United States v. Retos

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
6-8-1994
United States of America v. Retos
Precedential or Non-Precedential:
Docket 93-3341
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
----------
No. 93-3341
----------
UNITED STATES OF AMERICA
v.
GEORGE RETOS, JR.,
Appellant
----------
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Crim. No. 92-00110-01)
----------
Argued Monday, May 2, 1994
BEFORE: GREENBERG and GARTH, Circuit Judges
and ROBRENO, District Judge0
----------
(Opinion filed June 8, 1994)
George Retos, Jr., Pro Se
Retos, Held & Mascara
70 East Wheeling Street
Washington, Pennsylvania 15301
Richard A. Sprague
James J. West (Argued)
Bill Wolf, Jr.
Sprague & Sprague
135 South 19th Street
Wellington Building, Suite 400
0
Honorable Eduardo C. Robreno, United States District Court for
the Eastern District of Pennsylvania, sitting by designation.
1
Wellington, Pennsylvania 19103
Attorneys for Appellant
Frederick W. Thieman
United States Attorney
Paul J. Brysh
Assistant U.S. Attorney
Michael L. Ivory (Argued)
Assistant U.S. Attorney
633 United States Post Office
& Courthouse
Pittsburgh, Pennsylvania 15219
Attorneys for Appellee
----------
OPINION OF THE COURT
----------
GARTH, Circuit Judge:
Defendant George Retos ("Retos") was convicted on nine
counts of an eleven-count indictment, including two counts of
income tax evasion, in violation of 26 U.S.C. § 7201, and one
count of currency structuring, in violation of 31 U.S.C.
§§ 5324(3) and 5322(a). On appeal, Retos contests a number of
rulings made by the district court during trial. He also argues
that the district court's jury instruction with respect to the
structuring count was inconsistent with the Supreme Court's
holding in Ratzlaf v. United States, ___ U.S. ___, 114 S. Ct. 655
(1994), a case decided while Retos' appeal was pending before us.
We have jurisdiction pursuant to 28 U.S.C. § 1291.
Although the bulk of Retos' appeal is without merit, we conclude
that, in the aftermath of Ratzlaf, the jury instruction given by
the district court without objection constituted plain error,
which we may review. We will vacate Retos' structuring
2
conviction and will remand to the district court for retrial on
the structuring count and for resentencing on Retos' remaining,
valid convictions, which we will affirm.
I
George Retos was the managing partner of Retos, Held &
Mascara, a Washington, Pennsylvania law firm. He also advised
clients as a solo practitioner, separate from, and apparently
concurrent to, his association with the law firm. On May 21,
1992, a federal grand jury returned an eleven-count indictment
against Retos alleging numerous federal offenses arising out of
his professional and personal financial activities, and the
convergence of the two.
Counts 1 through 3 charged Retos with income tax
evasion in violation of 26 U.S.C. § 7201.0 The government
alleged that Retos had understated his taxable income in 1985
("Count 1"). A government audit of Retos' 1986 tax return
revealed that he had understated his taxable income in 1986 by
$218,714.96 ("Count 2"). Retos never filed an income tax return
in 1987 ("Count 3").
0
Section 7201 provides as follows:
Any person who willfully attempts in any
manner to evade or defeat any tax imposed by
this title or the payment thereof shall, in
addition to other penalties provided by law,
be guilty of a felony and, upon conviction
thereof, shall be fined not more than
$100,000 ($500,000 in the case of a
corporation), or imprisoned not more than 5
years, or both, together with the costs of
prosecution.
3
Count 4 charged Retos with structuring a currency
transaction in violation of 31 U.S.C. §§ 5324(3)0 and 5322(a).0
The government alleged that in connection with the purchase of an
automobile dealership by a Retos client, Robert Bruno, Retos
caused $15,000 to be paid over to the seller, Bud Spesak, in two
separate checks, each made out to "Cash" in the sum of $7,500
(i.e., below the $10,000 currency transaction report threshold).
Count 5 charged Retos with scheming to defraud by use
of wire communications, in violation of 18 U.S.C. § 1343. In
1987, Retos applied for a residential loan from a federally
insured savings and loan institution using allegedly fraudulent
income tax returns. In connection with his application, Retos
wired $216,264.49 into his own personal bank account.
Count 6 charged Retos with making false statements in
connection with a credit application, in violation of 18 U.S.C.
§ 1014. In 1988, Retos obtained a line of credit from a
federally insured bank by providing the bank with false
information concerning the status of his income tax liability and
by using falsified copies of his never-filed 1987 tax return.
0
31 U.S.C. § 5324 provides as follows: "No person shall
for the purpose of evading the reporting requirements of section
5313(a) . . . (3) structure or assist in structuring, or attempt
to structure or assist in structuring, any transaction with one
or more domestic financial institutions."
After the indictment issued on May 21, 1992, Congress
amended § 5324, designating the existing text as subsection (a),
and adding a new subsection (b). Section 5324(3) is now codified
at § 5324(a)(3).
0
31 U.S.C. § 5322(a) provides as follows: "A person
willfully violating this subchapter or a regulation prescribed
under this subchapter . . . shall be fined not more than
$250,000, or imprisoned for not more than five years, or both."
4
Counts 7 through 10 charged Retos with mail fraud, in
violation of 18 U.S.C. § 1341. Retos had been retained by a
client, Samir Gayed, to incorporate Gayed's investment company,
Golden Falcon, Inc. Retos never did so. Rather, Retos falsely
held himself out as the president of Golden Falcon and had Golden
Falcon's interests transferred to him. The effect of this
transfer was that Retos knowingly and fraudulently received, and
caused to be received, through the United States mail, four
revenue checks which rightly belonged to Golden Falcon.
Count 11 charged Retos with the interstate
transportation of stolen property, in violation of 18 U.S.C.
§§ 2314 and 2. Retos unlawfully transported a stolen limited
partnership certificate from Midland, Texas to Washington,
Pennsylvania.
Trial commenced on November 30, 1992. Retos
immediately objected to a number of statements made by the
prosecutor in his opening statement, and moved for a mistrial.
The district court denied Retos' motion. On December 18, 1992, a
jury found Retos guilty on nine of the eleven counts charged,
including two of the three tax evasion counts and the one
structuring count.0 Thereafter, on May 4, 1993, the district
court denied Retos' post-trial motion for judgment of acquittal.
On June 29, 1993, Retos was sentenced to concurrent
terms of 27 months imprisonment on Counts 2, 3, and 6 through 11.
0
Count 5 was dismissed by the district court judge
pursuant to Federal Rule of Criminal Procedure 29. The jury
acquitted Retos on Count 1.
5
He was sentenced to a consecutive term of three months
imprisonment on Count 4, the structuring count. Retos also was
fined $30,000 and ordered to pay restitution in the amount of
$42,886.88 and a $450 special assessment. This appeal followed.
II
Retos challenges a number of pronouncements made by the
prosecutor during his opening statement which, Retos claims,
prejudiced the jury against him. In particular, Retos objects to
the prosecutor's reference to (1) drug use, (2) Retos' frequent
cash withdrawals of sums under $10,000, and (3) Retos' "crooked"
law practice.
We review a district court's denial of a motion for
mistrial arising out of alleged prosecutorial misconduct for
abuse of discretion. United States v. Gambino, 926 F.2d 1355,
1365 (3d Cir. 1991); United States v. Tyler, 878 F.2d 753, 756
(3d Cir. 1989). We will vacate a defendant's conviction if "the
prosecutor's remarks, taken in the context of the trial as a
whole, were sufficiently prejudicial to have deprived [the
defendant of his] right to a fair trial." United States v.
DiPasquale, 740 F.2d 1282, 1297 (3d Cir. 1984). Even if a
prosecutor does make an offending statement, the district court
can neutralize any prejudicial effect by carefully instructing
the jury "to treat the arguments of counsel as devoid of
evidentiary content." United States v. Somers, 496 F.2d 723, 738
(3d Cir. 1974). Accord United States v. Leftwich, 461 F.2d 586,
590 (3d Cir. 1972) (finding no prejudice where trial judge
6
carefully instructed jurors that arguments of counsel were not
evidence).
A.
Here, the reference by Assistant United States Attorney
Garrett to drug-dealing was for the sole purpose of illustrating
to the jury the meaning of "structuring."0 The portion of the
prosecutor's opening statement, challenged by Retos, was as
follows:
One of the charges you heard mentioned
of in this case involves a currency
transaction. The particular violation is
that Mr. Retos did what is known as he
structured a currency transaction. A
currency transaction that is affected by this
particular offense is a transaction for
currency in excess of $10,000.
Now, within the past couple of decades,
I guess it has been determined by the United
States Congress that there is a substantial
risk that persons engaged in criminal
activity will utilize currency. The reason
for that is simple.
When currency exchanges hands between
two individuals, there is no record made. If
you think about it, when you write a check,
the check goes through your bank account. The
bank has to keep a record of that check
because the bank has to keep your account
straight. They don't want to be crediting
your $10,000 against somebody else's account.
So that the bank keeps a record. So
whenever you use a check or some written
instrument in connection with the financial
transaction, there is a record. But if you
simply use currency, there is not any record.
So in order to fill that gap, in 1971, I
think it was, the United States Congress
passed a law that provided that whenever a
0
We discuss Count 4, the structuring count, in Section
IV, infra.
7
bank engages in a transaction with a customer
involving more than $10,000 in cash, the bank
must file a report.
So, in other words, if I go to my bank
because I am a drug dealer or because I am a
tax cheat, and I want to create a transaction
that does not have any record to it, and I
get my $15,000 in currency, there is going to
be a record because the bank has to file a
report saying Garret [i.e., the prosecutor]
got 15 grand.
So it does not necessarily say what I
did with the 15 grand, but it says I had it.
So there is at least that much of a record.
Now, when Congress passed the law, as I
say, it required the bank to file a report
and if the bank engaged in a transaction for
more than $10,000, and did not file a report,
the bank itself and bank employee who engaged
in the transaction could be prosecuted for
violating the law.
In more recent years, I guess it has
probably been about within the last ten years
or so, the Congress also passed a law that
provided that, if an individual designs or
structures a transaction in such a way as to
prevent the bank from filing a currency
transaction report, then that individual is
violating the law. In other words, Garret
does not go to the bank once and get $15,000,
Garret goes to the bank twice -- see, I am a
smart guy. I get $7500 one time and $7500
the next time. There was never any $10,000
that the bank gave me, so the bank never had
a $10,000 transaction to report.
Well, Congress said time out; no. If
you, Garret, structure your transaction in
order to avoid ever exceeding $10,000, you
have violated the law because you prevented
the bank from filing the currency transaction
report.
(Emphasis added.)
It is clear from this passage that the prosecutor did
not tell the jury that Retos was a drug dealer, nor did the
prosecutor charge Retos with a drug offense. As the district
court explained in denying Retos' motion for mistrial: "Mr.
8
Garret [the prosecutor] did that in the context of explaining the
congressional context in that statute. At no point is there any
indication Mr. Retos is charged with a drug offense or is there
any faintly remotely connecting him." See United States v.
Strissel, 920 F.2d 1162 (4th Cir. 1990) (denying appellant's
request for new trial based on argument that prosecutor had
compared him to "Al Capone" where reference to Capone was for the
purpose of illustrating that RICO statute applies to anyone who
engages in racketeering activity, not just gangsters).
B.
Second, the prosecutor's reference to Retos' numerous
currency transactions involving sums under $10,000 did not amount
to an accusation of uncharged criminal conduct, as Retos argues.
The portion of the prosecutor's opening statement, challenged by
Retos, was as follows:
Now, you will hear in this particular
case that Mr. Retos was well aware of the
currency transaction report law. In fact, we
will demonstrate for you some transactions in
which currency reports were filed in
connection with Retos transactions.
You will also hear that Mr. Retos in
fact on a frequent basis obtained currency in
less than $10,000 by various banking
transactions . . . The charge before you
involves a particular transaction in which on
behalf of a client Mr. Retos structured a
currency transaction deal in order to avoid
the report.
We have held that "[i]f an opening statement is an
objective summary of evidence the government reasonably expects
to produce, a subsequent failure in proof will not necessarily
9
result in a mistrial." United States v. Wright-Barker, 784 F.2d
161, 175 (3d Cir. 1986). Here, the prosecutor's statement was an
"objective summary" of the evidence the government expected to
produce and, ultimately, there was no failure in proof. At
trial, witnesses testified as to Retos' practice of breaking down
deposits of $10,000 or more into smaller amounts. This evidence
was directly relevant to the issue of whether Retos purposefully
engaged in structuring the $15,000 currency transaction alleged
in Count 4 of the indictment.
C.
Finally, the prosecutor's reference to Retos' "crooked
law practice" was clearly related to the tax-evasion offenses
charged in the indictment. The portion of the prosecutor's
opening statement, challenged by Retos, was as follows:
[T]he evidence that you will hear in this
case will delve into the law practice of the
defendant, George Retos, . . . The evidence
will show that it was a crooked law practice,
crooked in that Mr. Retos violated his legal
duty to maintain a wall between his own
business on matters being handled for
clients, crooked in that Mr. Retos transacted
his business in such a manner as to hide his
income and evade his income taxes, and
crooked in that Mr. Retos helped himself to
client's money.
Evidence presented at trial supported the prosecutor's
characterization of, and allegations with respect to, Retos'
shady professional practices. Those practices were directly
connected to the specific criminal offenses with which Retos was
charged, and which the government was required to prove.
10
D.
In any event, the district court thoroughly and
repeatedly instructed the jury that the parties' opening
statements were not to be considered as evidence. In the context
of Retos' trial as a whole, we find no lingering prejudicial
effect which can be imputed to the prosecutor's opening
statement.
In sum, the prosecutor's statements were not improper,
there was no failure of proof, and the district court gave
curative instructions to the effect that the prosecutor's
arguments were not to be considered as evidence. Accordingly, we
hold that the district court did not abuse its discretion in
denying Retos' motion for mistrial.
III
Retos next argues that the district court erred in
permitting James Celestine to testify as to $36,000 in family
trust funds which Celestine had given to Retos to manage, but
which Retos transferred into his own personal bank account. Retos
argues that Celestine's testimony was both irrelevant, under
Federal Rule of Evidence 402,0 and inadmissible, under Federal
0
Rule 402 provides as follows: "All relevant evidence is
admissible, except as otherwise provided by the Constitution of
the United States, by Act of Congress, by these rules, or by
other rules prescribed by the Supreme Court pursuant to statutory
authority. Evidence which is not relevant is not admissible."
11
Rule of Evidence 404(b).0 Retos claims that he ultimately
transferred the money from his personal account to the law firm's
client trust account, the firm divided the partnership's income
among the partners, and the individual partners paid taxes on the
"embezzled" $36,000. In addition, Retos emphasizes that he was
prepared at trial to stipulate that in 1986, he had received the
$36,000 in his personal income.
The government argues that Celestine's testimony was
relevant to establish Retos' 1986 income level. The government
claims that Retos did not, and could not, establish conclusively
that the $84,283.62 in funds transferred from Retos' personal
account to the firm's account during 1986, included the $36,000
which Retos had embezzled from Celestine. The government refused
Retos' offer to stipulate to the $36,000 as income to Retos
because it wanted Celestine to testify. The government contends
that when Celestine told Retos that IRS agents had been asking
him questions about the $36,000, Retos had instructed Celestine
to tell the authorities that Celestine had loaned the money to
Retos. Proceeds from a loan, of course, do not constitute
taxable income, while embezzled funds do. The government argued
that this evidence was probative of willfulness, an element it
was required to prove to convict Retos of tax evasion.
We review a district court's decision to admit or
exclude evidence for abuse of discretion. United States v.
0
Rule 404(b) provides in relevant part as follows:
"Evidence of other crimes, wrongs or acts is not admissible to
prove the character of a person in order to show action in
conformity therewith. . . ."
12
Console, 13 F.3d 641, 656 (3d Cir. 1993); United States v.
Eufrasio, 935 F.2d 553, 571 (3d Cir. 1991).
At trial, the district court judge held that the
Celestine testimony was relevant, even if marginally so, under
Rule 402. In so holding, the district court concluded that
Celestine's testimony would establish the source of the
unreported income, as well as part of Retos' level of income for
1986. In addition, the district court determined that
Celestine's testimony could demonstrate willfulness. It
therefore concluded that the probative value of Celestine's
testimony outweighed any prejudicial effect under Federal Rule of
Evidence 403.0 The court explicitly held that Rule 404(b) was
not implicated in its ruling because the embezzlement evidence
had relevance independent of Retos' character.0
Our review of the record reveals that the testimony
with respect to Retos' embezzlement of Celestine's $36,000 trust
fund was somewhat complicated. The inference of willfulness the
government sought to establish through this testimony was subtle,
yet highly probative. Despite Retos' arguments to the contrary,
the government's expert did not concede that the $36,000 became a
"wash" transaction once Retos transferred a total of $84,283.62
0
Rule 403 provides as follows: "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."
0
Thereafter, the district court reconsidered and
reaffirmed its ruling which admitted the Celestine testimony, two
more times.
13
to the law firm's trust account. Nor do we believe that there is
record evidence supporting Retos' characterization of the
transaction as a "wash," inasmuch as the $36,000 could not be
identified as a part of the total monies transferred.
Rather, the record demonstrates that after Retos
transferred the $36,000 to his personal account, his ledger card
reflected a balance of $35,671. That is, Retos immediately used
at least part of the $36,000 to cure an existing negative balance
in his personal account.
In addition, there is no record evidence that the firm
of Retos, Held & Mascara, as distinct from George Retos, solo
practitioner, in any way earned a fee for legal work performed on
behalf of James Celestine. Nor does the record contain evidence
that Retos forwarded the $36,000 to the firm because he believed
it was a fee owed to the firm on the Celestine matter. In fact,
Retos freely admits that he was prepared to stipulate at trial to
the fact that the full $36,000 should have been recorded as
income to him on his 1986 personal income tax return.
It is the trial court, of course, and not the Court of
Appeals, which is in the best position to consider the
complicated evidentiary issues involved in a given case, and to
strike the balance required by Rule 403. United States v. Gatto,
995 F.2d 449, 457 (3d Cir. 1993; United States v. Sampson, 980
F.2d 883, 889 (3d Cir. 1992). Here, the district court
scrupulously analyzed the propriety of the government's evidence
when it was first offered, and re-analyzed its ruling throughout
the course of the trial. It concluded on each of these occasions
14
that the testimony elicited by the government was relevant in
proving the underlying elements of the offenses charged.
Retos has not cited a case which even suggests that the
district court committed legal error.0 From our vantage point --
based on the record before us -- we are satisfied that the
district court's Rule 403 balancing of prejudice and probity
0
Among other of Retos' arguments, he asserts that the
embezzlement evidence was inadmissible under Federal Rule of
Evidence 404(b). Retos argues that under United States v.
Sampson, 980 F.2d 883 (3d Cir. 1992), the government was
obligated to (1) proffer a logical chain of inferences consistent
with the government's theory of the case, and (2) articulate
reasons why the evidence goes to show something other than
character.
The district court concluded, however, and we agree,
that the Celestine testimony was not introduced to prove criminal
propensity or bad character but was admitted, rather, as direct
substantive evidence bearing on the two elements of tax evasion:
(1) Retos' level of income, and (2) willfulness. Rule 404(b)
simply was not implicated.
Retos also objected to the government's summation which
referred to the embezzlement evidence as that evidence related to
Counts 7 through 11, the mail fraud counts. The district court
denied that objection on the grounds urged by the government,
i.e., that Celestine's testimony properly had been admitted as
substantive evidence. We agree.
As we have explained previously, it is unavoidable that
evidence, once admitted as substantive evidence for certain
counts, may convey unfavorable impressions to the jury with
respect to other counts for which it was not offered. See United
States v. Blyden, 964 F.2d 1375, 1377-79 (3d Cir. 1992) (noting
that admitting evidence to prove an essential element of one
count, but "excluding" it as to other counts for which it might
have been inadmissible under Rules 403 and 404(b), would have no
practical effect). However, as we recognized in Blyden,
unforeseen developments can occur during trial which would
warrant rulings or instructions concerning the use of the
evidence with respect to counts for which it was not introduced.
Id. at 1379. Nevertheless, in this case, we do not believe that
the district court abused its discretion in denying Retos' motion
for mistrial. The evidence properly was before the jury, and the
prosecutor's summation was not so prejudicial as to have deprived
Retos of his right to a fair trial. United States v. Gambino,
926 F.2d 1355, 1365 (3d Cir. 1991).
15
constituted a proper exercise of its discretion. Simply stated,
to convict Retos, the government was required to prove
willfulness and income level. The embezzlement evidence, and
Retos' effort to have Celestine characterize the $36,000 as a
loan, was probative of both. Consequently, we hold that the
district court did not abuse its discretion in admitting the
Celestine evidence.
IV
Finally, Retos argues that the district court's jury
instruction with respect to currency structuring was inconsistent
with the Supreme Court's decision in Ratzlaf v. United States,
___ U.S. ___, 114 S. Ct. 655 (1994), and that, therefore, his
conviction for violating 31 U.S.C. §§ 5324(3) and 5322, must be
vacated.
A.
Because Retos failed to object to the jury instruction
at trial, our review is limited to plain error under Federal Rule
of Criminal Procedure 52(b).0 United States v. Olano, ___ U.S.
___, 113 S. Ct. 1770 (1993). For plain error to exist:
There must be an "error" that is "plain" and
that "affects substantial rights." Moreover,
Rule 52(b) leaves the decision to correct the
forfeited error within the sound discretion
of the Court of Appeals, and the court should
not exercise that discretion unless the error
"'seriously affect[s] the fairness, integrity
0
Rule 52(b) provides: "Plain errors or defects affecting
substantial rights may be noticed although they were not brought
to the attention of the court."
16
or public reputation of judicial
proceedings.'"
Id. at 1776 (internal citations omitted).
A deviation from a legal rule is "error." Id. at 1777.
A "plain" error is one which is "clear" or "obvious." Id. In
most cases, an error will "affect substantial rights" where it is
prejudicial: "It must have affected the outcome of the District
Court proceedings." Id. at 1778.
Finally, Rule 52(b) is a permissive, not a mandatory
rule. "If the forfeited error is 'plain' and 'affect[s]
substantial rights,' the Court of Appeals has authority to order
correction, but is not required to do so." Id. at 1778. We
will, however, exercise our discretion "in those circumstances in
which a miscarriage of justice would otherwise result," id. at
1778-79, quoting United States v. Young, 470 U.S. 1, 15 (1985),
that is, where the defendant is actually innocent, or where,
regardless of the defendant's innocence or guilt, the error
"seriously affect[s] the fairness, integrity or public reputation
of judicial proceedings." Olano, 113 S. Ct. at 1779, quoting
United States v. Atkinson, 297 U.S. 157, 160 (1936). Accord
United States v. Martinez-Hidalgo, 993 F.2d 1052, 1057 (3d Cir.
1993); Government of Virgin Islands v. Smith, 949 F.2d 677, 681
(3d Cir. 1991).
1.
Our first inquiry then is whether the district court
committed error in failing to charge the jury in accordance with
17
the Supreme Court's decision in Ratzlaf v. United States, ___
U.S. ___, 114 S. Ct. 655 (1994). In Ratzlaf, the Supreme Court
held that "[t]o convict Ratzlaf of the crime with which he was
charged, violation of 31 U.S.C. §§ 5322(a) and 5324(3), the jury
had to find he knew the structuring in which he engaged was
unlawful." 114 S. Ct. at 663. Because the Ratzlaf district
court had failed to instruct the jury in this regard, the Supreme
Court reversed Ratzlaf's structuring conviction.
Here, the district court instructed the jury with
respect to Count 4 as follows:
In order to prove the defendant guilty
of Count 4, the Government must establish, by
proof beyond a reasonable doubt, the
following four elements.
First, that on or about the dates
alleged in the indictment June 26, 1987 and
June 29, 1987, George Retos knew that the
currency transaction reporting requirements
required banks to report currency
transactions in excess of $10,000 in one
business day.
Second, that George Retos knowingly and
willfully structured or assisted in
structuring a currency transaction in excess
of $10,000. A currency transaction includes
the negotiation of a check for cash, but does
not include a wire transfer or other
transaction which does not include the
physical transfer of currency. Structuring
refers to a person, acting alone, or in
conjunction with other persons, conduct or
attempts to conduct one or more transactions
in currency, in any amount, at one or more
financial institutions, on one or more days,
in any manner, for the purpose of evading the
reporting requirements applicable to
financial institutions. Here, the Government
claims that the transactions were the
negotiation of two $7,500 checks drawn on Mr.
Retos' firm's account at the Gallatin
National Bank.
18
The third element that Mr. Retos'
specific intent in structuring the
transaction was to avoid activating the
banks' reporting requirements established by
law. And fourth, the transaction involved
one or more domestic financial institutions.
With respect to this last element, I charge
you that as a matter of law the two banks
alleged in the indictment to have been
involved in this count, Pittsburgh National
Bank and Gallatin National Bank are domestic
financial institutions.
If you find that the Government has
proved all four elements beyond a reasonable
doubt, then you should find the defendant
guilty on this count. If you find that you
have a reasonable doubt as to any one or more
of the elements, you must find the defendant
not guilty.
(Emphasis added.)
Our review of the charge given in the present case
reveals that the district court only instructed the jury that it
was required to find that Retos knew of the bank's obligation to
file a currency transaction report, and that Retos intended to
avoid activating the bank's reporting obligation, in order to
convict. The law of this circuit, prior to Ratzlaf, required no
more, and no different, a charge than that given by the district
court judge here. Thus, the content of the district court's
instruction, and Retos' failure to object to the district court's
instruction, were quite understandable. Accord United States v.
Jones, No. 93-2164, slip op. at ___ n.9 (7th Cir. April 5, 1994).
Nevertheless, the district court's charge did not
explicitly instruct the jury that the government was required to
prove, and that the jury was required to find, that Retos had
19
actual knowledge that structuring was unlawful. Under Ratzlaf,
the absence of such an instruction now constitutes legal error.
2.
The second stage of our inquiry under Olano is to
determine whether the error committed by the district was
"plain," i.e., clear and obvious. In Olano, the Supreme Court
noted that it "need not consider the special case where the error
was unclear at the time of trial but becomes clear on appeal
because the applicable law has been clarified." 113 S. Ct. at
1777. That, however, is the case before us now.
Although the structuring charge offered by the district
court judge at the time of trial in December 1992 was consistent
with the law of this circuit, while Retos' appeal was pending,
the applicable law was clarified by the United States Supreme
Court. That is, on December 16, 1992, when the district court
judge charged the jury in the instant case, its instruction
essentially was correct -- the district court judge was not
required to instruct the jury that Retos had to know that
structuring was illegal. Not until January 11, 1994, when
Ratzlaf was decided and the "knowledge" element of § 5322(a)
clarified, did the error committed by the district court judge
become clear and obvious, i.e., "plain."
The question, therefore, arises whether Retos should be
given the benefit of the change in the structuring law brought
about by Ratzlaf. We have no hesitancy in holding that full
retroactive effect should be accorded to Ratzlaf in the present
20
appeal. Griffith v. Kentucky, 479 U.S. 314, 322 (1987); United
States v. Jones, No. 93-2164, slip op. at ___ (7th Cir. April 5,
1994). See also United States v. Rogers, No. 93-5002 (4th Cir.
March 14, 1994). As the Supreme Court held in Griffith:
[A] new rule for the conduct of criminal
prosecutions is to be applied retroactively
to all cases, state or federal, pending on
direct review or not yet final, with no
exception for cases in which the new rule
constitutes a "clear break" with the past.
479 U.S. at 328.
Griffith was decided in a constitutional context.
However, the government has not argued that the same principle is
inapplicable to the present statutory context involving the
currency structuring statute, 31 U.S.C. § 5324, and we know of no
reason why the holding in Ratzlaf should not benefit Retos in the
instant action. Thus, inasmuch as the district court's
structuring charge was clearly and obviously erroneous under
current law, we hold that it constituted "plain" error.
3.
Our final "plain error" inquiry is whether or not the
district court's plain error "affect[ed Retos'] substantial
rights." Olano, 113 S. Ct. at 1778. As mentioned above, in most
cases, an error will affect substantial rights where it is
prejudicial: "It must have affected the outcome of the District
Court proceedings." Id.0
0
We note that, under Rule 52(b), it is the defendant who
bears the burden of persuasion with respect to prejudice. Olano,
113 S. Ct. at 1778.
21
Since Ratzlaf was decided, two Courts of Appeals have
reversed structuring convictions which were returned on non-
Ratzlaf jury charges. Both cases held that the erroneous charges
constituted error which was plain, and which had "affected
substantial rights" of the respective defendants.
In United States v. Jones, No. 93-2164 (7th Cir. April
5, 1994), the Seventh Circuit held that the district court's
instruction was "clear and obvious error under Ratzlaf." The
Court of Appeals also held that the erroneous jury instruction
was prejudicial, inasmuch as it "clearly affected the outcome of
the unlawful structuring charge because the government had
presented no evidence at trial to establish this element of the
offense."
The Fourth Circuit, too, in United States v. Rogers,
No. 93-5002 (4th Cir. March 14, 1994), reversed a structuring
conviction because the district court's charge was at odds with
that required under Ratzlaf:
[T]he failure to instruct on the defendant's
knowledge of the illegality of his own
conduct is an erroneous omission of an
essential element of the offense charged, and
thus meets the first two tests of Olano. We
are of the opinion that this failure to give
an instruction on a required element of the
crime is an error that affects substantial
rights and one that seriously affects the
fairness, integrity or public reputation of
judicial proceedings, as required by Olano,
since due process requires "proof beyond a
reasonable doubt of every fact necessary to
constitute the crime with which he is
charged." In re Winship, 397 U.S. 358, 364
(1970). We have no doubt that the failure to
instruct on an essential element of the crime
prejudiced the defendant here, because the
22
jury could not have been expected to make a
finding beyond a reasonable doubt as to
Roger's knowledge of the illegality of his
structuring, in the face of an instruction to
the contrary.
Id., slip op. at 7.
Unlike the defendants in Jones and Rogers, however,
Retos is an attorney-at-law. As the government argued before us,
a jury certainly could have inferred that Retos knew his actions
were unlawful. By that token, it was urged that the district
court's error -- its omission of an essential element of the
offense charged -- did not affect the outcome of the district
court proceedings and, thus, was not prejudicial. We cannot
agree.
Rather, we find ourselves constrained by the Supreme
Court's decision in In re Winship, 397 U.S. 358, 364 (1970), and
our own decision in United States v. Xavier, 2 F.3d 1281, 1287
(3d Cir. 1993), to hold that Retos was indeed prejudiced by the
district court's error. In Xavier, we held that the district
court's failure to instruct the jury as to a required element of
the crime charged constituted a plain error which had affected
the defendant's rights. We explained:
Here, there can be no question that the
failure to instruct had an impact on the
jury's deliberations, because the jury could
not have been expected to make a finding
beyond a reasonable doubt as to Xavier's
knowledge of his brother's status as a felon
in the absence of an instruction to do so.
The question, then, is whether the error in
failing to instruct was prejudicial. In
light of Winship's instruction and the
evidence presented, we must conclude the
failure to instruct on an essential element
of the offense affected Clement Xavier's due
23
process rights in a manner that "'seriously
affect[ed] the fairness, integrity or public
reputation of judicial proceedings.'" Olano,
113 S. Ct. at 1779.
2 F.3d at 1287 (vacating conviction for aiding and abetting ex-
felon's possession of firearm). Cf. United States v. Curran, No.
93-1444 (3d Cir. March 30, 1994).0
We remain unprepared to adopt a per sé rule that the
omission of an essential element of an offense constitutes "plain
error." Xavier, 2 F.3d at 1287 (3d Cir. 1993); United States v.
Anderson, 859 F.2d 1171, 1175-76 (3d Cir. 1988).0 Here, however,
0
In Curran, we held that the district court's erroneous
explanation of the law on the defendant's duty to report to the
Federal Election Commission, under 18 U.S.C. § 2(b), constituted
plain error and that the case had to be retried. We then alerted
the district court to other deficiencies in its jury instruction,
one of which was its failure to give a Ratzlaf instruction on
§ 2(b)'s "willfulness" requirement.
0
In Anderson, the defendant was convicted of four drug
offenses, as well as one count of operating a continuing criminal
enterprise, in violation of 21 U.S.C. § 848(d). We upheld the
defendant's conviction on the latter count even though the trial
judge had failed to instruct the jury as to an essential element
of the crime, i.e., that to find a "continuing series of
violations" under § 848(d), the jury must unanimously find and
agree upon three violations of the federal drug laws.
While recognizing that the district court's charge to
the jury was legally erroneous, we refused to find "plain error,"
inasmuch as our review of the entire record revealed that
Anderson had not been prejudiced by the district court's error:
The jury unanimously found Anderson guilty of
three counts of distribution of heroin and
one count of conspiracy to possess with
intent to distribute heroin and cocaine in
addition to the continuing criminal
enterprise count. In such a circumstance it
is impossible to conclude that the jury may
not have been in unanimous agreement that
Anderson was guilty of three underlying drug
crimes. Thus, it cannot be said that the
district judge's error in any way prejudiced
24
the evidence presented by the government on Retos' structuring
count, while sufficient, was not conclusive. In such a case, we
cannot be certain that the jury found beyond a reasonable doubt
that Retos knew his actions were unlawful, absent a specific
instruction from the district court judge.0
the jury's deliberations or resulted in
manifest injustice.
859 F.2d at 1176.
In contrast, in Xavier, we reversed the defendant's
conviction for aiding and abetting an ex-felon's possession of a
firearm. We held that the district court judge had committed a
clear error in failing to instruct the jury that it was required
to find that Xavier had knowledge that his brother -- the ex-
felon at issue -- was, in fact, an ex-felon. In addition, after
a thorough review of the record, we held that Xavier was, in
fact, prejudiced by the district court's error, despite the
existence of record evidence from which the jury could have
inferred the requisite knowledge:
[A] jury could have inferred, on a
preponderance of the evidence presented at
trial [internal reference omitted] that
Xavier knew his brother was an ex-felon, that
evidence is not so conclusive as to have
assured Xavier's due process right to "proof
beyond a reasonable doubt of every fact
necessary to constitute the crime with which
[a defendant] is charged." Winship, 397 U.S.
at 364.
2 F.3d at 1287 (emphasis in original).
0
We recognize that Henderson v. Kibbe, 431 U.S. 145, 154
(1977), has been cited consistently for the proposition that
"[i]t is a rare case in which an improper instruction will
justify reversal of a criminal conviction when no objection has
been made in the trial court." We note, however, that Henderson
arose in a habeas context, and that the Supreme Court itself
acknowledged in its opinion that "[t]he burden of demonstrating
that an erroneous instruction was so prejudicial that it will
support a collateral attack on the constitutional validity of a
state court's judgment is even greater than the showing required
to establish plain error on direct appeal." 431 U.S. at 154
(emphasis added).
25
B.
Having determined that plain error permits our review,
the only remaining issue, then, is whether we should exercise our
discretion under Rule 52(b) and take corrective action. Our
review of the record satisfies us that the district court's
understandable but, nevertheless, erroneous failure to instruct
Retos' jury in accordance with Ratzlaf, "seriously affect[ed] the
fairness" of Retos' trial, United States v. Olano, 113 S. Ct. at
1779, and thereby resulted in severe prejudice to him, a hallmark
of manifest injustice. Accord United States v. Jones, No. 93-2164
(7th Cir. April 5, 1994); United States v. Rogers, No. 93-5002
(4th Cir. March 14, 1994).
V
Thus, we will vacate Retos' conviction on Count 4, the
structuring count. The government, of course, may, in its
discretion, retry Retos on Count 4, inasmuch as our vacatur of
Retos' structuring conviction did not result from a finding of
insufficient evidence. United States v. Beros, 833 F.2d 455, 467
n.13 (3d Cir. 1987); United States v. Pervez, 871 F.2d 310, 319
(3d Cir. 1989).
We will affirm Retos' convictions on Counts 2, 3, and 6
through 11, but we will remand to the district court for
resentencing. We do so, because we cannot be certain that the
district court would have imposed the same sentence had Retos not
been convicted on Count 4, the structuring count.
26
Although it is clear that Retos was sentenced to a
consecutive term of three months imprisonment on the Count 4
conviction, we note that the district court failed to explain how
it allocated the $30,000 fine which it had imposed, among the
nine counts upon which Retos was convicted. Consequently, we
cannot ascertain what part, if any, of the $30,000 fine was
imposed as punishment for the structuring conviction, as distinct
from punishment for Retos' other convictions.
That being said, we express no opinion on resentencing.
The district court is free to impose the same sentence -- and the
same fine -- on the remaining convictions, if it deems such
sentence appropriate and lawful, providing of course that it
allocates the fine among the particular counts on which Retos was
convicted.
27