United States v. Daraio ( 2006 )

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
4-10-2006
USA v. Daraio
Precedential or Non-Precedential: Precedential
Docket No. 05-2460
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-2460
UNITED STATES OF AMERICA
v.
DOROTHEA DARAIO,
Appellant
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Crim. No. 04-00245)
Honorable Joseph E. Irenas, District Judge
Argued March 6, 2006
BEFORE: ROTH and GREENBERG, Circuit Judges, and
BUCKWALTER, District Judge*
(Filed: April 10, 2006)
George S. Leone
Assistant U.S. Attorney
970 Broad Street
Newark, N.J. 07102
Eileen J. O’Connor
Assistant Attorney General
Alan Hechtkopf
Gregory V. Davis
Brian D. Galle (argued)
*Honorable Ronald L. Buckwalter, Senior Judge of the United States
District Court for the Eastern District of Pennsylvania, sitting by
designation.
Attorneys, Tax Division
Department of Justice
P.O. Box 502
Washington, D.C. 20044
Attorneys for Appellee
Richard G. Tuttle (argued)
John C. Connell
Archer & Greiner
Suite 1620
One South Broad Street
Philadelphia, PA 19107
Attorneys for Appellant
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
Defendant Dorothea Daraio (“Daraio”) appeals from a
judgment of conviction and sentence entered on May 5, 2005, in this
tax evasion case. Daraio raises three issues on this appeal. First, she
argues that the evidence at trial coupled with the jury instructions
constructively amended the indictment returned against her on which
she was tried. Second, she contends that there was at trial, in the
alternative to a constructive amendment of the indictment, a
prejudicial variance in the evidence from the terms of the indictment.
In these two contentions Daraio asserts that the government’s proofs
may have led the jury to convict her of unlawful conduct the
indictment did not charge. Third, Daraio argues that the district court
erred in admitting evidence under Federal Rule of Evidence 404(b)
(“Rule 404(b) evidence”) of her prior non-compliance with federal tax
laws to prove her intent to commit the crime charged in this case.
Daraio contends that by reason of any of these errors she is entitled to
an outright reversal of her conviction or at least a new trial. For the
reasons set forth below, we will affirm.
2
II. FACTS AND PROCEDURAL HISTORY
On August 17, 2004, a grand jury returned a superseding
indictment charging Daraio with one count of tax evasion in violation
of 26 U.S.C. § 7201 and 18 U.S.C. § 2.1 In particular, the indictment
charged Daraio with “knowingly and willfully attempt[ing] to evade
and defeat the payment of a substantial part of the payroll taxes due
and owing by Eagle Security, Inc.2 to the United States for the
quarterly periods that included April 1994 through April 1998, in the
amount of approximately $222,607.40, by directing clients of Eagle
Security, Inc. to pay their unpaid balances that they owed to Eagle
Security, Inc. to E.S.S. Co.” J.A. at 598. The indictment charged that
Daraio gave those directions after or at about the time that the Internal
Revenue Service (“IRS”) issued levies on ten clients of Eagle
Security, Inc. (“Eagle Security”) requiring them to pay their balances
due to Eagle Security to the IRS. The government produced evidence
at the trial supporting the indictment which we need not describe at
length.3
Before the start of the presentation of evidence at the trial, the
prosecutor in in limine proceedings filed and served a notice that the
government would seek to introduce evidence of Daraio’s prior tax
non-compliance as demonstrated by her personal tax records and tax
records from several corporations with which she was involved
pursuant to Rule 404(b). The government sought to introduce this
evidence on the theory that, as the district court recognized, “general
feelings or general attitude toward the IRS can be proof of willingness
or intent.” J.A. at 109-10. The Rule 404(b) evidence ultimately
1
The superseding indictment differed from the original
indictment only inasmuch as it expanded the period included in the
charged offense from “the calendar year 1998,” J.A. at 594, to “the
quarterly periods that included April 1994 through April 1998.” J.A. at
598. In these circumstances we refer to the superseding indictment as
the “indictment.” In this opinion we refer to the parties’ original joint
appendix as J.A. and to their joint supplemental appendix as Supp. App.
2
Eagle Security, Inc. provided security services and personnel to
its clients.
3
We do not detail the evidence inasmuch as Daraio does not
contend that the evidence supporting the verdict was inadequate.
3
included the following items:
(1) Payroll tax records for Joseph Daraio, Daraio’s
husband,4 trading as ESS-Co. and Quest Investigators,
pertaining to tax periods from 1989-1993 including the
records themselves, as well as, for certain tax periods,
certifications of a “lack of records” indicating the
failure to file tax returns;
(2) Certifications by the IRS that Eagle Security did not
file payroll tax returns in 1990-1993 and 1999-2004;
(3) Payroll tax records, again including certifications of
lack of records, for ESS-Co., beginning in the third
quarter of 1998 through the first quarter of 2004;
(4) Certifications of lack of records for ESS-Co. from
1992-1998 and 2000-2004;
(5) Corporate tax records for Eagle Security from
1990-2003,5 that showed that it had not filed forms
with the IRS in 1999, 2001, and 2002;
(6) Corporate tax records for ESS-Co. from 1998-
2003;
(7) Joint personal income tax returns for Joseph Daraio
and Daraio from 1984 and 1989-2003.
Over Daraio’s continuing objection, the district court admitted
the Rule 404(b) evidence, reasoning that evidence of past conduct is
relevant when, as in this case, “the defendant has square[ly] raised
intent.”6 J.A. at 23. The district court, however, gave the jury the
4
The record is unclear as to the degree of Daraio’s involvement
in ESS-Co./Quest Investigators. ESS-Co. is a different entity than E.S.S.
Co., and ESS-Co. is not the corporation that Daraio allegedly created for
purposes of evading tax levies as charged in the indictment.
5
Corporate tax records cover a broader range of activities and
provide more information than payroll tax records.
6
Although Daraio now asserts that “it is indisputable that intent
. . . was never in issue at trial,” Appellant’s br. at 29, at a pre-trial
hearing her attorney did not disagree with the court’s statement that
“intent is so much the heart of the case.” J.A. at 23. See infra Part IV.B
4
following limiting instruction:
Ladies and gentlemen of the jury, you will soon, and at
various other times during the trial, hear evidence of
acts the defendant - - of acts of the defendant that may
be similar to those charged in the indictment, but
which were committed on other occasions.
You must not consider any of this evidence in deciding
if the defendant committed the acts charged in this
indictment. However, you may consider this evidence
for other very limited purposes.
If you find beyond a reasonable doubt from other
evidence in this case, that the defendant did commit the
acts charged in the indictment, then you may consider
the evidence of similar acts allegedly committed on
other occasions, to determine, one, whether the
defendant had the intent necessary to commit the crime
charged in the indictment; two, whether the defendant
had the motive to commit the act charged in the
indictment; or, three, whether the defendant willfully
committed the acts for which she is on trial, or rather
committed them by accident, negligence, or mistake.
J.A. at 79-80.7
In addition to the admission of the Rule 404(b) evidence,
Daraio takes issue with certain of the prosecutor’s arguments and
statements at trial. First, in the government’s opening statement, the
prosecutor identified Daraio as “a woman . . . who thumbed her nose
at the IRS for more than a decade,” J.A. at 37, and stated that
“defendant failed to file her own personal income tax returns for the
years 1996, 1997 and 1998.” J.A. at 41. The prosecutor also
explained the “long and numerous” attempts by the IRS to “get
(discussing whether intent was at issue).
7
The court substantially repeated this limiting instruction several
times during the trial.
5
compliance from [Daraio],” J.A. at 41, as well as the “trust fund
penalt[ies] that were assessed against [Daraio] from the mid 1980s.”
J.A. at 50-51. Moreover, the prosecutor contended that “this was not
the first time that [Daraio] was involved in shutting down a company
that amassed a huge payroll tax liability using a new company to
continue the business, leaving out payroll tax liabilities behind.” J.A.
at 51.
During the government’s case-in-chief, the prosecutor elicited
testimony that Daraio was a “pyramiding taxpayer,” J.A. at 129, and
elicited testimony concerning the seizure of her residence. The
prosecutor also stated:
After 20 years of snubbing the IRS, or doing absolutely
everything in her powers to avoid paying her personal
corporate and payroll taxes, the defendant is sitting
here in this courtroom telling all of you that now she is
a champion for the rights of the IRS.
....
The defendant’s attitude toward the IRS in paying
taxes in general is another indication of willfulness. At
every turn the defendant was refusing to become
compliant with the IRS. She has shown complete and
utter disregard for the IRS in her duty to pay taxes.
She says thinks [sic] this she can essentially life [sic]
tax free life for the past 20 some years not paying the
payroll tax liability for at least three corporations,
working her finances so that she pays not more than six
dollars of individual income taxes in the same year that
she takes $108,000 of horse expenses, not even filing
individual income tax returns for three years, and not
filing corporate income tax returns since 1993.
J.A. at 416-17.
The prosecutor argued that “[w]e are here for one reason only;
that is because the defendant, Dorothea Daraio, is a tax cheat. She has
done everything in her power for the last 20 years to live essentially a
tax-free life.” J.A. at 418. The prosecutor then described Daraio’s
assets, including her home and her racehorses, and suggested to the
jury that Daraio should have sold her home or her racehorses to “pay
6
the IRS what she owes.” J.A. at 419-20. Finally, the prosecutor
emphasized that from 1994 to 2002, “she could have been compliant .
. . [but] she chose not to.” J.A. at 454. The prosecutor added that her
non-compliance “is why we are here today.” J.A. at 454. The
prosecutor then asked the jury, “how long is it reasonable for the IRS
to wait for this woman to finally decide to get compliant[?]” J.A. at
454.
Much of the defense strategy focused on Daraio’s assertion
that she “had nothing to do with the preparation of th[e] invoices”
asking Eagle Security’s clients to make their payments to E.S.S. Co.
See, e.g., J.A. at 325-26 (Daraio’s denial of preparing invoices or
directing employees to prepare the invoices requesting Eagle
Security’s clients to pay E.S.S. Co.). For example, Cheryl Daraio,
Daraio’s daughter, an employee at Eagle Security, testified that she
mistakenly prepared the duplicate invoices directing Eagle Security’s
clients to pay E.S.S. Co. instead of Eagle Security. Cheryl testified
that she prepared the false invoices, but denied that Daraio directed
her to prepare or send the invoices, or even knew about them.
In its final charge, the district court instructed the jury that,
“[t]o find defendant guilty[,] . . . you must find that the defendant . . .
took an affirmative act or acts in an attempt to evade or defeat this tax
as described in the indictment . . . ,” J.A. at 546, and explained the
three elements of tax evasion under 26 U.S.C. § 7201: (1) willfulness;
(2) existence of a tax deficiency; and (3) an affirmative act
constituting an evasion or an attempted evasion of the tax. The court
then reminded the jury to consider the evidence of prior non-
compliance “solely for the limited purpose of deciding, one, whether
the defendant had the intent necessary to commit the crime charged in
the indictment; whether the defendant had the motive to commit the
crime charged [in] the indictment; and whether the defendant
committed the acts for which she is on trial, by accident or mistake.”
J.A. at 551-52. The court told the jury that “the Government must
show more than the mere failure to do something, such as the failure
to pay taxes which are due.” J.A. at 548. The court also read to the
jury paragraph nine of the indictment, which contained the charged
offense. Finally, the court stated that the “evidence of actions which
relate to the failure to comply with laws involving the payment of
taxes or the filing of returns . . . are not charged in the indictment.”
J.A. at 551. After the court charged the jury it gave Daraio an
opportunity to object to the charge but she expressly declined to do so.
7
After the jury returned a guilty verdict and Daraio
unsuccessfully moved for (1) a judgment of acquittal, (2) a directed
verdict, or (3) a new trial, the court sentenced her to a 41-month
custodial term to be followed by a three-year term of supervised
release. Daraio then filed a timely notice of appeal.
III. JURISDICTION AND STANDARD OF REVIEW
The district court had jurisdiction under 18 U.S.C. § 3231.
See United States v. Isenhower, 754 F.2d 489, 490 (3d Cir. 1985), and
we have jurisdiction under 28 U.S.C. § 1291. See United States v.
Gambone, 314 F.3d 163, 169 (3d Cir. 2003).
We exercise plenary review in determining whether there was
a constructive amendment of the indictment and whether there was a
variance between the indictment and the proofs at trial. See United
States v. Prince, 214 F.3d 740, 756 (6th Cir. 2000). However,
inasmuch as Daraio did not raise the constructive amendment and
variance arguments in the district court we would consider them on a
plain error basis with respect to granting relief if there was an error on
either basis. See United States v. Syme, 276 F.3d 131, 148 (3d Cir.
2002). (“[Defendant] did not raise this argument [regarding
constructive amendment] in the District Court and we therefore apply
the plain error standard of review.”). To the extent that our review of
the district court’s Rule 404(b) ruling requires us to interpret the rules
of evidence our review is plenary, but, if the evidence could have been
admissible in some circumstances, we would review the district
court’s decision to admit evidence of prior “bad acts” under Rule
404(b) for an abuse of discretion. United States v. Givan, 320 F.3d
452, 460 (3d Cir. 2003).
IV. DISCUSSION
A. Variations Between Indictment and Proofs
There are two types of variations between the charges in an
indictment and the evidence at trial: (1) amendments of the
indictment when its charging terms are altered; and (2) variances,
where the charging terms of the indictment are not changed but when
8
the evidence at the trial proves facts materially different from those
alleged in the indictment. United States v. Castro, 776 F.2d 1118,
1121 (3d Cir. 1985). Daraio argues that the evidence adduced at trial
coupled with the jury instructions constructively amended the
indictment. In this regard Daraio argues that the prosecutor
improperly introduced evidence of her repeated failure to withhold
payroll taxes, which prejudiced her substantial rights, and suggested
that her failure to withhold the proper amounts was a charged crime.
Thus, Daraio asserts that the government “tried her not for the
indicted crime of interfering with levies, but rather the crime of failing
to pay the payroll taxes in the first place, as well as a variety of other
wrongs.” Appellant’s br. at 13.
In the alternative, Daraio argues that the proofs adduced at
trial varied from the allegations in the indictment to such a degree that
they constituted a prejudicial variance from the indictment.
Specifically, she argues that “[w]here the language of the indictment
limits the crime charged to diversion of receivables in an effort to
defeat IRS levies, trial on the issue of willful failure to withhold the
proper amount in the first instance created a prejudicial variance
between indictment and proof.” Appellant’s br. at 24-25 (footnote
omitted).
1. Constructive Amendment
An indictment is constructively amended when, in the absence
of a formal amendment, the evidence and jury instructions at trial
modify essential terms of the charged offense in such a way that there
is a substantial likelihood that the jury may have convicted the
defendant for an offense differing from the offense the indictment
returned by the grand jury actually charged.8 See United States v.
Miller, 471 U.S. 130, 140, 105 S. Ct. 1811, 1817 (1985) (constructive
amendment occurs when defendant is deprived of “substantial right to
be tried only on charges presented in an indictment returned by a
grand jury”) (quoting Stirone v. United States, 361 U.S. 212, 217, 80
S. Ct. 270, 273 (1960)); see also United States v. Floresca, 38 F.3d
706, 710 (4th Cir. 1994) (There is “[a] constructive amendment to an
indictment . . . when either the government (usually during its
8
We are not concerned here with a claim that there was an actual
amendment of the indictment by a literal change of its terms.
9
presentation of evidence and/or its argument), the court (usually
through its instructions to the jury), or both, broadens the possible
bases for conviction beyond those presented by the grand jury.”).
Thus, “a court cannot permit a defendant to be tried on charges that
are not made in the indictment against him.” Stirone, 361 U.S. at 217,
80 S.Ct. at 273. “The key inquiry is whether the defendant was
convicted of the same conduct for which he was indicted.” United
States v. Robles-Vertiz, 155 F.3d 725, 729 (5th Cir. 1998).
Constructive amendments “are per se reversible under harmless error
review, [and] are presumptively prejudicial under plain error review.”
Syme, 276 F.3d at 136.
In Stirone, the indictment alleged that the defendant through
extortion unlawfully interfered with interstate commerce in the
importing of sand into Pennsylvania. Nevertheless, the evidence
showed not only importation of sand, but also exportation of steel
from Pennsylvania. Moreover, the district court charged the jury that
the defendant’s guilt could rest on the effect of his conduct on
interstate commerce with respect to either sand or steel. 361 U.S. at
214, 80 S.Ct. at 272. The Supreme Court held that this charge
coupled with the evidence adduced at trial created an unconstitutional
variance between the indictment and the proof, which “destroyed the
defendant’s substantial right to be tried only on charges presented in
an indictment returned by a grand jury.” Id. at 217, 80 S. Ct. at 273;
see also United States v. Wozniak, 126 F.3d 105, 110-11 (2d Cir.
1997) (constructive amendment when district court charged jury on
evidence relating to marijuana transactions but indictment alleged
only cocaine and methamphetamine transactions).
In this case, the indictment specifically charged that Daraio
“knowingly and willfully attempt[ed] to evade and defeat the payment
of . . . the payroll taxes due . . . by directing clients of Eagle Security,
Inc. to pay their unpaid balances that they owed to Eagles Security,
Inc. to E.S.S. Co.” J.A. at 598. Although we agree with Daraio that
the government presented a significant amount of evidence
concerning her prior tax non-compliance beyond that charged in the
indictment, the district court’s instructions ensured that the jury would
convict her, if at all, for a crime based on conduct charged in the
indictment.
In reaching our conclusion we rely on our case law
recognizing that “it is a basic tenet of our jurisprudence that a jury is
presumed to have followed the instructions the court gave it.” Givan,
10
320 F.3d at 462 (citing United States v. Gilsenan, 949 F.2d 90, 96 (3d
Cir. 1991)). In this case, the district court thoroughly and accurately
instructed the jury on the basic elements of tax evasion and focused
the jury’s attention on the conduct that the indictment charged. For
example, the court told the jury that, although it “heard evidence of
actions which relate to the failure to comply with law involving the
payment of taxes or the filing of tax returns, [these acts] are not
charged in the indictment.” J.A. at 551. The district court also told
the jury that “the [g]overnment must show more than the mere failure
to do something, such as the failure to pay taxes which are due and
owing.” J.A. at 548. Moreover, the court supplied the jury with a
copy of the indictment for its use during its deliberations. Therefore,
the district court obviated the possibility of the indictment being
constructively amended by issuing accurate and thorough jury
instructions precluding the jury from convicting Daraio for any
conduct other than that which the indictment charged.
We also reject Daraio’s argument that “the possibility of [a
conviction based on] multiple affirmative acts permeated the trial
court’s instructions.” Reply br. at 10. We do not find that the district
court’s reference to Daraio’s “affirmative acts” in a plural sense
somehow constructively amended the indictment. Indeed, it was
appropriate for the district court to refer to multiple affirmative acts to
reflect the charge that Daraio directed “clients” to pay moneys due to
Eagle Security to E.S.S. Co. Overall we are satisfied from our
examination of the jury instructions as a whole that the district court
properly focused the jury on Daraio’s conduct as charged in the
indictment by repeatedly instructing the jury to confine its
consideration of the Rule 404(b) evidence to its proper purpose.
Accordingly, we hold that the government’s proofs coupled with the
district court’s instructions did not constructively amend the
indictment.9
9
In its brief the government indicates that Daraio’s “constructive
amendment argument might also be read as an assertion that the
Government’s remarks prejudiced her ability to receive a fair trial.”
Appellee’s br. at 22. We note, however, that Daraio’s brief does not
have a separate section dealing with a possible unfair argument issue and
thus we regard her comments about the government’s arguments as
being subsumed in her constructive amendment and variance arguments.
11
2. Prejudicial Variance
We similarly conclude that the government’s proofs and the
district court’s instructions did not create a prejudicial variance
prejudicing Daraio’s substantial rights. Initially on the variance point
we recognize that “[t]he line between a constructive amendment and a
variance is at times difficult to draw.” United States v. Adamson, 291
F.3d 606, 615 (9th Cir. 2002). There is a variance “where the
charging terms [of the indictment] are unchanged, but the evidence at
trial proves facts materially different from those alleged in the
indictment.” Castro, 776 F.2d at 1121. When there has not been a
constructive amendment of the indictment but rather there only has
been a variance between the facts alleged in the indictment and the
evidence offered at trial, the proceedings at the trial will not have
usurped the constitutionally guaranteed role of the grand jury.
Instead, the concerns raised by a variance argument are the fairness of
the trial and the protection of the defendant’s right to notice of the
charges against her and her opportunity to be heard. See, e.g.,
Kotteakos v. United States, 328 U.S. 750, 757-58, 66 S. Ct. 1239,
1244 (1946); Berger v. United States, 295 U.S. 78, 81-82, 55 S. Ct.
629, 630 (1935). Accordingly, we have recognized that “[t]he
variance rule, to the extent that it is constitutionally required, is more
of a due process rule than is the flat fifth amendment prohibition
against being tried on an indictment which a grand jury never
returned.” United States v. Crocker, 568 F.2d 1049, 1059 (3d Cir.
1977).
Unlike a constructive amendment, a variance can result in a
reversible error only if it is likely to have surprised or otherwise has
prejudiced the defense. United States v. Schurr, 775 F.2d 549, 553-54
(3d Cir. 1985). To demonstrate prejudice from a variance, a
defendant “must show (1) that there was a variance between the
indictment and the proof adduced at trial and (2) that the variance
prejudiced some substantial right.” United States v. Balter, 91 F.3d
427, 441 (3d Cir. 1996). “A variance does not prejudice a defendant’s
substantial rights (1) if the indictment sufficiently informs the
defendant of the charges against him so that he may prepare his
defense and not be misled or surprised at trial, [or] (2) if the variance
is not such that it will present a danger that the defendant may be
prosecuted a second time for the same offense.” United States v.
Schoenhut, 576 F.2d 1010, 1021-22 (3d Cir. 1978).
12
In this case there was not a prejudicial variance between the
government’s proofs and the terms of the indictment. First, the
indictment sufficiently informed Daraio of the charges against her so
as to put her on notice to prepare her defense. Indeed, the
government’s proofs concerning her failure to pay over to the
government the full amount of the payroll taxes owed to the United
States did not vary from the terms of the indictment.10 Certainly the
evidence of which Daraio complains, i.e., that she failed to withhold
payroll taxes, is consistent with the allegation in the indictment that
“[f]rom in or about April 1994 through in or about April 1998,
defendant . . . failed to pay over the full amount of payroll taxes owed
to the United States on behalf of Eagle Security and its employees
totaling approximately $222,607.40.” (emphasis added). After all, if
10
Daraio’s characterization of the government’s proofs is
seemingly inconsistent. She argues that she was tried for failure to
withhold payroll taxes, but in doing so she relies on portions of the trial
transcript in which the prosecutor presented evidence of Daraio’s failure
to pay–not her failure to withhold. See, e.g., J.A. at 483 (prosecutor
discussing evidence of Daraio’s “willful failure to pay over”); Supp.
App. at 163-64 (Daraio testifying that she failed to make payments to
IRS towards existing payroll tax liability). Indeed, at one point in her
brief in this court, Daraio asserts that she was tried for “failing to pay the
payroll taxes.” See Appellant’s br. at 13 (emphasis added). Moreover,
she makes the following puzzling statement in her brief: “The
government’s theory, in other words, is that [Daraio] willfully failed to
withhold payroll taxes so that she could spend the money for personal
wants at the time of the failure to withhold.” Appellant’s br. at 23
(emphasis in original). We are at a loss to understand this comment
because a failure to withhold would mean that the employees would
receive additional funds over and above what was due them and thus the
employer would not retain the funds. Accordingly, the sentence we
quote makes sense only if it is referring to a failure to pay over.
Nonetheless, we believe that Daraio intended to use the language
as it appears throughout her briefs submitted to this court, and thus
intended to argue that the government improperly tried her for “failure
to withhold.” In any event, we would have rejected her argument if she
had contended that there had been a constructive amendment or
prejudicial variance on the basis of the government improperly having
tried her for “failure to pay” the payroll taxes. Notably, the indictment
expressly alleged that “Daraio failed to pay over the full amount of
payroll taxes[.]” J.A. at 597 (emphasis added).
13
an employer has not withheld payroll taxes, it hardly would be
expected that she nevertheless would pay them to the government.
The prosecutor filed a pre-trial notice to justify the admission
of evidence concerning prior non-compliance for time periods not
included in the indictment and acts not charged in the indictment.
Therefore, the admission of such evidence did not deprive Daraio of
the opportunity to prepare her defense. Moreover, as we shall explain,
the court properly admitted the evidence under Rule 404(b). See infra
Part IV.B (discussing propriety of admission of the Rule 404(b)
evidence). Furthermore, the district court repeatedly admonished the
jury to limit its consideration of the Rule 404(b) evidence to its
appropriate role. Finally, it is clear that even though there was
substantial reference at the trial to conduct not within the scope of the
indictment, the government proved the material facts of the
indictment at the trial and Daraio does not challenge the sufficiency of
the evidence. Accordingly, the evidence adduced at trial constituted
neither a constructive amendment of the terms of the indictment, nor a
prejudicial variance from the allegations in the indictment and we
therefore will not reverse Daraio’s conviction on either of these two
bases.
B. Evidence of Prior Non-Compliance Under Rule 404(b)
We also reject Daraio’s argument that the district court erred
in admitting evidence of her prior tax non-compliance in violation of
Rule 404(b). Daraio argues that Rule 404(b) prohibited the
admissibility of the prior non-compliance because “[t]he only issue in
the case was whether [she] was the person who committed [the crime
charged].” Appellant’s br. at 30. She asserts that “criminal intent was
never in issue at trial,” Appellant’s br. at 29, and the intent-serving
purpose set forth in Rule 404(b) must be more specific and not merely
speak to a general criminal intent. Daraio further argues that the
evidence lacked probative value, and “was plainly intended to
prejudice (and did prejudice) [her.]” Appellant’s br. at 36.
Rule 404(b) governs the admissibility of evidence of “other
crimes, wrongs, or acts.” It provides, in relevant part, that “[e]vidence
of other crimes, wrongs or acts is not admissible to prove the
character of a person in order to show action in conformity therewith.
It may, however, be admissible for other purposes, such as proof of
14
motive, opportunity, intent, preparation, plan, knowledge, identity, or
absence of mistake or accident.” We have recognized that “Rule
404(b) is a rule of inclusion rather than exclusion.” Givan, 320 F.3d
at 460 (citing United States v. Jemal, 26 F.3d 1267, 1272 (3d Cir.
1994)). In general, we favor the admission of Rule 404(b) evidence
when it is relevant for any other purpose than to show the defendant’s
propensity to commit the charged offense. Givan, 320 F.3d at 460
(citing United States v. Long, 574 F.2d 761, 764 (3d Cir. 1978)).
To demonstrate a proper purpose, the government must
“proffer a logical chain of inference consistent with its theory of the
case.” United States v. Sampson, 980 F.2d 883, 888 (3d Cir. 1992).
After the government has specified such a purpose, unless the reason
that the evidence is proper is plainly obvious, the district court must
“articulate reasons why the evidence also goes to show something
other than character” by putting this “chain of inferences into the
record.” Id. Furthermore, “[w]here such other purposes do exist,
protections against improper admission nevertheless remain in Rule
104 relevancy standards and in Rule 403's requirement that probative
value yet be balanced against the risk of ‘unfair prejudice.’”11 United
States v. Martin, 773 F.2d 579, 582 (4th Cir. 1985); see also
Government of Virgin Islands v. Pinney, 967 F.2d 912, 914 (3d Cir.
1992) (“Such evidence is subject only to the limitations imposed by
Federal Rules of Evidence 402 and 403.”). Thus, we apply a four-part
test to determine the admissibility of Rule 404(b) evidence: “(1) the
evidence must have a proper purpose; (2) it must be relevant; (3) its
probative value must outweigh its potential for unfair prejudice; and
(4) the court must charge the jury to consider the evidence only for the
limited purposes for which it is admitted.” Givan, 320 F.3d at 460.
In cases involving violations of federal tax laws such as tax
evasion, “[a] defendant’s past taxpaying record is admissible to prove
11
Federal Rule of Evidence 403 provides:
Although relevant, evidence may be excluded if its
probative value is substantially outweighed by the danger of
unfair prejudice, confusion of the issues, or misleading the
jury, or by considerations of undue delay, waste of time, or
needless presentation of cumulative evidence.
15
willfulness circumstantially.” United States v. Ringwalt, 213 F. Supp.
2d 499, 506 (E.D. Pa. 2002) (quoting United States v. Bok, 156 F.3d
157, 165 (2d Cir. 1998)), aff’d, 66 Fed. Appx. 446 (3d Cir. 2003); see
also United States v. Johnson, 893 F.2d 451, 453 (1st Cir. 1990)
(unindicted acts of tax fraud that occurred subsequent to the indicted
acts admissible in tax evasion prosecution to show intent and absence
of mistake when defense based on defendant’s reliance on advice of
friend); United States v. Upton, 799 F.2d 432, 433 (8th Cir. 1986)
(“Evidence of [defendant’s] questionable compliance with tax laws,
both in the years prior to and subsequent to [the years of the charged
conduct] is probative of willfulness in the present context.”). For
example, in United States v. Ringwalt, the district court admitted
defendant’s tax returns from previous years, which did not pertain to
the charged offense. The court held that, “in light of the defendant’s
theory that the inaccuracies in the 1994 and 1995 returns were the
result of mistake or the fault of the accountants, the tax returns from
the earlier years were probative on the issues of common scheme or
plan as well as willfulness.” 213 F. Supp. 2d at 509. The court noted
that the defendant’s tax returns for the earlier years “showed the
existence in those prior years of the identical scheme and plan to
evade income taxes that was used by defendant in 1994 and 1995[.]”
Id.
Similarly, in United States v. Bok the defendant was charged
and convicted for attempted tax evasion in violation of 26 U.S.C. §
7201 and making false statements on corporate income tax returns in
violation of 26 U.S.C. § 7206(1). The Court of Appeals for the
Second Circuit upheld the district court’s decision to admit evidence
such as the defendant’s failure to file a state personal tax return as
well as the failure of the defendant’s corporation to file federal and
state corporate returns for the years during and after those involved in
the indictment. 156 F.3d at 165. The court held that “a defendant’s
past taxpaying record is admissible to prove willfulness
circumstantially” because such evidence is “indicative of an intent to
evade the tax system.” Id. at 165-66; see also United States v. Ebner,
782 F.2d 1120, 1126 n.7 (2d Cir. 1986) (“The jury may consider
evidence of intent to evade taxes in one year as evidence of intent to
evade payment in prior or subsequent years.”).
Inasmuch as it was essential for the government to make a
showing of intent or willfulness to meet its burden of proof in this
case, the district court properly admitted evidence of Daraio’s prior
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tax non-compliance under Rule 404(b). Evidence that she committed
similar offenses and had a history of non-compliance with the IRS
was admissible and relevant to prove willfulness. See Bok, 156 F.3d
at 165-66. Furthermore, the district court’s limiting instructions were
adequate to prevent any unfair prejudice to her from the evidence. As
in United States v. Givan, the district court in this case repeatedly
issued limiting instructions regarding the Rule 404(b) evidence in
which the court emphasized the limited purpose for which the
evidence was admissible, thereby minimizing any prejudicial effect.
See 320 F.3d at 461-62.
Daraio argues, however, that she did not base her defense on
lack of intent or motive, and thus the district court improperly
admitted the evidence of her prior tax non-compliance under Rule
404(b). In an abstract sense this argument could be sound because
“district courts should generally deem prior bad acts evidence
inadmissible to prove an issue that the defendant makes clear he is not
contesting. The relevance of the prior bad acts evidence will be
minimal in most such cases, since the evidence will not bear on the
issues being contested.” Jemal, 26 F.3d at 1274; see also United
States v. Colon, 880 F.2d 650, 656 (2d Cir. 1989) (“[I]n some
circumstances, the nature of a defense put forth by the defendant may
reveal that knowledge and intent, while technically at issue, are not
really in dispute.”) (citation and internal quotation marks omitted).
Thus, “the government can not create an issue where none exists and
then rely upon Rule 404(b) to argue that prior misconduct is relevant
to the manufactured issue.” United States v. Morley, 199 F.3d 129,
136 (3d Cir. 1999).
Accordingly, in considering Rule 404(b) evidence we have
agreed with the Court of Appeals for the Fourth Circuit that “the use
of prior bad acts evidence must be examined meticulously in each
case and . . . the probative value of prior bad acts evidence is
significantly less when the defense is that the defendant did not
perform the charged act at all.” Jemal, 26 F.3d at 1273 n.3.
Nevertheless this requirement for meticulous examination of the
evidence does not preclude results such as that we reached in United
States v. Balter, 91 F.3d at 437, in which we allowed testimony
revealing the defendant’s previous experience as a murderer-for-hire
when the “defense was that he was present at the murder scene but
that he did not commit the murder.” As we explained, “[t]hese
statements were relevant to show, among other things, that he had a
financial motive to commit the murder and the intent to do so.” Id.
17
We hold that Daraio cannot obtain relief by reliance on the
lessened value of Rule 404(b) evidence in cases involving a defense
that “the defendant did not perform the charged act at all.” See Jemal,
26 F.3d at 1273 n.3. We reach this conclusion because we are
satisfied that she did not explain clearly in the district court that she
was not contesting the allegation that she had the intent to do the acts
the indictment charged but rather contended that she did not do the
acts at all. Consequently, she did not eliminate the intent issue from
the case and thus the Rule 404(b) evidence was relevant to
demonstrate her intent.
In coming to our result on the Rule 404(b) evidence issue, we
observe that in her reply to the prosecutor’s pre-trial Rule 404(b)
notice, Daraio explicitly stated that a “major issue[] of dispute will be
. . . whether the E.S.S. Co. documents prepared by [her daughter]
Cheryl Daraio . . . were prepared in error without fraudulent intent or
prepared at the direction of [Daraio] as part of the scheme alleged in
the indictment.” Supp. App. at 342 (emphasis added). That statement
was quite clear and set the framework for the case. Thus, it is not
surprising that in explaining its initial decision to admit the Rule
404(b) evidence, the district court stated that Daraio squarely had
raised the issue of intent. Indeed, we do not see how it could have
reached a different conclusion.
We also point out that her attorney argued that she had relied
on her tax attorney in deciding to form E.S.S. Co. as a successor
corporation to Eagle Security. Plainly this evidence was intended to
demonstrate her benign intent. In addition, on cross-examination
Daraio admitted that she faxed duplicate invoices, even though she
did not prepare them, to an Eagle Security client. Her attorney later
explained that she “did not willfully intend in the act of faxing those
documents to Mr. Talbott, to have any money diverted from [Eagle
Security] that should have gone to the IRS, to [E.S.S. Co.].” J.A. at
445 (emphasis added). Therefore, we reject Daraio’s assertion that
intent was not at issue, and we cannot find on this record that the
district court erred as a matter of law or abused its discretion in
admitting the Rule 404(b) evidence concerning her prior tax non-
compliance.
V. CONCLUSION
For the foregoing reasons the judgment of conviction and
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sentence entered May 5, 2005, will be affirmed.
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