grand jury investigation?
McNaughton filed a post-trial motion for information on
the status of a grand jury investigation in connection with
Charles Hurchalla, one of the government's trial witnesses, at
the time that Hurchalla began to cooperate with the government.
McNaughton suggests that by failing to disclose this information,
the government may have violated its obligations under Brady v.
Maryland, 373 U.S. 83, 87 (1963), and Giglio v. United States,
405 U.S. 150, 153-55 (1972). The district court denied
McNaughton's request, holding that the outcome of the trial would
not have been different if the government had disclosed the
requested information. App. at 263-64.
McNaughton asserts that the grand jury investigation
conducted by the Office of the Inspector General of the
9
Department of Transportation concerned possible fraud and false
statements in connection with minority set-aside programs. The
only possible relevance of this information, sought at this late
date, would be in support of a motion for a new trial. In order
to establish a Brady violation, a defendant must first
demonstrate that the prosecution failed to disclose pro-defense
evidence "actually or constructively in its possession or
accessible to it." United States v. Perdomo, 929 F.2d 967, 970
(3d Cir. 1991).
McNaughton does not suggest that the prosecution had
actual knowledge or cause to know of the ongoing nature of the
investigation of Hurchalla. All criminal history checks of
Hurchalla were negative and Hurchalla himself told the
prosecution that the investigation had occurred in the 1980s.
Constructive knowledge can only be found where the defense has
made a specific request for the information. See United States
v. Joseph, 996 F.2d 36, 40-41 (3d Cir.), cert. denied, 114 S.Ct.
357 (1993). The defense made no such request prior to trial,
even though it had information regarding the existence of the
investigation. Under these circumstances, we cannot conclude
that the prosecution committed a Brady violation. Id. at 41.
Moreover, not every failure to disclose evidence
favorable to the defense requires a reversal of a conviction. See
United States v. Thornton, 1 F.3d 149, 158 (3d Cir.), cert.
denied, 114 S.Ct. 483 (1993). Rather, the undisclosed evidence
must also be material. Id. "'[E]vidence is material only if
there is a reasonable probability that, had the evidence been
10
disclosed to the defense, the result of the proceeding would have
been different. A 'reasonable probability' is a probability
sufficient to undermine confidence in the outcome.'" Pennsylvania
v. Ritchie, 480 U.S. 39, 57 (1987) (quoting United States v.
Bagley, 473 U.S. 667, 682 (1985) (Opinion of Blackmun, J.)).
McNaughton contends that the undisclosed evidence could
have led the jury to conclude that Hurchalla's testimony was
designed to further his own interests in connection with the
ongoing grand jury investigation. As the government notes,
inasmuch as Hurchalla was unaware of the ongoing nature of the
investigation and Hurchalla never asked the government to
intercede on his behalf in connection with any such
investigation, it is unlikely that the jury would have rejected
Hurchalla's testimony on the basis of evidence regarding the
ongoing grand jury investigation.
We note also, as the district court concluded, that the
extensive evidence regarding BELL/ASCO's involvement in the
"daisy chain" scheme provided ample evidence of McNaughton's
guilt. App. at 1616-22, 1634. There was testimony by Nadezhda
Shnayderman that McNaughton received commissions for his
participation in the scheme. App. at 1204-05.
We therefore conclude that the district court did not
err in refusing to allow McNaughton to conduct further discovery
into the status of the grand jury investigation.
4. Did the district court err in imposing
McNaughton's sentence?
11
McNaughton raises various challenges to the district
court's application of the sentencing guidelines. We exercise
plenary review over legal questions about the meaning of the
sentencing guidelines, but apply the deferential clearly
erroneous standard to factual determinations underlying their
application. See United States v. Collado, 975 F.2d 985, 990 (3d
Cir. 1992).
First, we find no error in the district court's
imposition of a two-level upward adjustment under U.S.S.G.
§2T1.1(b)(2) for McNaughton's use of "sophisticated means" to
impede discovery of the tax offense. Application note 4 to
section 2T1.1 states that "'sophisticated means' . . . includes
conduct that is more complex or demonstrates greater intricacy or
planning than a routine tax evasion case." U.S.S.G. § 2T1.1,
comment. (n.4). The commentary continues by stating that "[a]n
enhancement would be applied, for example, where the defendant
used . . . transactions through corporate shells or fictitious
entities." Id. The "daisy chain" scheme employed by McNaughton
in this case is plainly covered by this language.4
Nor did the district court abuse its discretion in
declining to grant a two-level reduction under U.S.S.G. § 3E1.1
for McNaughton's acceptance of responsibility. Although
4
McNaughton contends that the use of a "sophisticated means"
enhancement is duplicative and improper where the state and
federal tax losses were combined to calculate the offense level
under the Tax Table at U.S.S.G. § 2T4.1. The imposition of a
"sophisticated means" enhancement under § 2T1.1(b) is unrelated
to the calculation of the base offense level from the tax loss
under § 2T1.1(a).
12
McNaughton made significant admissions to investigating officers
during the execution of the search warrant and to Agent Perry
during the December 1, 1992 interview, the record does not
support the conclusion that he admitted that he personally had
committed the crimes charged in the indictment. Moreover, as
application note 2 of section 3E1.1 suggests, in most cases,
"[t]his adjustment is not intended to apply to a defendant who
puts the government to its burden of proof at trial by denying
the essential factual elements of guilt . . . ." U.S.S.G.
§3E1.1, comment. (n.2).
At sentencing McNaughton sought a downward departure
under U.S.S.G. § 5H1.4 due to his medical condition, in that his
lung function was seriously decreased. From our review of the
record, we conclude that the district court's refusal to depart
was based not on a belief regarding its authority to depart, as
McNaughton argues, but on McNaughton's failure to present
evidence sufficient to warrant an exercise of the court's
discretion under section 5H1.4. The district court's refusal to
exercise its discretion to grant a downward departure pursuant to
section 5H1.4 is therefore not subject to review by this court.
See United States v. Gaskill, 991 F.2d 82, 84 (3d Cir. 1993).
B. Appeal No. 94-1982--Veksler
Veksler was the operator of one of the "daisy chain"
participants, I.V. Enterprises, a Wisconsin corporation that held
an IRS Form 637, a Pennsylvania oil company franchise tax
exemption certificate and a New Jersey Special B license. Between
July 1991 and December 1991, I.V. purchased approximately
13
3,486,000 gallons of number two oil from Self Oil and sold it, on
paper, to Keroscene, Inc., which served as a burn company in the
same "daisy chain." I.V. never received payment for the oil from
Keroscene, however. Instead, IV received wire transfers from
companies to which Keroscene sold the oil.
1. Was there sufficient evidence to support the
jury's guilty verdict on Counts 1-7?
Veksler argues that the government failed to present
evidence sufficient to support his wire fraud and conspiracy
convictions. In particular, Veksler contends that the government
failed to present evidence to support the conclusion that Veksler
had the requisite level of intent to support his convictions
under 18 U.S.C. § 1343 (wire fraud) and 18 U.S.C. § 371(conspiracy).
A "claim of insufficiency of the evidence places a very
heavy burden on an appellant." United States v. Gonzalez, 918
F.2d 1129, 1132 (3d Cir. 1990) (quotation and citation omitted),
cert. denied, 498 U.S. 1107 (1991), cert. denied, 499 U.S. 968(1991), cert. denied, 499 U.S. 982 (1991). In evaluating the
sufficiency of the evidence to sustain a conviction, the evidence
at trial is considered in the light most favorable to the
government. The "'evidence does not need to be inconsistent with
every conclusion save that of guilt if it does establish a case
from which the jury can find the defendant guilty beyond a
reasonable doubt'." United States v. Sandini, 888 F.2d 300, 311
(3d Cir. 1989) (quoting United States v. Cooper, 567 F.2d 252,
254 (3d Cir. 1977)), cert. denied, 494 U.S. 1089 (1990). Instead,
14
this Court reviews the evidence to determine whether "any
rational trier of fact could have found the essential elements of
the crime beyond a reasonable doubt." Jackson v. Virginia, 443
U.S. 307, 319 (1979).
In order to convict a defendant of wire fraud under 18
U.S.C. § 1343, the government must prove, inter alia, that the
defendant participated in the scheme with the specific intent to
defraud. In Re Phillips Petroleum Sec. Litig., 881 F.2d 1236,
1249 (3d Cir. 1989). In order to convict a defendant of
conspiracy to defraud the United States under 18 U.S.C. § 371,
the government must prove, inter alia, that the defendant
intended to defraud the United States. While the parties appear
to disagree on whether section 371 requires a showing of
"willfulness" on the part of the defendant, they do agree that in
order to demonstrate the requisite intent to support Veksler's
convictions, the government must demonstrate both (1) that
Veksler knew of the obligation to pay taxes on the oil sold as
diesel fuel and (2) that he knew that the purpose and effect of
his actions was to avoid the payment of such taxes. See
Appellant's Brief at 15; Appellee's Brief at 38-39.
A review of the record in this case demonstrates that
the government satisfied its burden of presenting sufficient
evidence upon which a jury could have based its conviction.
Dimitry Belokopytov, Veksler's associate at I.V. Enterprises,
testified that he instructed Veksler to send form letters
regarding meetings that never occurred to other participants in
the daisy chain scheme. App. at 839-41. Belokopytov also
15
instructed Veksler to send invoices to Keroscene. The payments
to I.V., however, were all made by Romans Penn. These facts are
sufficient to permit the jury to infer that Veksler was aware
that his company was not engaged in legitimate business
activities. Moreover, Belokopytov also explained to Veksler that
it was "very important" that I.V.'s papers demonstrate that it
bought only heating oil and not diesel fuel because heating oil
was not taxed, while diesel fuel was taxed. App. at 828-29. This
testimony was sufficient to permit the jury to infer that Veksler
knew about both the tax obligations regarding the sale of diesel
fuel and the tax evasion goals of the scheme in which he
participated.5 We thus reject Veksler's contention that there
was insufficient evidence of his specific intent.6
2. Did the court err in refusing to depart
from the sentencing guidelines due to
Veksler's degree of culpability?
Veksler also argues that the district court erred in
refusing to depart from the base offense level applicable to him
under the Sentencing Guidelines. Under U.S.S.G. § 2T1.1, the
base offense level for offenses involving taxation is determined
by the amount of the tax loss. In this case, the district court
based its calculation of Veksler's offense level on the
5
This case is therefore distinguishable from United States v
Pearlstein, 576 F.2d 531, 543 (3d Cir. 1978), where the
government presented no substantial evidence from which the jury
could infer that the defendants were, or should have been, aware
of the fraudulent nature of the scheme.
6
Because we conclude that the government presented adequate
evidence to support Vecksler's convictions, we need not address
the issue of whether district court's reliance upon Vecksler's
testimony as an alternative basis for supporting the convictions
was proper.
16
approximately $1.4 million in tax losses that could be attributed
to transactions in which Veksler participated. See U.S.S.G.
§§2T1.1(a), 2T4.1.
At sentencing, Veksler requested the district court to
depart from this base offense level because it overstated his
culpability and because the amount of taxes lost was not
foreseeable by Veksler under the evidence adduced at trial. The
district court rejected Veksler's request, and Veksler reads the
court's statement as holding that it lacked the authority under
the Guidelines to grant the requested departure. We need not
decide whether the district court had authority to grant the
requested departure because the court found as a fact that the
tax loss was foreseeable to Veksler who "participated in a very
integral part of this entire daisy chain." App. at 338.
Moreover, nothing in section 2T1.1 and its accompanying
application notes suggests that a court has the discretion to
depart from the base offense level established through
calculation of the tax loss. This case differs significantly
from those cited by Veksler. In United States v. Monaco, 23 F.3d
793 (3d Cir. 1994), the commentary to the guideline at issue
expressly permitted a downward departure in certain limited
circumstances. Id. at 798-99. As Veksler points out, in United
States v. Stuart, 22 F.3d 76 (3d Cir. 1994), we suggested that in
certain instances, a court may have the authority to depart even
in the absence of explicit authorization, but that decision was
limited to instances where "'a particular guideline
linguistically applies but . . . the conduct [of a defendant]
17
significantly differs from the norm.'" Id. at 82-83 (quoting
United States Sentencing Commission Guidelines Manual 5-6
(1992)).
Veksler has presented no arguable basis for applying
the exception identified by this court in Stuart. Section 2T1.1
patently applies to Veksler, and the facts of this case lack any
extraordinary circumstances that the Sentencing Commission would
not have considered in formulating the guideline. See Stuart, 22
F.3d at 82. Thus, we find no error in the district court's
refusal to grant the departure requested by Veksler.
III.
Conclusion
For the foregoing reasons, we will affirm the judgments
of conviction and the sentences imposed by the district court.
18