United States v. Hayez , 260 F. App'x 615 ( 2008 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-4273
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
SAID KARIM HAYEZ,
Defendant - Appellant.
No. 05-4407
UNITED STATES OF AMERICA,
Plaintiff - Appellant,
versus
SAID KARIM HAYEZ,
Defendant - Appellee.
Appeals from the United States District Court for the Eastern
District of North Carolina, at Raleigh. Louise W. Flanagan, Chief
District Judge. (CR-03-296)
Argued: September 27, 2007 Decided: January 8, 2008
Before NIEMEYER and MICHAEL, Circuit Judges, and T. S. ELLIS, III,
Senior United States District Judge for the Eastern District of
Virginia, sitting by designation.
Affirmed by unpublished opinion. Judge Niemeyer wrote the opinion,
in which Judge Michael and Senior Judge Ellis joined.
ARGUED: George Alan DuBois, Assistant Federal Public Defender,
OFFICE OF THE FEDERAL PUBLIC DEFENDER, Raleigh, North Carolina, for
Appellant/Cross-Appellee. Clay Campbell Wheeler, Assistant United
States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Raleigh,
North Carolina, for Appellee/Cross-Appellant. ON BRIEF: Thomas P.
McNamara, Federal Public Defender, Raleigh, North Carolina, for
Appellant/Cross-Appellee. George E. B. Holding, United States
Attorney, Anne M. Hayes, Assistant United States Attorney, OFFICE
OF THE UNITED STATES ATTORNEY, Raleigh, North Carolina, for
Appellee/Cross-Appellant.
Unpublished opinions are not binding precedent in this circuit.
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NIEMEYER, Circuit Judge:
A jury convicted Said Karim Hayez on two counts of filing
false Form 1040 U.S. Individual Income Tax Returns for calendar
years 1997 and 1998, by failing to report as income $1,375,696 that
he diverted to himself from a company that he owned, in violation
of 26 U.S.C. § 7206(1). The district court sentenced Hayez to 36
months’ imprisonment on each count, to run concurrently.
Appealing his conviction, Hayez contends that the district
court abused its discretion in denying him permission to present
expert psychiatric evidence to prove that he, as a pathological
gambler, was only borrowing the money from his company in order to
gamble, win big, and pay it all back. He asserts that this
evidence would have supported his theory that he considered the
diverted funds to be loans rather than income and therefore did not
“willfully” file false tax returns. He also challenges the
district court’s exclusion of expert testimony identifying “seven
primary indicators” of tax fraud, the absence of which would also
have purportedly demonstrated that the diverted funds were loans.
In its cross-appeal, the government challenged the
reasonableness of the district court’s variance sentence, which was
43% below the 63-72 month range recommended by the Sentencing
Guidelines. Following the Supreme Court’s recent decisions in Gall
v. United States, 552 U.S. __, No. 06-7949 (Dec. 10, 2007), and
Kimbrough v. United States, 552 U.S. __, No. 06-6330 (Dec. 10,
3
2007), however, the government voluntarily dismissed its cross-
appeal, and we approve its dismissal request.
With respect to the evidentiary rulings, we conclude that they
fell well within the district court’s broad discretion in
regulating the admission of evidence at trial and accordingly
affirm.
I
After Hayez, an immigrant from Afghanistan who became a
naturalized citizen in 1987, earned a doctorate in psychometrics,
he formed Columbia Assessment Services, Inc. (“CAS”), a corporation
located in Raleigh, North Carolina, to carry on as a professional
testing service specializing in conducting and certifying licensure
examinations. Among other things, CAS designed and administered
certification tests for alcohol and substance abuse counselors,
athletic trainers, and others. As the company’s sole shareholder,
Hayez designated himself as the president of the corporation.
Some time prior to 1995, Hayez embarked on a scheme to divert
funds from CAS for his personal use. He did this primarily by
directing a CAS employee to modify CAS invoices to show a lower
amount due than had been properly charged to and paid by the
client. Hayez then pocketed the “overpayment” without accounting
for the money. In 1995, the Internal Revenue Service audited CAS
and determined that Hayez had diverted more than $137,000 in
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corporate funds. Rather than prosecute Hayez, however, the IRS
assessed various civil penalties against him.
About six months after the conclusion of the 1995 audit, Hayez
developed a new scheme to resume diverting money from CAS. Instead
of skimming from payments sent to CAS by clients, Hayez directed
a CAS employee to generate fake “fee summaries,” which purportedly
indicated that CAS owed refunds to clients, such as exam fees
collected from applicants. These documents justified CAS
employees’ preparation of checks payable to the clients, which
Hayez then took to his personal bank and converted. As president
of CAS, he engaged in a complicated two-step process of conversion.
First, he exchanged the CAS checks for official bank checks that
were made payable to the same CAS clients. Then, on behalf of the
corporation, he endorsed “not used for purposes intended” on the
checks and exchanged them for official bank checks made payable to
himself, his creditors, or CAS itself. In this way, Hayez diverted
$485,416 from CAS to himself in 1997 and $890,280 in 1998.
Hayez has stated that he used these funds primarily to pay
gambling debts, other consumer debt, and legitimate loans taken
from CAS. He said that gambling has been a longtime problem for
him. He began gambling at a young age and was a “compulsive
gambler” by 1980. By his own estimate, Hayez states that he has
lost “millions of dollars” in gambling. By 1990, he also began
abusing alcohol. He attributes his gambling addiction and alcohol
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abuse to post-traumatic stress disorder that was diagnosed in 2001.
He claims that the disorder resulted from the murder of his father,
when Hayez was in the first grade, and from subsequent abuse by his
older brother.
In his Form 1040 Individual Income Tax Return for 1997, Hayez
failed to report as income the $485,416 obtained from CAS through
his check conversion scheme, and in his return for 1998, he again
failed to report as income the $890,280 similarly obtained from
CAS.
Hayez was indicted in two counts of filing false tax returns,
one count for each calendar year. At trial, he sought to introduce
the testimony of an expert psychiatrist that because of his
gambling addiction, he did not have the requisite intent to violate
the law. He also sought to introduce expert testimony about the
common indicators of fraud in an effort to demonstrate that the
diversions from his company were only loans. The district court
excluded the testimony of both witnesses.
After the jury convicted Hayez, the district court denied
Hayez’s motion for a downward departure under the Sentencing
Guidelines but nonetheless imposed a variance sentence of 36
months’ imprisonment on each count, to run concurrently.
Hayez now appeals the two evidentiary rulings.
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II
Hayez contends first that the district court abused its
discretion in excluding the expert testimony of a psychiatrist who
would explain that Hayez was a pathological gambler and that
therefore he did not have the requisite intent to commit a crime
under 26 U.S.C. § 7206(1).1 He claims that as a pathological
gambler, he considered the diverted funds to be loans, which, by
definition, are not income, and thus he did not need to report the
money as income. The expert proposed to testify that pathological
gamblers “chase their losses,” holding an honest but irrational
belief that they will win back all they have lost if they just
gamble one more time.
In excluding the testimony, the district court ruled that the
evidence was not relevant to the specific intent element of the
offense with which Hayez was charged, and, even if there was some
marginal relevance, the likelihood of jury confusion substantially
outweighed the testimony’s probative value. See Fed. R. Evid. 403.
Hayez’s principal argument on appeal is made on the assumption
that the district court applied the Insanity Defense Reform Act
1
Section 7206(1) of Title 26 provides that any person who
“[w]illfully makes and subscribes any return, statement, or other
document, which contains or is verified by a written declaration
that it is made under the penalties of perjury, and which he does
not believe to be true and correct as to every material matter” has
committed a felony punishable by imprisonment of “not more than 3
years.” (Emphasis added).
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(“IDRA”),2 18 U.S.C. § 17, to exclude the testimony. As Hayez
stated in his brief:
The government speculated that Mr. Hayez intended to
offer the evidence in order to demonstrate either an
insanity defense or “diminished capacity” short of
insanity. This speculation was wrong. Unfortunately,
this misunderstanding persisted throughout the pre-trial
proceedings and ultimately caused the district court to
commit legal error in refusing to allow Mr. Hayez to
present this evidence.
Relying on United States v. Worrell, 313 F.3d 867, 874 (4th Cir.
2002), he maintains that the psychiatric evidence was admissible
to rebut the government’s evidence of mens rea, a use which should
not have been confused with its use under the IDRA.
Our review of the record, however, does not support Hayez’s
assumption that the district court’s ruling was based on the IDRA.
The district court repeatedly stated on the record that it
understood the nature of Hayez’s proffer. For example, the court
said, “Psychiatric evidence [can be] used to demonstrate lack of
specific intent, that is established. Congress didn’t under the
[IDRA] bar -- the use of psychiatric evidence -- as argued by the
Defendant.” The court also observed, “[T]he Defendant argues
evidence that merely [aids] the trier in determining the
Defendant’s specific state of mind with regard to . . . the time
2
The IDRA prohibits evidence of mental disease or defect as an
affirmative defense unless the defendant is offering a full-fledged
insanity defense in which he claims that, due to the disease or
defect, he “was unable to appreciate the nature and quality or the
wrongfulness of his acts.” 18 U.S.C. § 17.
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[the actions were] committed which [is] not an affirmative defense,
but is evidence that goes specifically to whether the Government
has carried its burden.” Accordingly, we reject Hayez’s principal
argument that the district court erred as a matter of law in
applying the IDRA to exclude his expert psychiatric testimony.
On the merits of the evidentiary issue, the district court was
concerned about the relevance of the evidence and the possible
confusion that it might cause the jury. As the court stated,
“There has to be a link . . . between the specific psychiatric
evidence and mens rea.” “[T]he ground of this denial rests on the
speculativeness of the link between testimony and the mens rea.”
The court was also concerned that the psychiatric testimony would
“confuse this jury” because it discussed the tendency of
pathological gamblers to “commit[] illegal acts such as forgery
[or] fraud to finance gambling,” leading to the possibility of
“confusion as to whether such an issue [exists] here.” “[E]ven if
relevant it’s so likely to confuse the jury. . . . [T]he mindset
would be such that testifying to say we should excuse this illegal
behavior because Dr. Hayez is a pathological gambler. It seeds
their thought process with a consideration of [whether] they should
be excusing the illegal conduct.”
In short, the district court determined that psychiatric
testimony about pathological gambling had little or no probative
value with respect to the question of whether Hayez possessed the
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specific intent willfully to file a false tax return, believing it
to be false, and that any probative value it may have had was
substantially outweighed by the likelihood that the jury would be
confused by the ancillary issue raised. This ruling was not
arbitrary or irrational, but fell well within the broad discretion
of the court to regulate the admissibility of evidence at trial.
See United States v. Iskander, 407 F.3d 232, 236 (4th Cir. 2005);
United States v. Weaver, 282 F.3d 302, 313 (4th Cir. 2002).
III
Hayez also contends that the district court abused its
discretion in excluding expert testimony that would identify the
“seven primary indicators” of tax fraud. Hayez attempted to
introduce the evidence to rebut testimony by a government witness
(Hayez’s former accountant) who characterized Hayez’s transactions
as “diversions” and “misappropriations.” The district court
excluded this testimony based on relevance and confusion, as well
as Hayez’s lack of notice to the government that he planned to
introduce the testimony, as required by Federal Rule of Criminal
Procedure 16(b)(1)(C).
Hayez claims that he did not give notice of his intent to use
the expert witness because he did not recognize that he needed the
testimony until he heard the testimony of his former accountant
that the transactions involved were “diversions” and
“misappropriations.” Hayez maintains that he should have been
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allowed to respond to that testimony with the testimony of a
forensic accountant, who would have cast doubt on the
characterizations by pointing out that the transactions bore none
of the “seven primary indicators” of fraud.
Having reviewed the record carefully, we conclude that the
district court did not abuse its discretion in excluding the
testimony of the forensic accountant. First, Hayez was not caught
off guard by his former accountant’s testimony. He knew that the
government’s case against him involved his failure to report
diverted funds as income on his individual income tax returns. It
is inconceivable that Hayez could later claim that he was surprised
that the government presented evidence characterizing his
transactions as diversions or misappropriations. The lack of
notice under Rule 16(b)(1)(C) alone was sufficient to justify the
district court’s ruling.
In addition, however, Hayez had the opportunity to cross-
examine his former accountant about the accountant’s
characterizations of the transactions as statements of fact. To
have allowed an expert to give an opinion that the factual
characterizations were wrong would have yielded nothing probative.
It would only have been an effort to supplant the court’s function
in describing for the jury the elements of tax fraud and the jury’s
function in finding the facts.
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Finally, no government witness testified about the “primary
indicators” of tax fraud so as to require rebuttal. The district
court concluded that Hayez’s proposed evidence was too abstract
and would take the case “too far afield,” observing that the jury
was “not going to know what this case is about.” We conclude that
the court acted well within its discretion in excluding the
testimony.
Accordingly, we affirm the judgment of the district court.
AFFIRMED
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