United States v. Michael Han ( 2020 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 10, 2020 Decided June 19, 2020
No. 18-3081
UNITED STATES OF AMERICA,
APPELLEE
v.
MICHAEL SANG HAN,
APPELLANT
Appeal from the United States District Court
for the District of Columbia
(No. 1:15-cr-00142-1)
John August Boeglin, appointed by the court, argued the
cause for appellant. With him on the briefs were Kevin King,
Michael J. Gaffney, and Tarek J. Austin, all appointed by the
court.
Elissa Hart-Mahan, Attorney, U.S. Department of Justice,
argued the cause for appellee. With her on the brief were
Alexander P. Robbins, Attorney, and Jessie K. Liu, U.S.
Attorney at the time the brief was filed. Elizabeth Trosman,
Assistant U.S. Attorney, entered an appearance.
Before: HENDERSON, GARLAND and MILLETT, Circuit
Judges.
2
Opinion for the Court filed by Circuit Judge GARLAND.
GARLAND, Circuit Judge: After a seven-day jury trial,
defendant Michael Han was convicted of tax evasion in
connection with his 2010 and 2011 individual tax returns. As
chief executive of a recycling technology company, Han
solicited millions of dollars from investors Frank Carlucci and
James Russell. In the tax years charged, Han spent much of that
company money on personal expenses. He also used it to pay
down debt he owed the company for spending yet more
company money on himself between 2004 and 2009. Han failed
to report as income the corporate funds he converted to his
personal benefit.
On appeal, Han challenges several rulings by the district
court and the conduct of both the prosecution and his own
counsel. We reject each challenge and affirm the judgment of
the district court.
I
Han was the founder and chief executive of Envion, Inc., a
recycling technology company that never sold any recycling
technology and never earned any revenue. From 2004 to 2009,
Han spent millions in investor funds on personal expenses,
including Porsche sports cars. See Appendix (A.) 487-503.
Neither Han nor Envion filed tax returns for any of those years
until 2010, when prompted by an IRS notice about the
delinquency. As Han turned to preparing his and the company’s
returns, he learned from his accountants that his personal
expenditures made with corporate funds could potentially be
treated either as “taxable compensation” or as “a loan [from
Envion] to the shareholder[, Han].” Supplemental Appendix
(S.A.) 130 (accountant testimony). If treated as a loan, the
money would not be taxed, but Han would have to repay it in the
3
future. Id. He opted to treat the personal expenditures as
shareholder loans.
At roughly the same time, Han solicited a further $22
million from two of his existing investors, Frank Carlucci and
James Russell. Although Carlucci and Russell thought they
were providing the funds to Envion, see S.A. 73, 114-15, Han
instead had them wired to his personal accounts, see S.A. 159,
165. He then used those funds to pay down his shareholder loan
balance and make further personal expenditures, including the
purchase of a Ferrari and renovations on his Palm Beach home.
See S.A. 175, 198. In light of Han’s failure to report his
conversion of corporate funds as income, the IRS ultimately
concluded that Han had avoided paying $1,133,784 in taxes in
2010 and $3,822,243 in 2011.
Han was tried for tax evasion in connection with his 2010
and 2011 personal tax returns. Although Han did not himself
testify, the heart of his defense was the claim that he had a
good-faith belief that the funds from Carlucci and Russell were
personal loans, which would not have been taxable. The jury
convicted Han on two counts of tax evasion, and the district
court sentenced him to 48 months’ imprisonment.
On appeal, Han mounts four challenges to his convictions.
He argues that: (1) the district court admitted evidence that was
irrelevant and improperly showed prior “bad acts”; (2) the
government improperly appealed to “class prejudice” throughout
the trial; (3) the district court erred in declining to give Han’s
preferred theory-of-the-defense instruction; and (4) his trial
counsel was ineffective. We address those challenges below.
4
II
Han’s principal contention is that the court wrongly
permitted the government to introduce evidence that was not
relevant to the 2010 and 2011 tax evasion charges, in violation
of Federal Rule of Evidence 402. See FED. R. EVID. 402
(“Irrelevant evidence is not admissible.”). Han further maintains
that the evidence was instead introduced to show prior bad
conduct, in order to prove his bad character and a propensity to
act in accordance with that character, in violation of Rule
404(b). See FED. R. EVID. 404(b)(1) (“Evidence of a crime,
wrong, or other act is not admissible to prove a person’s
character in order to show that on a particular occasion the
person acted in accordance with the character.”). “We review
a district court’s evidentiary rulings for abuse of discretion,”
United States v. Alexander, 331 F.3d 116, 121 (D.C. Cir. 2003),
and we find none.
1. We start with the evidence of Han’s expenditures from
2004 to 2009 and with his personal tax returns for those years.
Han maintains that there was no reason to introduce evidence of
any of that past conduct. To show tax evasion in 2010 and 2011,
he says, it would have sufficed to show that he converted
corporate funds to personal use in 2010 and 2011. To the extent
that Han used corporate funds to pay down his debt to Envion
for earlier personal spending, he argues, the government did not
need to demonstrate how that debt arose. As he says, it would
have been unlawful for him to fail to report the repayments
regardless of whether he had previously used Envion’s money
on charitable donations or on flashy cars.
This argument is true enough -- as far as the government’s
obligation to show the existence of a tax deficiency goes. But
it ignores the issue of Han’s intent. In a tax-evasion case, the
government’s burden on that issue is steep. The prosecution
5
was required to demonstrate beyond a reasonable doubt that Han
acted willfully -- “that the law imposed a duty on the defendant,
that the defendant knew of this duty, and that he voluntarily and
intentionally violated that duty.” Cheek v. United States, 498
U.S. 192, 201 (1991); see United States v. Khanu, 662 F.3d
1226, 1229 (D.C. Cir. 2011).
The evidence in controversy was central to that issue.
Although Han makes much of the fact that the other returns
introduced were for “earlier” tax years, he did not file them until
2010 and 2011 -- roughly contemporaneously with the conduct
charged. Compare, e.g., A. 436 (Han’s 2006 tax return, filed
June 2, 2011), with A. 368 (Han’s 2010 return, filed November
14, 2011). And it was in the process of characterizing his 2004-
2009 expenditures for those other returns, the government
argued, that Han learned he could not defensibly characterize
splurges on flashy cars (and other items) as business
expenditures: It gave him “sort of a tutorial, [an] education
session.” S.A. 230 (government’s closing argument). Han
learned that he would have to find a different characterization if
he wanted to avoid paying taxes on that and similar spending
going forward. In other words, he developed “knowledge of
[his] tax obligations” and began willfully planning to defy them.
S.A. 231 (government’s closing argument).
Accordingly, the 2004-09 evidence was both relevant to the
2010-11 charges under Rule 402 and admissible under Rule
404(b). See FED. R. EVID. 404(b)(2) (providing that evidence of
prior crimes, wrongs, or other acts “may be admissible for
another purpose, such as proving . . . intent, . . . plan, [and]
knowledge”). As we have explained, “[i]ntent and knowledge
are . . . well-established non-propensity purposes for admitting
6
evidence of prior crimes or acts.” United States v. Bowie, 232
F.3d 923, 930 (D.C. Cir. 2000).1
Han further insists that, even if the 2004-09 evidence were
relevant and admissible, its probative value was “substantially
outweighed by the danger of . . . unfair prejudice.” FED. R.
EVID. 403. Again, we may overturn a district court’s conclusion
on that ground only if we find an abuse of discretion. United
States v. Gartmon, 146 F.3d 1015, 1020 (D.C. Cir. 1998). We
find nothing even close. To the contrary, the district court “took
the appropriate steps to minimize the danger that the jury would
use the 404(b) evidence for an improper purpose,” United States
v. Pettiford, 517 F.3d 584, 590 (D.C. Cir. 2008), warning the
government not to “linger on the more salacious details,” A. 88,
and issuing an appropriate precautionary instruction, A. 328.
2. Han also charges that the court erred in admitting
evidence that he made misrepresentations to investors about
Envion’s economic prospects. As we noted above, Han’s
principal defense was the claim that Carlucci and Russell had
loaned $22 million to him personally, rather than to Envion.
Han agrees, of course, that the government was entitled to
dispute that characterization with evidence of how Carlucci and
Russell thought the funds would be used. But, he says, “[w]hile
the representations that Carlucci and Russell relied on in wiring
money to Mr. Han were relevant, evidence that these statements
were misrepresentations was not.” Han Br. 28.
1
The district court did not address the government’s argument
that the evidence was not covered by Rule 404(b) at all because it was
“intrinsic” to the charged offenses. See Bowie, 232 F.3d at 929.
Because we conclude that the evidence was admissible under Rule
404(b) in any event, we also have no need to address whether it was
intrinsic.
7
We disagree. Whether a borrower has the intent and ability
to repay a purported loan is a factor in judging whether the
transaction is in fact a loan for tax purposes. See United States
v. Swallow, 511 F.2d 514, 519 (10th Cir. 1975) (holding that
“loans obtained in bad faith and without an intent to repay them”
are taxable income); see also, e.g., United States v. McGinn, 787
F.3d 116, 126-27 (2d Cir. 2015); Welch v. Comm’r, 204 F.3d
1228, 1230 (9th Cir. 2000). Here, the government introduced
the challenged evidence to show that Han knew the deals he told
the investors would be the source of their repayment would
never be consummated -- and hence that the investors’ money
could not have constituted loans to Han because he had no intent
or ability to repay them. A. 204-05; see also A. 205
(government proffer that Han “did not have any independent
money”).
Finally, we note that the district court once again took
exemplary care to insist that testimony on this subject be
“brief[]” and “very tailored,” and “to limit [how the
government] could argue” the evidence in its closing. A. 208-
09. We therefore conclude that the probative value of this
evidence was not outweighed -- substantially or otherwise -- by
the danger of unfair prejudice. See FED. R. EVID. 403.
III
As a companion to his argument that the government’s
evidence was unduly prejudicial, Han alleges that the
prosecution engaged in “a persistent appeal to class prejudice”
from start to finish. Han. Br. 37 (quoting United States v. Stahl,
616 F.2d 30, 33 (2d Cir. 1980)). He emphasizes in particular
that the government walked its witnesses through expenditures
that it had excluded from its calculation of Han’s tax liability.
Han Br. 35, 36.
8
But the government stayed within permissible bounds. To
establish the existence and extent of the tax deficiency, the
prosecution sought to show that the items on which Han spent
corporate funds could not possibly be characterized as business
expenses. As the district court rightly observed, that necessarily
entailed showing the nature of those expenses and arguing, for
example, that expensive sports cars could not have been
company vehicles. See A. 176-77. As for the expenses
excluded from the final calculation, the government brought
them up to demonstrate where it drew the line -- and how
conservatively it did so. As the prosecutor put it in closing, the
point was to show that the government’s case was “focus[ed] on
the things that are pretty clear and obvious,” and that the
government had not overcharged Han. A. 358.
IV
Next, Han argues that the district court erred in its handling
of his theory-of-the-defense instruction. Included in the
defense’s proposed instruction was a sentence stating that “Mr.
Han believed that the funds he received in 2010 could legally be
treated as non-taxable personal loans.” A. 276. The district
court struck that sentence on the theory that, “since [Han] didn’t
testify, we don’t know what he believed.” A. 295-96. The
government agrees with Han that this was not a valid basis for
refusing to include that statement. U.S. Br. 51 (citing United
States v. Hurt, 527 F.3d 1347, 1351 (D.C. Cir. 2008)). And
although the remainder of the instruction made clear that Han
was mounting a defense based on his claimed good-faith belief,
it did not include the point that loans are not taxable.
Nonetheless, any error on this front was harmless. “[I]n
light of all the circumstances -- the language of the instructions,
the arguments of counsel, and the evidence itself” -- there was
no real risk of confusion about Han’s theory of the case or its
9
legal basis. United States v. Lemire, 720 F.2d 1327, 1339 (D.C.
Cir. 1983). The government’s expert witness repeatedly
testified that personal loans are not taxable. See S.A. 187-89,
215-16. The defense’s expert witness testified that personal
loans are not taxable. See A. 263. And as Han’s counsel
stressed during closing arguments, there was no disagreement on
the point. See S.A. 270. Moreover, as Han further
acknowledged on appeal, “‘the incredibility of [a defendant’s]
claim that he considered the transactions to be loans’ can
provide a basis to find the failure to instruct harmless.” Han Br.
47 (quoting United States v. Black, 843 F.2d 1456, 1462 (D.C.
Cir. 1988)). On the record of this trial, Han’s claim that the $22
million from Carlucci and Russell were personal loans to him,
rather than investments in the company, falls well within the
“incredible” category.2
V
Finally, Han argues that he received ineffective assistance
of counsel. The essence of this claim is that his attorney, over
the warnings of the district court, opened the door to the
otherwise inadmissible fact that Han has been held liable in a
civil suit brought by Carlucci. See A. 189-196; cf. United States
v. Grey, 891 F.3d 1054, 1058-60 (D.C. Cir. 2018) (observing
2
See, e.g., S.A. 73 (Russell’s testimony that he did not, and
would not, have given Han a personal loan); S.A. 114-15 (Marcia
Carlucci’s testimony that her husband, who was too ill to testify,
would not have given Han a $20 million loan); A. 481-85 (global
promissory note drafted by Han for Carlucci characterizing Envion as
the debtor for the relevant amount); A. 464-69 (global promissory note
for Russell characterizing Envion as the debtor for the relevant
amount); A. 254-55 (Han’s stipulation in a civil suit that Carlucci
provided the $20 million “to Envion” and that “Han [was] not a party
to the promissory note” (emphases added)).
10
that juries are “apt to give exaggerated weight to a judgment,”
especially where “the civil judgment and the criminal charges
involved virtually identical conduct” (internal quotation marks
omitted)). When ineffectiveness “is raised for the first time on
appeal, as it is here, our general practice is to remand to the
district court for an evidentiary hearing unless it is clear from
the record that counsel was or was not ineffective, or that the
supposed defect in representation amounted to a strategic
choice.” United States v. Weaver, 281 F.3d 228, 233-34 (D.C.
Cir. 2002).
In this case, we find the issue clear enough to decide for
ourselves. A defendant claiming ineffective assistance must
both demonstrate that “counsel’s representation fell below an
objective standard of reasonableness,” Strickland v. Washington,
466 U.S. 668, 688 (1984), and show “a reasonable probability
that, but for counsel’s unprofessional errors, the result of the
proceeding would have been different,” id. at 694. Counsel’s
choice here may or may not have been strategic,3 but we need
not resolve that question. “[G]iven the extensive evidence of
[his] guilt,” Grey, 891 F.3d at 1062, Han has no colorable
argument that he was prejudiced by his attorney’s decision.
Although we will refrain from reciting the entirety of the
government’s case to that end, see, e.g., supra note 2, we will
stress one of the most damning parts: Han’s own stipulation, in
his answer to Carlucci’s civil suit, that “Mr. Carlucci provided
$20 million to Envion,” and that “Han [was] not a party to the
promissory note.” A. 516-17 (emphases added). (Han did not
3
The civil judgment came up in connection with defense
counsel’s cross-examination of Kyle Harkrader, Han’s ex-wife, who
testified against him and who had previously settled with Carlucci.
See A. 189-96. As counsel explained at the time, his goal was to
suggest that Harkrader might have had reason to deflect responsibility
onto Han. A. 190-91.
11
object to the admission of this stipulation, only to the fact of the
judgment of liability.) So much for Han’s claim that the money
Carlucci provided was just a personal loan to Han.
VI
For the foregoing reasons, the judgment of the district court
is
Affirmed.