United States v. Floyd

United States Court of Appeals
For the First Circuit
No. 12-2229
UNITED STATES OF AMERICA,
Appellee,
v.
CATHERINE FLOYD,
Defendant, Appellant.
____________________
No. 12-2231
UNITED STATES OF AMERICA,
Appellee,
v.
WILLIAM SCOTT DION,
Defendant, Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. F. Dennis Saylor, IV, U.S. District Judge]
Before
Howard, Selya and Stahl,
Circuit Judges.
Joan M. Griffin for appellant Floyd.
John M. Goggins for appellant Dion.
Damon William Taaffe, Attorney, Tax Division, U.S. Dep't of
Justice, with whom Kathryn Keneally, Assistant Attorney General,
Frank P. Cihlar, Chief, Criminal Appeals & Tax Enforcement Policy
Section, Gregory Victor Davis, Attorney, Tax Division, and Carmen
M. Ortiz, United States Attorney, were on brief, for appellee.
January 7, 2014
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SELYA, Circuit Judge. Over two centuries ago, Benjamin
Franklin famously wrote that "in this world nothing can be said to
be certain, except death and taxes." Apparently unwilling to
accept this conventional wisdom, defendants-appellants Catherine
Floyd and William Scott Dion devised and participated in elaborate
conspiracies to defraud the United States of tax revenues (or so
the government alleges). A jury validated the government's
allegations, and the defendants, ably represented, now pursue
several claims of error. After careful consideration of this
asseverational array, we affirm.
I. OVERVIEW
This case began when a federal grand jury, sitting in the
District of Massachusetts, indicted the defendants (who are husband
and wife) and five others on a multiplicity of charges. The
defendants and one such coconspirator, Charles Adams, were tried
jointly.1 Following a 17-day trial, a jury convicted the
defendants of one count of conspiracy to defraud the United States
of payroll taxes (count 1), one count of conspiracy to defraud the
United States of income taxes (count 2), and one count each of
endeavoring to obstruct and impede the Internal Revenue Service
(IRS) (counts 4 and 5).
1
These appeals were argued in conjunction with Adams's appeal
(No. 12-2276). Because Adams's appeal raises a discrete set of
issues, we will decide it in a separate opinion, to be issued
shortly.
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The government's case in chief centered on two schemes
allegedly orchestrated by the defendants. The first involved the
evasion of payroll taxes by third-party employers. We limn its
mechanics.
Employers are required to withhold Social Security,
Medicare, and federal income taxes from their employees' paychecks
and to remit those payroll taxes to the IRS, along with matching
contributions for Social Security and Medicare. See 26 U.S.C.
§ 3402. These remittances, and the forms that accompany them, have
a dual purpose: they generate revenue for the Treasury and supply
information about the tax liabilities of employers and employees.
Notably, these withholding requirements generally apply only with
respect to employees, not with respect to independent contractors.
It is trite but true that where there are taxes, there
are individuals who seek to evade them. The government alleges
(and the jury found) that the defendants and others set up and
operated a series of entities to facilitate this kind of fraud.
One of these entities was Contract America — a company
that Adams ran. Instead of paying its employees directly, a client
firm would funnel money to Contract America, which then paid the
client's employees (or those of them who agreed to participate in
the fraud) under the table. Through this contrivance, both the
client firm and the participating employees were able to hide from
the IRS.
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Tax evasion is a dangerous tango, and not all employees
want to dance. The government alleges that the defendants
complemented the services of Contract America by operating a front
company (Talent Management) to work with employees who wanted to
stay on the straight and narrow. A firm using this service would
funnel money to Talent Management, which would comply with the
withholding requirements before paying the affected employees.
This made it look as if Talent Management was actually employing
the workers and allowed the client firm to remain invisible.
The second scheme involved the provision of sub rosa
"warehouse banking" services. In this operation, the defendants
commingled their own funds and the funds of many clients in nominee
bank accounts. The purpose of this commingling was to confound the
IRS about the source of the funds.
The defendants executed the warehouse banking scheme
through a company called Your Virtual Office (YVO), its successor
Office Services, and related entities. Clients delivered funds to
the defendants, who deposited the funds into a constellation of
accounts that the defendants controlled. On request, the
defendants would use the deposited funds to defray a client's
expenses or to deliver cash. A software program would track the
flow of funds.
Even after the defendants closed their warehouse banking
operation, they urged a coconspirator (Gail Thorick) to continue
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the business. Thorick did so, through a firm called Calico
Management.
As a capstone to the indictment, the government charged
the defendants with endeavoring to impede the IRS by concealing
their ill-gotten gains. The nub of these charges is the
government's contention that the defendants operated their
warehouse banking scheme so as to obstruct the IRS's assessment of
their personal tax liability.
II. ANALYSIS
On appeal, the defendants argue that there was
insufficient evidence to support their convictions; that certain
evidence should have been suppressed; that they should not have
been tried jointly with Adams; and that the IRS's failure to comply
with the Federal Register Act should have engendered dismissal of
counts 4 and 5. In addition, Dion alone challenges his sentence.
We examine these assignments of error sequentially.
A. Sufficiency of the Evidence.
"We review preserved objections to evidentiary
sufficiency de novo." United States v. Gobbi, 471 F.3d 302, 308
(1st Cir. 2006). In conducting this tamisage, we "must canvass the
evidence (direct and circumstantial) in the light most agreeable to
the prosecution and decide whether that evidence, including all
plausible inferences extractable therefrom, enables a rational
factfinder to conclude beyond a reasonable doubt that the defendant
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committed the charged crime." United States v. Ortiz de Jesus, 230
F.3d 1, 5 (1st Cir. 2000) (internal quotation marks omitted). We
will uphold the jury's verdict as long as it "is supported by a
plausible rendition of the record." United States v. Ortiz, 966
F.2d 707, 711 (1st Cir. 1992).
The defendants challenge the sufficiency of the evidence
across the board. We proceed count by count.
1. Count 1: The Payroll Tax Conspiracy. Count 1
implicates 18 U.S.C. § 371, which criminalizes any conspiracy "to
defraud the United States, or any agency thereof in any manner or
for any purpose." To sustain a conviction under this statute, "the
government must furnish sufficient evidence of three essential
elements: an agreement, the unlawful objective of the agreement,
and an overt act in furtherance of the agreement." United States
v. Hurley, 957 F.2d 1, 4 (1st Cir. 1992). It also must establish
"the knowing participation of each defendant in [the] conspiracy."
United States v. Mubayyid, 658 F.3d 35, 57 (1st Cir. 2011). But
the government need not show an explicit agreement. See United
States v. Muñoz-Franco, 487 F.3d 25, 45-46 (1st Cir. 2007). Nor
must it prove its case by direct evidence. See United States v.
Frankhauser, 80 F.3d 641, 653 (1st Cir. 1996); United States v.
David, 940 F.2d 722, 734 (1st Cir. 1991). A combination of direct
and circumstantial evidence, or circumstantial evidence alone, may
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suffice. See United States v. Santiago, 83 F.3d 20, 23 (1st Cir.
1996).
The defendants concentrate their attack on the evidence
of agreement and unlawful purpose. Specifically, they assert that
they did not operate Contract America; that they had no agreement
with Adams to achieve Contract America's unlawful ends; and that
the companies with which they were actively involved appropriately
remitted payroll taxes.
The record contains several pieces of evidence that blunt
the force of these assertions. Each principal played a role in
achieving the common purpose. The evidence showed that Floyd
structured the Contract America entity and served as its president,
treasurer, and director. She was also the signatory on Contract
America's bank account and gave Adams's then wife Marie Jones (an
unindicted coconspirator) a stamp bearing her (Floyd's) facsimile
signature to use on outgoing Contract America checks.
Adams ran the day-to-day operations of Contract America
(for a time, alongside Jones). A post office box application
listed him as a director of Talent Management.
Dion, who was denominated as a trustee of Contract
America in a corporate document, oversaw Talent Management. Jones
testified that Talent Management was "designed to work hand-in-
hand" with a firm called American Contracting Services (ACS), which
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Dion had helped to operate and which provided the same battery of
services as Contract America.
The record includes evidence that although Talent
Management remitted payroll taxes, its operation was nonetheless
unlawful. Talent Management named itself as the employer of record
on the relevant payroll tax forms in order to shield the actual
employers' identities from the IRS. Drawing inferences favorable
to the verdict, a rational jury could find that Talent Management
was a vital, if complementary, component of the payroll tax
scheme.2
It is, moreover, relevant that both defendants profited
from participation in the unlawful scheme. Jones testified that
the defendants received a percentage of the fees that Contract
America charged, paid to them through their consulting firm
Business Management Services (BMS). Receipt of a share of a
conspiracy's proceeds may be probative of the recipient's
participation in the conspiracy. See United States v. Aleskerova,
300 F.3d 286, 293 (2d Cir. 2002); see also United States v.
Pressler, 256 F.3d 144, 153 (3d Cir. 2001); United States v. Dadi,
235 F.3d 945, 950 (5th Cir. 2000).
2
In any event, it is apodictic that under certain
circumstances even "lawful activity may furnish the basis for a
conviction under § 371." Hurley, 957 F.2d at 4.
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The defendants suggest that receipt of a share of the
revenues of a conspiracy is materially different than receipt of a
share of its profits. In the circumstances of this case, that is
a distinction without a difference. Many of the relevant
precedents speak of the "proceeds" of the conspiracy, without
distinguishing between "revenues" and "profits." See, e.g., United
States v. Brown, 727 F.3d 329, 339-40 (5th Cir. 2013); United
States v. Shepard, 462 F.3d 847, 867 (8th Cir. 2006); United States
v. Smith, 757 F.2d 1161, 1167 (11th Cir. 1985); United States v.
Gunter, 546 F.2d 861, 869 (10th Cir. 1976). It is for the jury to
determine, on the facts of the particular case, whether sharing in
the proceeds of a criminal enterprise evinces participation in the
goals of that enterprise.
The foregoing evidence, formidable in itself, is
buttressed by the testimony of two clients of the payroll scheme.
Gary Alcock (himself charged in the same indictment) was a small
business owner who had not remitted payroll taxes to the IRS for
many years. His brother Kenneth Alcock (similarly charged)
arranged a meeting for him with the defendants. The defendants
accepted Gary Alcock as a client. As part of their service plan,
they set up a sham corporation to shield his assets from, inter
alia, the IRS. They also set him up with payroll services.3 Some
3
Notwithstanding the defendants' self-serving protests that
they did not set up the Alcocks with Contract America, we think a
fair reading of Kenneth Alcock's testimony implicates both
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of Gary Alcock's employees were paid through Contract America,
others through Talent Management. In point of fact, Kenneth Alcock
testified that some employees were paid through both entities:
these workers would receive their regular pay through Talent
Management and overtime pay through Contract America.
The record includes additional evidence of the
defendants' unlawful intent. They kept in their home a Contract
America handout that described the company's proposed (unlawful)
scheme. The record also contains an e-mail that Floyd received
from Adams discussing a tax avoidance scheme for a particular
client. This e-mail is probative of both Contract America's
unlawful purpose and Floyd's involvement with the payroll tax
scheme. See United States v. Friedman, 300 F.3d 111, 126 (2d Cir.
2002) (holding that "evidence that the defendant participated in
conversations directly related to the substance of the conspiracy"
is indicative of intent (internal quotation mark omitted)).
We add that "evidence of a defendant's general mindset
may be relevant to the issue of his intent." United States v.
Mehanna, 735 F.3d 32, 46 (1st Cir. 2013). In this regard, the
record makes manifest evidence that both defendants stopped filing
federal tax returns in 1996 and, in 1997, joined an organization
called Save-a-Patriot, which was committed to resisting the IRS.
defendants and indicates that Talent Management and Contract
America worked hand-in-hand. At the very least, reasonable jurors
could interpret Kenneth Alcock's testimony in this way.
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In sum, the record discloses proof that, when viewed in
the light most favorable to the verdict, was sufficient for a
rational jury to conclude that the defendants knowingly and
voluntarily entered an agreement with Adams to promote the payroll
tax scheme; that a purpose of the scheme was to facilitate unlawful
tax evasion by its clients; and that the defendants undertook a
series of overt acts in furtherance of the agreement.
Of course, the defendants strive to convince us that
there is an innocent explanation for each piece of evidence. But
accepting that argument would require us to wear blinders. That is
not our proper function: our focus must be on the evidence as a
whole. It suffices if the conclusions that the jury draws from the
evidence, although not inevitable, are reasonable. See United
States v. Laboy-Delgado, 84 F.3d 22, 26-27 (1st Cir. 1996)
(explaining that "it is legally irrelevant that a different jury,
drawing alternative inferences, might have reached a different
result").
2. Count 2: The Warehouse Banking Conspiracy. Count 2
likewise charges a section 371 conspiracy. The gravamen of the
government's case is that the defendants conspired to conceal their
clients' identities from the IRS by commingling funds in nominee
bank accounts. The defendants do not dispute that Office Services
and its successor, Calico, commingled funds. Instead, they seek
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both to distance themselves from the interdicted activities and to
persuade us that the activities were lawful.
We start with Dion's claim that the activities were
lawful. There was abundant evidence that an object of Office
Services was to help particular clients evade the IRS. For
example, YVO (Office Services's predecessor-in-interest) advertised
repeatedly in the newsletter of Save-a-Patriot — an organization
dedicated to resisting the IRS. A typical YVO advertisement
offered the company's services in "complete privacy." Weighing
this evidence in context, we think that a rational jury could have
found this solicitation of tax-defiers probative of unlawful
intent. See United States v. Maldonado-García, 446 F.3d 227, 231
(1st Cir. 2006) (observing that evidence may be "buttressed by
inferences that reasonably can be drawn from the totality of the
circumstances"). This inference is especially compelling here
because the defendants used BMS to create sham trusts and
corporations to conceal client assets — and many of the affected
clients had been referred by the Save-a-Patriot group.
One of the individuals who saw the YVO advertisements was
Kenneth Alcock, and his testimony makes the cheese even more
binding. In addition to the problems with his brother's business,
Kenneth Alcock experienced personal tax problems. Dion offered to
help him, using the warehouse banking scheme.
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It would serve no useful purpose to continue to cite book
and verse. Taking the evidence as a whole, a rational jury could
easily conclude that the object of Office Services's activities was
at least in part unlawful.
This leaves the "not me" arguments. They involve two
claims. First, both defendants insist that they "had nothing to do
with" Calico. Second, Floyd insists that she was not involved with
Office Services. These claims elevate self-serving optimism over
reasonable inference.
To begin, the defendants' denial of any relationship with
Calico is nothing but empty rhetoric. Even if the defendants were
not actively involved in the management of Calico, they were surely
involved in promoting its services. They coaxed Thorick into
starting the business as a continuation of Office Services, and it
offered essentially the same services. Indeed, Dion trained
Thorick to perform those services. He also helped to set up the
computer system that Calico used to execute its warehouse banking
operations. Last — but far from least — Thorick's original
customer list was compiled from a roster of Office Services
clients; and over time, the defendants augmented Calico's customer
base by continuing to refer clients to it.
Floyd's insistence that she was not involved with Office
Services is revisionist history. The record leaves no doubt but
that Floyd was hip-deep in the operations of that entity: Floyd was
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a trustee of Office Services; she was the person who, with Thorick,
opened a bank account for Office Services's Rhode Island branch;
she was a signatory of that account; she was the one whose
signature stamp was used on outgoing checks for the branch; and she
was imbued with authority over at least one other Office Services
nominee account. In addition, Gail Thorick testified that while
she "mostly" reported to Dion while operating the Rhode Island
branch of Office Services, she sometimes reported to Floyd.
Given the evidence rehearsed above, we are confident that
a rational jury, indulging inferences favorable to the verdict,
could reasonably have concluded — as this jury did — that the proof
was adequate to convict both Dion and Floyd of knowing
participation in the warehouse banking scheme.
3. Counts 4 and 5: Endeavoring to Obstruct the IRS.
Count 4 charged Dion with corruptly endeavoring to obstruct and
impede the due administration of the Internal Revenue Code in
violation of 26 U.S.C. § 7212(a). Count 5 lodged an identical
charge against Floyd. The thrust of the charges is that the
defendants "endeavored to obstruct and impede the IRS's ability to
determine [their] income and to assess taxes [that they] owed."
As the plain language of the statute suggests, the
government had to prove that the defendants "1) corruptly, 2)
endeavored, 3) to obstruct or impede the due administration of the
Internal Revenue laws." United States v. Marek, 548 F.3d 147, 150
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(1st Cir. 2008). While we have had scant occasion to explore the
contours of this statutory provision, there is a consensus among
the courts of appeals that "corruptly," as used in section 7212(a),
means acting with an intent to procure an unlawful benefit either
for the actor or for some other person. See, e.g., United States v.
McBride, 362 F.3d 360, 372 (6th Cir. 2004); United States v. Kelly,
147 F.3d 172, 177 (2d Cir. 1998); United States v. Winchell, 129
F.3d 1093, 1098 (10th Cir. 1997); United States v. Valenti, 121
F.3d 327, 331-32 (7th Cir. 1997); United States v. Wilson, 118 F.3d
228, 234 (4th Cir. 1997); United States v. Workinger, 90 F.3d 1409,
1414 (9th Cir. 1996); United States v. Dykstra, 991 F.2d 450, 453
(8th Cir. 1993); United States v. Popkin, 943 F.2d 1535, 1540 (11th
Cir. 1991); United States v. Reeves, 752 F.2d 995, 1001 (5th Cir.
1985). Even actions that would otherwise be lawful may transgress
the statute if they are undertaken with the intention of securing
an unlawful benefit. See Wilson, 118 F.3d at 234.
The defendants' insufficiency challenges to their
convictions on these counts focus on what the evidence does not
show. They point out, for example, that the record is barren of
any proof that they earned enough to pay taxes during the relevant
time frame, or that they filed false tax returns, or that they were
audited by the IRS. But any such omissions in the government's
proof are irrelevant to the validity of their convictions. A
conviction for violation of section 7212(a) does not require proof
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of either a tax deficiency, see, e.g., Marek, 548 F.3d at 150-55,
or an ongoing audit, see, e.g., United States v. Wood, 384 F. App'x
698, 704 (10th Cir. 2010) (collecting cases).4
While the filing of false tax documents may be "a
quintessential violation of the statute," Marek, 548 F.3d at 150,
it is not the only way in which the statute can be violated.
Certainly, concealment of income or other assets from the IRS can
form the basis for a violation of the statute. See, e.g., Popkin,
943 F.2d at 1540-41.
The defendant's better argument is that the government's
proof relies "solely on the structure of bank accounts and
corporations." But this argument understates the import of the
government's proof. The government introduced evidence showing
that, over the course of several years, large sums of third-party
money were filtered through the defendants' companies. Payments
were made from the warehouse accounts to both defendants, and cash
was withdrawn. The defendants derived income from that monetary
stream, and they commingled that income with clients' funds in what
the jury supportably could have concluded was a ploy to frustrate
IRS detection.
4
We are aware that the decision in United States v. Kassouf,
144 F.3d 952, 957-58 (6th Cir. 1998), is arguably to the contrary.
But Kassouf has been limited by the Sixth Circuit to its peculiar
facts, see United States v. Bowman, 173 F.3d 595, 600 (6th Cir.
1999), and we do not regard it as good law.
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Based on the totality of this evidence, we think that the
jury was entitled to infer that the defendants had corruptly
endeavored to impede the IRS's computation of their tax liability
and that they had undertaken this course of action to benefit
themselves. The government's proof was, therefore, sufficient to
convict on counts 4 and 5.
B. Suppression.
We turn next to the defendants' importunings that some of
the evidence should have been suppressed. These importunings have
their genesis in the Fourth Amendment, see U.S. Const. amend. IV,
which demands that search warrants issue only upon a showing of
probable cause. To achieve this benchmark, there must be both
"probable cause to believe that a crime has been (or is being)
committed" and probable cause to believe "that evidence of [the
crime] can likely be found at the described locus at the time of
the search." United States v. Ricciardelli, 998 F.2d 8, 10 (1st
Cir. 1993) (emphasis omitted). If a search warrant issues in the
absence of either of these elements, the customary remedy is
suppression of any evidence seized in an ensuing search. See
United States v. Brunette, 256 F.3d 14, 19 (1st Cir. 2001).
Like most general rules, this rule admits of exceptions.
Even if a warrant issues upon an insufficient showing of probable
cause, suppression may be inappropriate if the officers involved
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have exhibited objective good faith. See United States v. Leon,
468 U.S. 897, 918-23 (1984); Brunette, 256 F.3d at 19.
In this instance, the defendants unsuccessfully sought to
suppress evidence seized in a search of their office (44 Depot St.,
Uxbridge, Mass.) and in two searches of their home (18 Wendy Lane,
Uxbridge, Mass.). "In reviewing a district court's denial of a
motion to suppress, we assess factual findings for clear error and
evaluate legal rulings de novo." United States v. Garcia-
Hernandez, 659 F.3d 108, 111 (1st Cir. 2011) (internal quotation
marks omitted), cert. denied, 132 S. Ct. 1873 (2012); accord United
States v. Fagan, 577 F.3d 10, 12 (1st Cir. 2009). This review is
highly deferential. "If any reasonable view of the evidence
supports the denial of a motion to suppress, we will affirm the
denial." United States v. Boskic, 545 F.3d 69, 77 (1st Cir. 2008).
1. The 2003 Office Search. On January 13, 2003, a
magistrate judge issued warrants authorizing the Postal Inspection
Service (USPIS) to search the building at 44 Depot St. and mailbox
#5 (located in front of the building). The warrants were issued in
connection with a USPIS investigation into the manufacture and sale
by Dion, doing business as PT Resource Center, of phony
identification cards. The bogus cards included replicas of
international driving permits (IDPs).
A 15-page affidavit of postal inspector Regina Faulkerson
formed the evidentiary predicate for the warrants. Her affidavit
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described the activities of PT Resource Center; catalogued
(allegedly false) representations made on the PT Resource Center
website; and outlined Dion's and PT Resource Center's ties to the
Depot St. location.
To establish a connection between Dion and the site,
Faulkerson relied in part on Dion's 1999 affidavit in an unrelated
matter. Pertinently, that affidavit vouchsafed that Dion conducted
business at the Depot St. location; that he was a proprietor of the
firms operating there (including PT Resource Center); and that he
used mailbox #5.
In this venue, the defendants make a two-pronged
argument. First, they argue that the district court erred in its
assessment of the commission element of the probable cause inquiry
(i.e., that a crime had been committed) because it incorrectly
concluded that producing "novelty IDs" is itself illegal. Second,
they argue that the court erred in relying on Dion's 1999 affidavit
to connect the crime to the location because that affidavit was
stale.
The first argument collapses of its own weight. It is
nose-on-the-face plain that the district court's holding did not
depend on a determination that the manufacture of certain types of
identification documents is per se illegal. The crimes that the
USPIS had under investigation were linked to false representations
that PT Resource Center made on its website. The district court,
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ruling ore tenus, made clear "whether you look at it as the
purchasers . . . wanted fake IDs for bad purposes, or they
themselves were victims defrauded into thinking that the
identifications were somehow legitimate . . . it's clear that there
was probable cause to believe that a crime had occurred or was
ongoing." The fact that the court made these findings while
discussing the searches of the defendants' home is inconsequential.
The defendants' second argument is no more robust. The
premise on which this argument rests is, of course, sound: "an
affidavit supporting a search warrant must contain timely
information or else it will fail." United States v. Schaefer, 87
F.3d 562, 568 (1st Cir. 1996). But the conclusion that they
attempt to draw from this premise is insupportable.
Determining whether information is stale is not a matter
of "merely counting the number of days elapsed." Id. Courts
sometimes have upheld probable cause determinations based on years-
old information. See, e.g., United States v. McElroy, 587 F.3d 73,
77-78 (1st Cir. 2009); United States v. Morales-Aldahondo, 524 F.3d
115, 119 (1st Cir. 2008); Schaefer, 87 F.3d at 568. Everything
depends on context.
The need to erect a contextual framework requires a
reviewing court to look to a wide variety of factors. Typically,
these factors include such things as "the nature and
characteristics of the supposed criminal activity . . . [and] the
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nature of the items delineated in the warrant." Schaefer, 87 F.3d
at 568. "The longer the expected duration of the criminal activity
and the longer the expected life of the items attendant to it, the
more likely that a datum from the seemingly distant past will be
relevant to a current investigation." Id.
With an eye to context, the district court's conclusion
was eminently reasonable. Dion's 1999 affidavit stated that he was
an owner of PT Resource Center, that PT Resource Center was based
at 44 Depot St., and that it used mailbox #5 in conducting its
business. The PT Resource Center website, which advertised the
IDPs on an ongoing basis, confirmed this connection.
There is more. Shortly before the warrants issued,
undercover investigators requisitioned IDPs from PT Resource Center
by sending an order form to 44 Depot St. Relatedly, the 44 Depot
St. postal carrier confirmed that he delivered mail in the name of
William Scott Dion to that address. These recent developments
indicated that the criminal activity (and Dion's connection to it)
was enduring and, thus, corroborated and refreshed the older
information contained in Dion's 1999 affidavit. As a result, the
information was timely. As this case aptly illustrates, otherwise
stale facts can be revivified and made relevant for search warrant
purposes by more recent confirmation. See McElroy, 587 F.3d at 77-
78 & n.5; Schaefer, 87 F.3d at 568.
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Similarly, the nature of the items to be seized militates
against suppression. The warrant primarily sought business
records. Business records, as a class, are repositories of
historical facts and, therefore, are largely immune from claims of
staleness. See, e.g., United States v. Abboud, 438 F.3d 554, 574
(6th Cir. 2006); United States v. Hershenow, 680 F.2d 847, 853-54
(1st Cir. 1982).
That ends this aspect of the matter. The information
before the magistrate judge was more than enough to tie Dion to 44
Depot St. and to support a reasonable belief that evidence of a
crime might be found there.
2. The 2003 Home Search. While the 2003 office search
was underway, postal agents went to the defendants' home at 18
Wendy Lane. They entered the house with Dion's consent and
interviewed the defendants and Dion's father.5 Based on the
information gleaned in those interviews and plain-sight
observations made at the time, the agents formed a belief that
evidence of the crimes under investigation would be found in the
home.
Inspector Faulkerson relayed the necessary information to
a postal inspector, who prepared an affidavit that paved the way
5
A homeowner's voluntary consent to an entry into his home
obviates the need for a warrant. See Illinois v. Rodriguez, 497
U.S. 177, 181 (1990); United States v. Laine, 270 F.3d 71, 74-75
(1st Cir. 2001).
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for the issuance of an additional search warrant. A search of the
home ensued.
In challenging this search, the defendants do nothing
more than repackage and reassert their objections to the earlier
search of 44 Depot St. These objections, in their repackaged form,
are no more convincing. Consequently, we reject them out of hand.
3. The 2004 Home Search. On March 19, 2004, a
magistrate judge issued a warrant authorizing the search of 18
Wendy Lane. This warrant was founded upon the affidavit of an IRS
agent, David Toy. In his affidavit, Agent Toy carefully chronicled
the putative crimes and delineated their connection to 18 Wendy
Lane. He drew on a variety of sources, including his "personal
participation in [the] investigation [of the defendants],
information received by [him] from other federal law enforcement
officers, [his] interviews of witnesses, [his] review of documents
and records, a recorded telephone call, and [his] training and
experience as a criminal investigator."
The defendants posit that this affidavit does not satisfy
either element of the two-pronged probable cause standard. They
begin by branding the affidavit as consisting mainly of unsupported
conclusions. Apart from these conclusions, the defendants say, the
affidavit contains nothing more than innocuous descriptions of
legal activities.
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This argument is futile. We have, with a regularity
bordering on the echolalic, endorsed the concept that a law
enforcement officer's training and experience may yield insights
that support a probable cause determination. See, e.g., United
States v. Hicks, 575 F.3d 130, 137 (1st Cir. 2009); United States
v. Ribeiro, 397 F.3d 43, 50-51 (1st Cir. 2005); United States v.
Jordan, 999 F.2d 11, 14 (1st Cir. 1993); United States v. Aguirre,
839 F.2d 854, 858 (1st Cir. 1988). Here, moreover, the notion that
the affidavit contained no evidence of illegality beyond Agent
Toy's experience-based conclusions is flatly contradicted by the
affidavit's contents. To mine every nugget of factual information
from the 43-page affidavit would be pointless. A few examples
suffice to demonstrate the futility of the defendants' argument:
• The affidavit recounts a conversation in which a
man identifying himself as Charles Adams told an
undercover agent about the unlawful array of
services offered by Contract America.
• Documents seized during the 2003 home search and
referenced in Agent Toy's affidavit included a
Contract America business card.
• Subpoenaed bank records linked Contract America
to Floyd.
• Voluminous information attested to the
defendants' establishment of warehouse and
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offshore bank accounts and multiple mail drops,
all of which, when viewed in context, could
reasonably be seen as potential means to evade
IRS scrutiny.
Given these and other facts, it was reasonable for the
magistrate judge to draw the commonsense conclusion that evidence
of tax fraud would likely be found at 18 Wendy Lane. See United
States v. Falon, 959 F.2d 1143, 1147 (1st Cir. 1992) (observing
that courts "interpret affidavits for search warrants in a
commonsense and realistic fashion" (internal quotation marks
omitted)).
The defendants next assail the use of certain documents
to support the finding of probable cause. They argue that
documents seized in the 2003 search at 18 Wendy Lane should have
been suppressed and, thus, could not undergird a finding of
probable cause in connection with the 2004 home search. This
argument is hopeless: the 2003 home search was entirely within the
pale, see supra Part II(B)(2), a fact that renders the defendants'
redundant efforts to impugn the lawfulness of that search a waste
of time.
The defendants next try to discredit the probative value
of documents discovered in their trash. They argue that these
papers depict only legal transactions. But the defendants are
viewing this evidence through rose-colored glasses. Fairly read,
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it tied the defendants' home tightly to both Contract America and
Talent Management. Consequently, the documents were probative of
a nexus between the location and the crimes alleged.
For these reasons, the 2004 home search was lawful.6
C. Severance.
We come now to the defendants' shared claim that they
should not have been tried together with Adams. This claim arises
at the intersection of Federal Rule of Criminal Procedure 8(b),
which permits the joinder of two or more defendants in a single
indictment, and Federal Rule of Criminal Procedure 14, which
empowers the district court to sever a defendant for purposes of
trial if joinder "appears to prejudice" him.
This intersection has been extensively mapped. The
general rule is that defendants who are properly joined in an
indictment should be tried together. See United States v.
O'Bryant, 998 F.2d 21, 25 (1st Cir. 1993). This rule has special
force in conspiracy cases, in which the severance of
coconspirators' trials "will rarely, if ever, be required." United
States v. Flores-Rivera, 56 F.3d 319, 325 (1st Cir. 1995) (internal
quotation marks omitted). Because considerable deference is due to
the trial court's superior coign of vantage, we review that court's
6
The district court concluded, as an alternative holding,
that the good-faith exception to the warrant requirement validated
all three searches. See Leon, 468 U.S. at 918-23. Because the
denial of the suppression motions on merits-based grounds is
unimpugnable, we do not address this alternative holding.
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ruling granting or denying a motion to sever for abuse of
discretion. See United States v. Boylan, 898 F.2d 230, 246 (1st
Cir. 1990).
The defendants' claim of error has two subsets. They
start with the plaint that Adams's defense was both antagonistic to
and irreconcilable with their defenses. We do not agree.
The defendants and Adams were charged as participants in
the payroll tax conspiracy. Unlike the defendants, Adams — who was
also charged with three counts of tax evasion — decided to confess
and avoid; that is, he admitted that he intentionally committed and
facilitated the proscribed acts, but contended that his good-faith
belief that he had no legal obligation to pay income taxes
forestalled any finding of guilt. See Cheek v. United States, 498
U.S. 192, 203 (1991). The defendants took a different tack: they
eschewed an affirmative defense and instead questioned the adequacy
of the government's proof that they acted unlawfully.
Defenses are not antagonistic merely because they are not
congruent. "In order to gain a severance based on antagonistic
defenses, the antagonism . . . must be such that if the jury
believes one defendant, it is compelled to convict the other
defendant." United States v. Peña-Lora, 225 F.3d 17, 33 (1st Cir.
2000) (alteration in original) (emphasis in original) (internal
quotation marks omitted). Put another way, "the tension between
defenses must be so great that a jury would have to believe one
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defendant at the expense of the other." United States v. Yefsky,
994 F.2d 885, 897 (1st Cir. 1993).
No troubling antagonism existed here: the jury could have
accepted both that Adams intentionally committed fraud and that the
defendants lacked the same culpable state of mind. See, e.g.,
United States v. Voigt, 89 F.3d 1050, 1095-96 (3d Cir. 1996);
United States v. Martinez, 979 F.2d 1424, 1431 (10th Cir. 1992);
cf. United States v. Throckmorton, 87 F.3d 1069, 1071-72 (9th Cir.
1996) (finding severance not required when codefendant "intended to
implicate [defendant], admit that the drug transaction occurred,
but contend he was involved solely as a DEA informant"). While the
defendants may have been uncomfortable with Adams's frank
admissions, the defenses were neither irreconcilable nor even
substantially incompatible. Accordingly, severance was not
required on this basis. See United States v. DeCologero, 530 F.3d
36, 52-53 (1st Cir. 2008).
The defendants' second ground for severance is equally
unavailing. They assert that a spillover effect from Adams's
presence as a defendant unfairly prejudiced them to such a degree
as to require separate trials. Specifically, they assert that the
evidence used to convict Adams (including Adams's own testimony)
was bound to provide proof of their criminal intent — proof that
would not have been admissible in a separate trial.
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These assertions contain more cry than wool.
Demonstrating unfair prejudice sufficient to require severance of
coconspirators' trials "is a difficult battle for a defendant to
win." Boylan, 898 F.2d at 246. The defendants have not come close
to winning the battle here.
The defendants try to marry their claim of unfair
prejudice to Adams's role in the Save-a-Patriot organization. But
the defendants' ties with the Save-a-Patriot organization form a
legitimate part of the government's case against them; and in any
event, the record contains ample evidence, independent of Adams's
testimony, to bind the defendants to the Save-a-Patriot
organization. The most obvious example of this independent
evidence is the defendants' membership in the organization.
To be sure, the defendants might well have been
advantaged by a separate trial. But that is not the test of
whether severance must be granted. See id. (explaining that, in
the severance context, "prejudice means more than just a better
chance of acquittal at a separate trial" (internal quotation marks
omitted)).
We need not tarry. Much of the evidence about which the
defendants complain would have been admissible against them even if
they had been tried separately from Adams. It follows that this
evidence does not furnish a plausible basis for severance. See
O'Bryant, 998 F.2d at 26 ("Where evidence featuring one defendant
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is independently admissible against a codefendant, the latter
cannot convincingly complain of an improper spillover effect.").
For aught that appears, the remainder of the evidence, if
prejudicial at all, caused nothing beyond the "garden-variety"
prejudice that we consistently have found insufficient to require
severance. Boylan, 898 F.2d at 246.
We add a coda. To the extent that there was any
spillover from evidence that might not have been admissible against
the defendants in a separate trial, the district court took
effective measures to palliate spillover prejudice. Where, as
here, "[t]here were appropriate limiting instructions as to the
admissibility of evidence against particular defendants and as to
the need to determine guilt on an individual basis," id., no more
is exigible.
We conclude, without serious question, that the district
court acted well within the encincture of its discretion when it
denied the defendants' motions for severance.
D. Federal Register Act.
The defendants claim that the district court should have
dismissed counts 4 and 5 because the IRS did not comply with the
Federal Register Act, 44 U.S.C. § 1505(a)(1), in connection with
the statute on which those counts were based (26 U.S.C. § 7212(a)).
We first explain the defendants' thesis and then dispose of their
claim.
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In the Federal Register Act, Congress decreed that
certain executive actions must be recorded in the Federal Register.
See 44 U.S.C. § 1505(a)(1). After the enactment of 26 U.S.C.
§ 7212(a), the IRS did not publish implementing regulations in the
Federal Register. Building on this foundation, the defendants
suggest that enforcing section 7212(a) against them transgresses
their constitutional rights to notice and due process. This
suggestion presents a pure question of law, which we review de
novo. See United States v. Moore, 286 F.3d 47, 49 (1st Cir. 2002).
By its plain terms, the statutory provision upon which
the defendants rely, 44 U.S.C. § 1505(a)(1), applies to
presidential proclamations and executive orders. The law is
settled beyond hope of contradiction that the provision has no
application to criminal statutes enacted by Congress. See United
States v. Walls, 546 F.3d 728, 740 (6th Cir. 2008); United States
v. Schiefen, 139 F.3d 638, 639 (8th Cir. 1998) (per curiam).
Congress's enactment of a criminal statute and the statute's
subsequent publication in the United States Code, without more,
puts prospective defendants on fair notice.7 See Cheek, 498 U.S.
at 199; Roberts v. Maine, 48 F.3d 1287, 1300 (1st Cir. 1995) (Cyr,
J., concurring).
7
The statutory provision at issue here has been published
continuously in the United States Code since at least 1958.
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The defendants nonetheless argue that as a precondition
to enforcement of the statute of conviction, the Federal Register
Act requires the publication of implementing regulations. This
argument is woven out of whole cloth.
The defendants wrap their argument in the mantle of the
Supreme Court's decision in California Bankers Ass'n v. Shultz, 416
U.S. 21 (1974). There, the Court concluded that the Bank Secrecy
Act of 1970 was not "self-executing," id. at 64, so if the agency
did not promulgate regulations, "the Act itself would impose no
penalties on anyone," id. at 26.
This precedent is inapposite. The Federal Register Act
has been described as a "notice" statute. United States v. Floyd,
477 F.2d 217, 222 (10th Cir. 1973). It requires the publication of
regulations, not their promulgation. See Kennecott Utah Copper
Corp. v. U.S. Dep't of Interior, 88 F.3d 1191, 1205 (D.C. Cir.
1996) (explaining the purpose of the Act as "protect[ing] regulated
entities from . . . the government's failure to publish duly-
approved regulations"). The statute of conviction here is self-
executing and no regulations are needed to effectuate it. See,
e.g., Marek, 548 F.3d at 150, 155. This is why courts that have
faced similar Shultz-based attacks on other provisions of the
Internal Revenue Code have repulsed those attacks. See United
States v. Dawes, 161 F. App'x 742, 745 (10th Cir. 2005); Watts v.
IRS, 925 F. Supp. 271, 277 (D.N.J. 1996).
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We hold that the defendants' claim of a Federal Register
Act violation is without merit.
E. Sentencing.
The district court meted out prison sentences of 84
months to Dion, 60 months to Floyd, and 48 months to Adams. It
sentenced other coconspirators, who did not go to trial, more
leniently. Dion claims that his sentence reflects an unwarranted
disparity.
We review a district court's bottom-line sentencing
determination for abuse of discretion. See United States v.
Flores-Machicote, 706 F.3d 16, 20 (1st Cir. 2013). Within this
rubric, we assay the district court's findings of fact for clear
error and its application of the sentencing guidelines de novo.
See id. "The touchstone of abuse of discretion review in federal
sentencing is reasonableness." United States v. Vargas-Dávila, 649
F.3d 129, 130 (1st Cir. 2011).
An assessment of reasonableness "typically involves a
two-step pavane." Flores-Machicote, 706 F.3d at 20. The first
step entails an inquiry into the incidence of procedural errors.
See id. "Once we are assured that the sentence is not infected by
procedural error, we then proceed to evaluate its substantive
reasonableness." Id.
Dion frames his claim as a complaint about the
substantive reasonableness of his sentence. The central premise of
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his complaint is that he was similarly situated to his
coconspirators, yet sentenced more harshly. With this premise in
place, he invokes a provision of the Sentencing Reform Act that
directs a sentencing court to consider "the need to avoid
unwarranted sentence disparities among defendants with similar
records who have been found guilty of similar conduct." 18 U.S.C.
§ 3553(a)(6).
Dion's premise is faulty in two salient respects. First,
Dion focuses on the wrong universe. In enacting section
3553(a)(6), "Congress's concern was mainly with minimization of
disparities among defendants nationally rather than with
disparities among codefendants engaged in a common conspiracy."
United States v. Vargas, 560 F.3d 45, 52 (1st Cir. 2009).
Second — and perhaps more important — Dion's premise is
undercut by the record. The district court supportably found that
Dion was more culpable than his coconspirators. In this vein, it
found that Dion was the mastermind of the conspiracies. See USSG
§3B1.1(a) (directing four-level enhancement for organizer or
leader). Floyd and Adams performed lesser roles, see id. §3B1.1(b)
(directing lower enhancement for manager or supervisor), and
nothing in the record indicates that any of the remaining
coconspirators received upward role-in-the-offense adjustments. It
is too obvious to warrant citation of authority that an offender
-35-
who sits at the top of a criminal hierarchy is not similarly
situated to his underlings.
There are other differences as well. For example, the
district court found that Dion was responsible for a substantially
larger tax loss than Adams because Adams did not participate in the
warehouse banking scheme. See id. §2T4.1(H), (J). So, too, the
remaining coconspirators cooperated with the government and/or
accepted responsibility. Such distinctions can justify
differential treatment at sentencing. See United States v. Dávila-
González, 595 F.3d 42, 50 (1st Cir. 2010).
Stripped of flawed comparisons, Dion's claim that his
sentence is substantively unreasonable is a pipe dream. The
district court calculated Dion's guidelines sentencing range as 121
to 151 months. The court then ameliorated this range through a
downward variance to 84 months.
When, as in this case, a district court essays a
substantial downward variance from a properly calculated guideline
sentencing range, a defendant's claim of substantive
unreasonableness will generally fail. See, e.g., United States v.
Williams, 630 F.3d 44, 52 (1st Cir. 2010); United States v. Glover,
558 F.3d 71, 82-83 (1st Cir. 2009). Dion's claim falls within this
generality, not within the long-odds exception to it. We discern
no hint of an abuse of discretion in the district court's
disposition.
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III. CONCLUSION
We need go no further. For the reasons elucidated above,
the judgment of the district court is
Affirmed.
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