United States v. Richard Stadtmauer

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 09-1575
UNITED STATES OF AMERICA
v.
RICHARD STADTMAUER,
Appellant
Appeal from the United States District Court
for the District of New Jersey
(D.C. Criminal Action No. 2-05-cr-00249-003)
District Judge: Honorable Jose L. Linares
Argued November 17, 2009
Before: AMBRO, ALDISERT, and ROTH, Circuit Judges
(Opinion filed September 9, 2010)
David Debold, Esquire
Miquel A. Estrada, Esquire (Argued)
Scott P. Martin, Esquire
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
9th Floor
Washington, DC 20036-0000
Robert S. Fink, Esquire
Kostelanetz & Fink, LLP
7 World Trade Center
34th Floor
New York, NY 10007
David M. Zinn, Esquire
Williams & Connolly LLP
725 12th Street, N. W.
Washington, D.C. 20005
Counsel for Appellant
Ralph J. Marra, Jr.
Acting United States Attorney
George S. Leone
Chief, Appeals Division
Steven G. Sanders (Argued)
Assistant U.S. Attorney
Office of the United States Attorney
970 Broad Street, Room 700
2
Newark, NJ 07102-0000
Counsel for Appellee
OPINION OF THE COURT
AMBRO, Circuit Judge
Table of Contents
I. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Richard Stadtmauer and the Kushner Companies. 5
B. The Other Players. . . . . . . . . . . . . . . . . . . . . . . . . . 7
C. The Alleged Conspiracy. . . . . . . . . . . . . . . . . . . . . 8
1. The General Ledgers.. . . . . . . . . . . . . . . . . 11
i. Charitable Contributions. . . . . . . . . 11
ii. “Non-Property” Expenses. . . . . . . . 12
iii. Capital Expenditures. . . . . . . . . . 13
iv. Gift and Entertainment Expenses. . 15
2. KC’s Internal Financial Statements. . . . . . 15
3. SSMB’s Preparation of the Partnerships’
Tax Returns.. . . . . . . . . . . . . . . . . . . . . 16
D. Evidence of Stadtmauer’s Knowledge. . . . . . . . . 19
1. “Thursday Meetings” . . . . . . . . . . . . . . . . . 21
2. “Richard Specials” and Other Special
Financial Statements.. . . . . . . . . . . . . . 23
3. Other Circumstantial Evidence of
Stadtmauer’s Knowledge of Tax Law
3
and Consciousness of Guilt. . . . . . . . . 26
i. Rationale for Private School Tuition
Payments .. . . . . . . . . . . . . . . . . 26
ii. The 1996 IRS Audit. . . . . . . . . . . . 26
iii. Dissenting Limited Partners and
Executives. . . . . . . . . . . . . . . . 27
E. The Verdict and Stadtmauer’s Post-Verdict
Motions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
II. Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
III. Discussion.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
A. Willful Blindness. . . . . . . . . . . . . . . . . . . . . . . . . 32
1. Whether the District Court’s Willful
Blindness Instruction Applied to
Stadtmauer’s Knowledge of the Law. . 33
2. Willful Blindness and Cheek. . . . . . . . . . . 38
3. Whether the District Court’s Willful
Blindness Instruction Applied
to the Element of Specific Intent. . . . . 46
4. Whether Trial Evidence Warranted the
Willful Blindness Instruction. . . . . . . . 50
B. Lay Opinion Testimony.. . . . . . . . . . . . . . . . . . . . 52
1. Background.. . . . . . . . . . . . . . . . . . . . . . . . 52
2. Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . 59
C. Prosecutorial Misconduct. . . . . . . . . . . . . . . . . . . 71
D. Expert Testimony. . . . . . . . . . . . . . . . . . . . . . . . . 76
E. Restrictions on Cross-Examination. . . . . . . . . . . . 82
Following a two-month jury trial in the District Court for
the District of New Jersey, Richard Stadtmauer was convicted
of one count of conspiracy to defraud the United States (in
4
violation of 18 U.S.C. § 371), and nine counts of willfully aiding
in the filing of materially false or fraudulent tax returns (in
violation of 26 U.S.C. § 7206(2)). On appeal, Stadtmauer raises
many challenges to these convictions. We deal principally with
the issue Stadtmauer raises last: whether the District Court erred
in giving a willful blindness instruction in this case, including
whether the Supreme Court’s decision in Cheek v. United States,
498 U.S. 192 (1991), forecloses the possibility that willful
blindness may satisfy the legal knowledge component of the
“willfulness” element of criminal tax offenses. We join our
sister circuit courts in concluding that Cheek does not prohibit
a willful blindness instruction that applies to a defendant’s
knowledge of relevant tax law. We reject also Stadtmauer’s
other claims of error, and thus affirm.
I. Background 1
A. Richard Stadtmauer and the Kushner Companies
This criminal case stemmed from an investigation of
Charles Kushner, a prominent real estate entrepreneur, political
fundraiser, and philanthropist in New Jersey. Kushner controls
hundreds of limited partnerships, each of which owns and
manages a single commercial or residential property. Kushner
1
“As required when reviewing convictions, we recite the
relevant facts in the light most favorable to the [G]overnment.”
United States v. Leo, 941 F.2d 181, 185 (3d Cir. 1991).
5
is the general partner of each partnership and, for most, his
siblings (including his brother, Murray Kushner 2 ) and their
children are the other limited partners. These partnerships have
collectively operated under the name “Kushner Companies”
(“KC”). KC is not a registered entity and does not own any
properties.3
In the mid-1990s, Charles and Murray Kushner accused
each other of taking more than his fair share out of their
common businesses. During the course of the ensuing civil
litigation, Murray alerted federal authorities to potential
misconduct by his brother and KC. Following an investigation,
Kushner pled guilty in 2004 to, among other things, assisting in
the filing of false partnership tax returns and federal campaign
contribution offenses.
During the course of its investigation of Kushner, the
Government indicted several other individuals, including
Stadtmauer—a Certified Public Accountant, a law school
graduate, and Kushner’s brother-in-law. He became an
employee of KC in 1985, and eventually rose to become an
executive vice president. In this role, Stadtmauer oversaw the
2
We use “Kushner” throughout this opinion to refer only to
Charles Kushner.
3
For descriptive purposes, however, we refer to KC hereafter
as if it were an entity.
6
operations of KC’s residential and commercial properties.
Stadtmauer also held a small stake (between 1% and 7%) in
many of KC’s partnerships. Stadtmauer and Kushner held equal
interests (50% each) in Westminster Management, an entity
which collected management fees from the other partnerships.
B. The Other Players
Several former KC executives testified against
Stadtmauer at trial, including: (1) Chief Financial Officer
(“CFO”) Stanley Bentzlin; (2) Chief Operations Officer
(“COO”) Scott Zecher; and (3) Alan Lefkowitz, who succeeded
Bentzlin as CFO in 2000. Of these three, only Zecher was
indicted.4
KC employed the accounting firm of Schonbraun, Safris,
McCann, Bekritsky & Company, LLC (“SSMB”) as its main
“outside” accountant. The lead SSMB accountant for KC
matters was Marci Plotkin, who served as KC’s CFO in the early
1990s before returning to SSMB.5 Though Plotkin was
4
He pled guilty to conspiring to defraud the United States.
5
In the late 1990s, Kushner briefly replaced SSMB with the
accounting firm of Richard Eisner & Company. Kushner agreed
to hire Eisner & Company on the condition that it hire Plotkin
as its lead accountant for KC matters. Eisner & Company
agreed to hire Plotkin, but shortly thereafter Kushner decided to
7
technically an employee of SSMB, KC reimbursed SSMB for
yearly bonuses it paid to Plotkin 6 and certain of Plotkin’s salary
increases, and reimbursed Plotkin for the cost of her son’s
private school tuition. Kushner did not heed Bentzlin’s warning
that paying Plotkin a bonus would impair her independence and
preclude SSMB from issuing financial statements on behalf of
KC partnerships.
Marci Plotkin was assisted by (among others) SSMB
partner Stanley Bekritsky and Anne Amici, a staff accountant
who worked almost exclusively on KC matters. Plotkin,
Bekritsky, and Amici were indicted along with Stadtmauer and
each pled guilty to conspiring to defraud the United States. Of
these three, only Bekritsky testified at Stadtmauer’s trial.
C. The Alleged Conspiracy
The Government charged that Stadtmauer, Bekritsky,
Plotkin, and Amici conspired to file false or fraudulent tax
returns for the 1998-2001 tax years for Westminster
Management and eleven other KC limited partnerships:
“Oakwood Garden Developers,” “Elmwood Village
re-hire SSMB (after SSMB agreed to re-hire Plotkin).
6
KC funneled to Plotkin (through SSMB) bonus payments of
$15,000 in 1996, $20,000 in 1997, and $25,000 in 1998. (App.
2823–24.)
8
Associates,” “Pheasant Hollow,” “QEM,” “Mt. Arlington,” and
six partnerships with variations of the name “Quail Ridge.” The
Government alleged that these partnerships fraudulently claimed
four categories of expenditures as fully deductible business
expenses 7 on their tax returns 8 : (1) charitable contributions,
7
The Internal Revenue Code provides that an expenditure is
fully deductible as a business expense if it: “(1) was paid or
incurred during the taxable year; (2) was for carrying on a trade
or business; (3) was an expense; (4) was a necessary expense;
and (5) was an ordinary expense.” Neonatology Assocs., P.A. v.
Comm’r, 299 F.3d 221, 228 (3d Cir. 2002) (citing I.R.C.
§ 162(a)).
8
A partnership does not, itself, pay taxes. “Instead, the
partners claim a pro-rata share of the partnership’s profits and
losses and each pays tax on his share.” Kantor v. Comm’r, 998
F.2d 1514, 1517 n.1 (9th Cir. 1993). However, partnerships are
still required to file income tax returns.
[F]or the purpose of computing income and
deductions, “the partnership is regarded as an
independently recognizable entity apart from the
aggregate of its partners.” It is only once the
partnership’s income and deductions are
ascertained and reported that its existence may be
disregarded and the partnership becomes a
conduit through which the taxpaying obligation
passes to the individual partners.
9
which generally are not deductible as business expenses; (2)
expenditures incurred by one partnership but paid by a different
partnership (known as “non-property” expenses); (3) capital
expenditures, which generally must be amortized and
depreciated over the life of the relevant asset (and thus are not
immediately deductible in full); and (4) gift and entertainment
expenses, which generally are not fully deductible as business
expenses.
The Government’s theory was that these four types of
expenditures were fraudulently deducted in full as ordinary
business expenses on the partnerships’ tax returns through a
three-step process. First, the expenses were logged in each
limited partnership’s general ledger via a computer-based
accounting program that broke down all revenue and expenses
into categories called “accounts.” Second, KC used the general
ledgers to prepare internal financial statements that
automatically categorized these four types of expenditures as
“expenses.” Finally, SSMB used the general ledgers and
internal financial statements to prepare external financial
statements and tax returns for each partnership that falsely
claimed these four categories of expenditures as fully deductible
business expenses.
To illustrate, below we discuss primarily the 2000 tax
Brannen v. Comm’r, 722 F.2d 695, 703 (11th Cir. 1984)
(quoting United States v. Basye, 410 U.S. 441, 448 (1973)).
10
return for one of the limited partnerships, Elmwood Village
Associates (“Elmwood Village”).
1. The General Ledgers
i. Charitable Contributions
Kushner and Stadtmauer frequently directed that
charitable contributions be paid out of partnership funds, which
were logged into the general ledger under the “contributions”
account. In 2000, Elmwood Village paid approximately
$186,000 to various charitable organizations, including
donations to the Suburban Torah Center—the “personal
synagogue” of Kushner and Stadtmauer—and to the Center’s
Rabbi, Stadtmauer’s “rabbinical advisor.” (App. 2846–47.)
Also logged under the “contributions” account were
donations made to various political campaigns and political
action committees, and $25,384 in private school tuition
payments for Zecher’s and Plotkin’s children. Because the latter
payments were logged as partnership expenses (rather than
entered into the payroll system as taxable income), no taxes
were withheld and no Form 1099 was issued to Zecher or
Plotkin. Zecher testified that he generally left the descriptions
blank on the checks for tuition payments because “[t]here was
nothing [he] really could write. It was not an appropriate
business expense.” (Id. at 2817.)
11
ii. “Non-Property” Expenses
Whenever a particular KC partnership incurred an
expense that it could not satisfy out of its current funds, Kushner
would direct that a different partnership pay the expense. He
referred to this practice as “losing a bill,” and it was a regular
agenda item for upper-level management meetings held every
Tuesday (referred to as “Tuesday Meetings” or “Cash
Meetings”). Typically, either Kushner, the CFO, or the
controller chose the source of payment; in other instances,
Kushner directed Stadtmauer to choose which partnership would
pay the expense. Zecher testified that it was Kushner’s view
that an expense could be paid by any partnership that he
controlled. Sometimes Kushner would tell Zecher that the
partnership actually paying the expense “didn’t matter because
it was all family.” (Id. at 3116.)
For example, in 1998 various KC partnerships paid more
than $1 million in expenses associated with the renovation of
KC’s central office building in Florham Park, New Jersey.9
Kushner directed Bentzlin to have several different partnerships,
on a rolling basis, pay portions of the total expenses incurred as
a result of the renovations. These expenditures were logged in
the partnerships’ respective general ledgers under the “repairs
and maintenance” account. Eventually, Kushner instructed
9
The building is owned by “Florham Park Associates,” a
limited partnership controlled by Kushner and his children.
12
Bentzlin to review with Stadtmauer the list of all bills due for
the renovation work, and directed Stadtmauer to “instruct
[Bentzlin] on how to lose it,” i.e., to choose “what entity to pay
it out of.” (Id. at 2130.)
In addition to one partnership paying another
partnership’s expenses, KC partnerships also paid for expenses
that had no relation to any partnership’s business. In 2000,
Elmwood Village paid approximately $30,000 in “non-property”
expenses that were booked to various general ledger accounts,
including “advertising,” “seminars,” “legal fee-other,” and
“other professional fees.” This amount included (among other
things): (1) $10,000 paid to a consulting firm to research the
viability of a comeback by then-former Israeli Prime Minister
Benjamin Netanyahu; (2) $10,000 toward a $100,000 fee to pay
Mr. Netanyahu to speak at a breakfast sponsored by NorCrown
Bank (an entity not affiliated with KC in which Kushner held an
interest); and (3) $3,815 toward a $50,000 fee to pay former
Chairman of the Federal Reserve Paul Volcker to speak at
another NorCrown Bank event.
iii. Capital Expenditures
From 1998 through 2001, various KC partnerships
purchased capital assets and made capital improvements to their
properties. In general, these expenses were logged in the
partnerships’ general ledgers under the “repairs and
maintenance” account rather than the capital expenditures
13
account. As Lefkowitz explained at trial, “[t]here [were] a few
instances where things might have been capitalized, but as a
general rule . . . everything went through expenses.” (Id. at
2604.) Bentzlin explained that, although each general ledger
had a capital improvement “account,” capitalizing assets
“wasn’t the way it was done at Kushner Companies.” He added
that
[w]e regularly and routinely expensed [capital
assets] under one of the repairs and maintenance
or capital improvement accounts . . . [;] that was
the way they were doing it upon my arrival, and it
didn’t change throughout my tenure with a
few—just with a few exceptions.
...
. . . You didn’t question it. You know, it
was ruled with an iron fist. They controlled pretty
much everything.
(Id. at 2190.)
In 2000, Elmwood Village spent $269,323 on
improvements that allegedly should have been capitalized,
which included adding new bathrooms and kitchens to
apartments—including new cabinets and $49,318.40 worth of
new appliances (such as washers and dryers)—and a new truck
14
(for $25,126). All of these expenses were logged in the
partnership’s general ledger under the “repairs and
maintenance” general ledger account rather than a capital
account.
iv. Gift and Entertainment Expenses
Kushner and Stadtmauer frequently directed various
partnerships to pay gift and entertainment expenditures that had
no specific connection with the partnership paying the expense.
In 2000, Elmwood Village paid: (1) $12,640 to cater a brunch
at the New Jersey Performing Arts Center; (2) $7,027 to a wine
store for alcohol delivered to Kushner’s and Stadtmauer’s
private homes during the holidays; (3) $5,905.23 to cater a
fundraiser for former New Jersey Governor Jon Corzine; and (4)
thousands of dollars for New York Yankees, New York Mets,
and New Jersey Nets season tickets. Each of these expenditures
was logged in Elmwood Village’s general ledger under a
“miscellaneous,” “gifts/entertainment,” or “travel” account.
2. KC’s Internal Financial Statements
KC used the general ledgers to generate internal financial
statements for each partnership. The accounting template (or
“skeleton”) used to produce these statements automatically
grouped certain accounts from the general ledgers—including
the “contributions,” “gifts/entertainment,” “miscellaneous,” and
“seminars” accounts—under the category of “office expenses.”
15
In addition, the “legal fee-other” and “other professional fees”
accounts were grouped under the category of “payroll and
related expenses.” Each of these categories—in addition to the
“advertising ” an d “repairs and maintenance”10
categories—were, in turn, grouped under the general category
of “expenses,” and thus deducted in full from the partnership’s
revenue on the internal financial statement.11 This violated
applicable accounting standards, which required the
partnerships’ financial statements to be prepared on an income
tax basis.
3. SSMB’s Preparation of the Partnerships’
Tax Returns
SSMB used KC’s general ledgers and internal financial
statements to prepare external financial statements for each
partnership. KC would submit a “Management Representation
Letter” to SSMB along with its financial statements, in which
10
Included in the “repairs and maintenance” group were the
“apartment renovations” and “building improvement” accounts
which, as Zecher explained, included, respectively, “capital
improvements made to apartments” and “capital improvements
made to the general property, [e.g.,] the outside of the buildings,
the roofs, paving parking lots, things like that.” (Id. at 2923.)
11
Bentzlin and Bekritsky believed that Plotkin had
configured the software before she left KC, but neither was sure.
(Id. at 2341, 3292.)
16
KC management certified that “[t]here are no material
transactions that have not been properly reflected in the financial
statements.” Stadtmauer signed most of these representation
letters. KC also provided SSMB with the template it used to
prepare its internal financial statements.
In preparing the partnerships’ external financial
statements and tax returns, SSMB used the groupings applied by
KC’s internal accounting software. Thus, the 2000 internal and
external financial statements for Elmwood Village reflected
virtually identical amounts for “office expenses” and “repairs
and maintenance.” As Bekritsky testified, the tax returns were
prepared “on the same basis” as the partnerships’ financial
statements, meaning that “if [something is] deducted on the
financial statement, it is deducted on the tax return and produces
income or increases the loss of the partnership.” (Id. at 3218.)
Elmwood Village’s 2000 tax return deducted a total of
$496,713 in ordinary and necessary business expenses (on lines
3 through 15 of Form 8825, entitled “Rental Real Estate
expenses”). Included in this amount was $211,885 in charitable
contributions, political donations, and tuition payments (for,
among others, Plotkin’s and Zecher’s children). (Line 8 of
Schedule K to the return—where partnerships are required to list
charitable contributions—was left blank.) The “non-property,”
and gift and entertainment, expenses incurred by Elmwood
Village in 2000 were similarly claimed as fully deductible
business expenses (instead of listed separately as required on
17
Schedule M-1). Finally, Elmwood Village reported no increase
in capital assets in 2000. Rather, $269,323 in alleged capital
expenditures were included in the $347,939 reported as
“repairs” (on line 10 of Form 8825), while other alleged capital
expenditures were spread among various items in Statement 10
of Schedule M-2 (entitled “Other Rental Expenses”).12
Around March or April of each year, Stadtmauer met
with KC’s CFO and someone from SSMB—usually Plotkin, and
infrequently Bekritsky—to review and sign the KC partnerships’
tax returns. During these sessions, Stadtmauer sometimes
reviewed SSMB’s financial statements for the partnerships;
indeed, he refused to “sign a tax return unless he had the
financial statements next to him.” (Id. at 2958.) He would “flip
through” each return, “look at certain things, and then sign it.”
(Id. at 2194.) Stadtmauer only occasionally asked questions
about the returns, and typically spent “30 seconds to a minute”
on each. (Id. at 2283.) However, he spent more time on KC’s
major properties, particularly those that had large annual
increases in “repairs and maintenance” expenses. (Id. at 2958.)
Stadtmauer reviewed and signed as many as 800 tax
12
Bekritsky explained that this was done so that amounts
reported for repairs and maintenance “wouldn’t stick out on the
return[s].” (Id. at 3261.) Bekritsky admitted that he knowingly
prepared and filed false tax returns on behalf of KC partnerships
to avoid losing a valuable account. (Id. at 3352.)
18
returns in a given day. Stadtmauer signed each of the
partnerships’ tax returns below a legend declaring, “[u]nder
penalties of perjury,” that he had “examined th[e] return,
including accompanying schedules and statements,” and that, to
the best of his knowledge, the return was “true, correct, and
complete.” (E.g., Supp. App. 937.) Stadtmauer signed each
return in his capacity as Vice-President of the corporate general
partner; as Bentzlin and Zecher testified, Stadtmauer believed
that by doing so he would protect himself from personal
liability. (App. 2209, 2903.)
The Government alleged that, from 1998 through 2001,
the twelve KC partnerships identified in the indictment claimed
more than $6 million in improper deductions. Capital
expenditures that were deducted in full the year they were
incurred accounted for more than half of this amount.
D. Evidence of Stadtmauer’s Knowledge
To establish that Stadtmauer “willfully” aided in the
preparation of materially false or fraudulent tax returns—as
required for a violation of 26 U.S.C. § 7206(2) 13 —the
13
26 U.S.C. § 7206(2) makes it a crime to
[w]illfully aid[] or assist[] in, or procure[],
counsel[], or advise[] the preparation or
presentation under, or in connection with any
19
Government was required to prove beyond a reasonable doubt
that he voluntarily and intentionally violated “a known legal
duty.” United States v. Pomponio, 429 U.S. 10, 12 (1976).
Whether Stadtmauer had knowledge that the deductions claimed
on the partnerships’ tax returns were materially false or
fraudulent was the critical issue at trial.
At trial, Bentzlin, Zecher, and Bekritsky each testified
that they never discussed with Stadtmauer the falsity of any
particular deduction or tax return. Accordingly, the Government
sought to meet its burden of proving that Stadtmauer acted
“willfully” through various forms of circumstantial evidence
(some of which have already been discussed), including: (1)
evidence of Stadtmauer’s intimate familiarity with the
partnerships and how their general ledgers were maintained; (2)
evidence that Stadtmauer made decisions on how to treat
partnership expenses in the past with tax consequences in mind;
and (3) other evidence suggestive of a consciousness of guilt,
e.g., evidence that Stadtmauer was aware that the partnerships
were making improper expenditures.
matter arising under, the internal revenue laws, of
a return, affidavit, claim, or other document,
which is fraudulent or is false as to any material
matter, whether or not such falsity or fraud is with
the knowledge or consent of the person authorized
or required to present such return, affidavit, claim,
or document[.]
20
1. “Thursday Meetings”
In addition to the “Tuesday Meetings” that Stadtmauer
regularly attended, for many years he ran weekly “Thursday
Meetings” with the limited partnerships’ property managers, as
well as KC’s in-house counsel, controller, Bentzlin, and
sometimes Plotkin.14 The purpose of each meeting was to
conduct an in-depth review of one or two KC properties. The
managers prepared presentation packages that showed the
partnerships’ actual expenses to date. Stadtmauer went through
the presentations “line by line,” and asked “specific” questions
about each. (App. 2641.) According to Zecher, “there was
nothing [Stadtmauer] didn’t see fit to get involved with in
property management,” and he was “one of the brightest people
[that Zecher had] ever met.” (Id. at 2836.)
In 1996, certain property managers started using special
letter codes on their general ledgers to identify “non-property”
expenses paid for by their respective partnerships. The codes
allowed property managers to identify those expenses more
easily and exclude them from their Thursday Meeting
presentations. According to Bentzlin, the property managers
were hesitant to answer Stadtmauer’s questions about such
expenses during Thursday Meetings (previously listed as
“miscellaneous” expenses on the presentations), because they
14
Stadtmauer led these meetings until early 1999, when
another KC executive began running them. (App. 2701.)
21
knew the expenses were for expenses “paid out of other
properties,” and “didn’t want to blurt it out in front of a roomful
of people.” (Id. at 2150.)
Stadtmauer was “quite unhappy” when he learned of the
codes, and directed his subordinates to end the practice. (Id. at
2186.) Stadtmauer and Bentzlin ultimately decided to lump
non-property expenses together under a category called “other.”
Doing so obviated the need for Stadtmauer to “interrogate or
continue to question the property manager as to the nature of
those expenditures” during Thursday Meetings, and made it
easier during Tuesday Meetings to “figure out [how] the
apartment complex on its own was really operating.” (Id. at
2185–86.) In addition, Stadtmauer directed that KC’s
accounting software be modified “to allow somebody to go in
and change [existing] descriptions within the general ledger.”
(Id. at 2187.)
Stadtmauer also frequently instructed his subordinates to
omit descriptions in check requests to avoid leaving a “trail”
when KC “used one property to pay another property’s
expenses.” (Id. at 2628.) He admonished Zecher to “never put
the descriptions in,” because he “d[idn’t] want the descriptions
[to show up] in the ledger.” (Id. at 2855.) Stadtmauer also
“reminded [Zecher,] over and over, [to] be careful what [he] put
in emails. Emails never disappear.” (Id. at 2858.)
22
2. “Richard Specials” and Other Special
Financial Statements
In certain circumstances, Stadtmauer directed that special
financial statements for the partnerships be prepared for banks
and other entities. These were known as “Richard Specials.”
These special financial statements were often prepared when KC
wanted to reduce outstanding letters of credit on particular
properties. Stadtmauer would direct that “negative items” that
tended to depress the partnership’s profitability be removed
from these statements, such as capital expenditures (that had
been logged as “repair and maintenance” expenses) and “non-
property” expenses. (Id. at 2077–78.) To prepare these
statements, Stadtmauer was given a “detailed report” of the
partnership’s general ledger, which he would go through line by
line and indicate the items to be removed for the financial
statement. (Id. at 2077.) KC prepared both internal and external
versions of every “Richard Special”; the internal version
revealed the adjustments made, while the external version
showed only the final numbers after adjustments. (Id. at 2225.)
The first time Stadtmauer asked Bentzlin to create a
“Richard Special,” Bentzlin objected and told Stadtmauer that
he “didn’t think it was the right thing to do” because they
“would be sending different financials out other than the ones
prepared by the accountant.” (Id. at 2079.) Stadtmauer argued
it would be proper because they would call it a “statement from
operations” (as opposed to a “statement of operations”),
23
supposedly making clear that it wasn’t a true financial statement.
(Id. (emphasis added).) Bentzlin told Stadtmauer he thought the
justification was “ridiculous,” and though Bentzlin ultimately
agreed to prepare the “Richard Specials,” he “didn’t want [them]
ever to go out with [his] name on [them].” 15 (Id.)
Similar to “Richard Specials,” on several occasions KC
prepared special financial statements in connection with
potential acquisitions and joint ventures. For example, in 1995
certain lenders agreed to finance KC’s acquisition of Elmwood
Village, provided that KC would commit to making $1.5 million
in capital improvements to the property and secure a $1.6
million letter of credit. These expenditures were entered, as
usual, under non-capital accounts on the partnership’s general
ledger. At the end of the year, however, KC decided to
15
Similar to the “Richard Specials,” SSMB often prepared
special supplemental schedules, listing various non-property
expenses and capital improvements, that were attached to the
partnerships’ financial statements. These supplemental
schedules were called “Schedules of Non-Recurring Expenses,”
but were unofficially referred to as “Schonbraun Specials.”
However, as Bentzlin explained at trial, these “non-recurring”
expenses were essentially “non-recurring every year,” and he
feared that KC was “giving the Government a road map” on
how to discover, in the event of an audit, expenses that were
being improperly deducted on the tax returns. (App. 3255.)
After Bekritsky raised his concerns to Plotkin, SSMB ended the
practice. (Id.)
24
capitalize the items on the partnership’s financial statement “to
get the letter of credit cancelled.” (Id. at 2348.) This decision
was made during a Tuesday “Cash Meeting” in which
Stadtmauer participated.
Elmwood Village’s 1996 tax return accurately reported
almost $1 million in capital improvements. After the letter of
credit was cancelled, however, KC “went back to the usual
procedures of expensing those types of expenditures.” (Id. at
2210.) Elmwood Village did not capitalize any expenditures
after 1996, and its post-1996 returns treated the 1996
renovations that had been capitalized as fully deductible repairs.
Similarly, in 2000 KC paid $280 million to acquire a
company called WNY, which owned approximately 40
properties in New Jersey, Pennsylvania, Maryland, and
Delaware. KC was required to obtain a $40 million letter of
credit in connection with the acquisition. Stadtmauer, Plotkin,
and Zecher had a “very detailed meeting” on how they would
“do the accounting for the WNY properties.” (Id. at 2967.)
They agreed that they would “capitalize everything and anything
[they] could, instead of expensing it, like [they] always did in
the other properties.” (Id.) Zecher testified that Stadtmauer was
“convinced, because the transaction was so large, and the $40
million [in] letters of credit were so unusual for [KC], that the
banks were going to come in and look at not only the tax returns,
but . . . the actual books and records.” (Id.)
25
When the letters of credit were removed, Plotkin asked
whether she should expense the capitalized items. Zecher
responded that he and Stadtmauer had determined that the
financial statements would “look very weird” if they stopped
capitalizing. (Id. at 2970–71.)
3. Other Circumstantial Evidence of
Stadtmauer’s Knowledge of Tax Law and
Consciousness of Guilt
i. Rationale for Private School
Tuition Payments
As noted, for several years KC paid the private school
tuition for, among other KC employees, Plotkin’s and Zecher’s
children. Zecher testified that Stadtmauer came up with the idea
of paying the tuition directly to the school instead of increasing
Zecher’s year-end bonus by that amount. (Id. at 2824.)
Stadtmauer told Zecher that he was “trying to be nice” by paying
the tuition directly to the school, which would allow Zecher to
avoid thousands of dollars in additional income taxes. (Id.)
ii. The 1996 IRS Audit
In 1996, the Internal Revenue Service (“IRS”) audited the
tax returns for two KC partnerships, focusing on the large
deductions taken for repairs (including $850,000 to reconstruct
a building’s facade, which was deducted in full as a business
26
expense). The IRS ultimately issued “no change” letters.
Following the audit, however, Plotkin sent a letter to
Bentzlin—on which Stadtmauer was copied—instructing
Bentzlin to change the word “improvements” to “repairs” in the
“tenant improvements,” “apartment renovations,” and “building
improvements” general ledger accounts. (Id. at 2269–70.)
Bentzlin believed the purpose was to make these categories
appear as if they contained repair and maintenance expenditures
rather than “potentially a capital improvement type item.” (Id.
at 2270.)
iii. Dissenting Limited Partners and
Executives
In addition to the Kushner family and Stadtmauer, there
were other individuals who held interests in various KC
partnerships. As Zecher testified at trial, many of these
individuals made repeated requests for information regarding the
financial state of their partnership interests. In many instances,
Stadtmauer and Kushner ordered Zecher to refuse those
requests.
In one instance, a partner of a KC partnership named “K
& F Clinton” inquired as to certain political contributions made
by that partnership and attributed to him. (Id. at 2891.) The
partner denied he had ever authorized the contributions, and
noted that, “had [he] been informed of the intention to make
political contributions, [he] would have advised that such
27
political contributions were inappropriate and [he] would have
demanded that they not be made from K & F” funds. (Id. at
2892.) He further noted that “[n]othing in the partnership
agreement authorized the disbursement of K & F funds for any
unrelated purpose.” (Id. at 2892–93.) Zecher got similar
responses from several other partners. (Id. at 2893.)
Another limited partner—Stanley
Greenberg—“constantly” had difficulty obtaining annual
financial statements for the partnerships in which he had an
interest. (Id. at 3356.) When he finally obtained and examined
the partnerships’ financial statements for a prior three-year
period,16 “it was obvious [to him] that the expenses [claimed
for] run[ning] the[] properties were way out of line.” (Id.)
Among other things, Greenberg noticed that the partnerships in
which he had an interest had treated capital expenditures as
ordinary expenses, and had made numerous charitable
contributions to Kushner’s and Stadtmauer’s synagogues, as
well as political contributions. (Id. at 3363.)
When Greenberg expressed his concerns to Kushner, the
latter told him that “if you don’t like it, I will give you your
money back.” (Id. at 3358.) Greenberg also had conversations
with Stadtmauer, both in person and by phone, regarding the
improper expenses being paid by the partnerships, and asked
16
Though Greenberg also requested the partnerships’ general
ledgers, he never received any. (Id. at 3358.)
28
Stadtmauer to “stop [KC from] doing what they were doing.”
(Id.) Though he offered no “excuse . . . or any explanation” for
the expenses, Stadtmauer rejected Greenberg’s request,
explaining that “that was the way they did business.” (Id.)
Following these conversations, KC attempted to buy out
Greenberg’s interests in the partnerships.
In addition to these dissenting limited partners, the
Government also introduced testimony that KC executives were
expected not to challenge KC’s accounting practices. As
Bentzlin explained, “[y]ou had to do pretty much as you were
told [at KC]. [Stadtmauer] and [Kushner] often would throw
tirades at any number of the meetings on a regular routine basis
or in the office, you know, that you really didn’t have latitude to
make any changes.” (Id. at 2190.)
Former CFO Alan Lefkowitz learned this lesson the hard
way. In early 2001, he emailed Kushner to ask whether he
should follow the past practice of paying a bill for a Mikvah (a
Jewish ritual) with funds from one of the partnerships. Kushner
was furious, and admonished Lefkowitz that he “should never
write something like th[at] down.” (Id. at 2613.) According to
Zecher, Kushner was angry that Lefkowitz had “put[] in an
email in writing that [KC was] paying bills for a . . . not-for-
profit project out of . . . for-profit properties.” (Id. at 2858.)
Kushner printed out the email and hand-wrote: “This guy is a
definite Moron. We must deal with the situation.” Kushner
forwarded a copy of the email (bearing his hand-written note) to
29
Stadtmauer, and it was later discussed among upper-level
management. Stadtmauer later told Zecher: “This is a stupid
thing to do and you better make sure this guy doesn’t do it
again.” (Id.)
Lefkowitz was eventually barred from Tuesday Meetings
and later resigned. He believed that management (including
Stadtmauer) had concluded that he was not a “team . . . player,”
i.e., was “not willing to go along with what they want[ed] to
do.” (Id. at 2613.)
E. The Verdict and Stadtmauer’s Post-Verdict
Motions
Following a two-month trial,17 the jury convicted
Stadtmauer of one count of conspiracy and nine counts of aiding
in the willful filing of materially false or fraudulent partnership
tax returns.18 The District Court denied Stadtmauer’s motions
17
We note that Stadtmauer chose not to put on a defense.
18
The jury acquitted Stadtmauer of six counts of aiding in the
willful filing of false or fraudulent tax returns (Counts Six
through Eleven), which corresponded to the 1999–2000 tax
returns for three of the Quail Ridge partnerships. As the
Government notes, a question asked by the jury during its
deliberations suggests that it acquitted Stadtmauer on these
counts because it was unable to locate a piece of evidence
explaining how expenses from Quail Ridge’s unitary general
30
for a judgment of acquittal and to dismiss the indictment.19 In
February 2009, the District Court sentenced him to 38 months’
imprisonment. He timely appealed.
II. Jurisdiction
The District Court had jurisdiction under 18 U.S.C.
§ 3231. We have appellate jurisdiction under 28 U.S.C. § 1291.
III. Discussion
Stadtmauer contends that (1) the District Court erred in
giving a willful blindness instruction to the jury; (2) the Court
improperly admitted prejudicial lay opinion testimony by a
Government witness; (3) the prosecutor violated his obligation
to correct false testimony by a Government witness; (4) the
ledger were apportioned among the three specific Quail Ridge
partnerships (i.e., “8 Quail Ridge,” “9 Quail Ridge,” and “10
Quail Ridge”).
19
Stadtmauer moved before trial to dismiss the indictment to
the extent it was based on the failure to capitalize expenditures,
arguing that the law on capitalization is vague and uncertain.
The District Court deferred ruling on the motion, concluding
that “[a] determination of whether the tax laws in question are
vague and uncertain necessarily involves a fact sensitive
analysis.” (Id. at 86.) The Court denied the motion after trial,
and Stadtmauer does not challenge that ruling on appeal.
31
Court improperly allowed an IRS agent to testify as an expert
witness; and (5) the Court violated the Federal Rules of
Evidence and his Sixth Amendment rights by restricting the
scope of his cross-examination of Government witnesses. We
address each claim in turn.
A. Willful Blindness
Stadtmauer argues that the District Court erred in giving
a willful blindness instruction to the jury for three reasons.
Relying on Cheek v. United States, 498 U.S. 192 (1991), he first
argues that the “willfulness” element of criminal tax
offenses—which “requires the Government to prove that the law
imposed a duty on the defendant, [and] that the defendant knew
of th[at] duty,” id. at 201—can never be satisfied by willful
blindness. Second, he contends that the Court improperly
instructed the jury that the element of intent could be satisfied
through proof of willful blindness, by analogy in violation of our
recent en banc decision in Pierre v. Attorney General, 528 F.3d
180 (3d Cir. 2008) (en banc). He finally argues that the trial
evidence did not warrant a willful blindness instruction.
We exercise plenary review over whether a willful
blindness instruction properly stated the law. United States v.
Khorozian, 333 F.3d 498, 507–08 (3d Cir. 2003); see also
United States v. Wert-Ruiz, 228 F.3d 250, 255 (3d Cir. 2000).
We review a district court’s determination that the trial evidence
32
justified the instruction for abuse of discretion, United States v.
Flores, 454 F.3d 149, 156 (3d Cir. 2006), and “view the
evidence and the inferences drawn therefrom in the light most
favorable to the [G]overnment,” Wert-Ruiz, 228 F.3d at 255.
1. Whether the District Court’s Willful
B lindness Instruction A pplied to
Stadtmauer’s Knowledge of the Law
Before turning to Stadtmauer’s first challenge to the
District Court’s willful blindness instruction, we address the
Government’s contention that the Court’s instruction applied
only to Stadtmauer’s knowledge of facts, not his knowledge of
the law.
The Government’s initial proposed willful blindness
instruction plainly applied to Stadtmauer’s knowledge of the
law. The final sentence of that instruction stated: “You may
find that [the] defendant acted knowingly . . . if you find either
that the defendant actually knew about the applicable IRS
requirements for the prosecution years, or that the defendant
deliberately closed his . . . eyes to what he . . . had every reason
to believe.” (Supp. App. 60.) Stadtmauer submitted a brief
objecting to this instruction. Though he conceded that willful
blindness may be appropriate to establish knowledge of facts, he
argued that, under Cheek, “willfulness” requires actual
knowledge of the law, which cannot be satisfied through
deliberate ignorance.
33
At the charging conference, the Government submitted
a revised instruction that omitted the reference to Stadtmauer’s
knowledge of “applicable IRS requirements.” It instead
instructed the jury that the “element of knowledge” would be
satisfied if the Government proved beyond a reasonable doubt
“a conscious purpose by the defendant to avoid knowledge [that]
the tax returns at issue were false or fraudulent as to a material
matter.” (App. at 3973–74.) Though the Government revised
its charge to address Stadtmauer’s objections, it nonetheless
made explicit its position that willful blindness could cover both
knowledge of the law and knowledge of facts, arguing that “it
is a little difficult to say that it can’t [apply to] legal
[knowledge] at all[,] because it’s really kind of a mixed question
of law and fact[] in many [tax] cases.” 20 (Id. at 3905.)
20
Stadtmauer contends that the Government sought a willful
blindness instruction solely (and improperly) as a “preemptive
measure.” (Appellant’s Br. at 76.) He notes that when then the
Government requested the instruction, it stated: “[w]e believe
[Stadtmauer] has actual knowledge, but we would like to
preserve the right to argue willful blindness depending on what
we hear from the other side” in closing arguments. (App. 3906.)
We disagree with this contention. As our precedent
makes clear, there is nothing improper with the Government
seeking a willful blindness instruction while also contending
that there is sufficient evidence of actual knowledge. See, e.g.,
Wert-Ruiz, 228 F.3d at 255 (“[I]t is not inconsistent for a court
to give a charge on both willful blindness and actual knowledge,
34
In its final instructions, the District Court gave a willful
blindness instruction consistent with the Government’s revised
instruction. In relevant part, the Court instructed the jury as
follows:
The element of knowledge on the part of the
defendant may be satisfied by inferences drawn
from proof that the defendant closed his eyes to
what would otherwise have been obvious to the
defendant. A finding beyond a reasonable doubt
of a conscious purpose by the defendant to avoid
knowledge that the tax returns at issue were false
or fraudulent as to a material matter would
permit an inference that he had such knowledge.
Stated another way, the defendant’s
knowledge of a fact or circumstance may be
inferred from his willful blindness to the
existence of that fact and circumstance.
for if the jury does not find the existence of actual knowledge,
it might still find willful blindness.”). Moreover, though
Stadtmauer argued in his summation that the number of tax
returns he signed at a time, coupled with the brief amount of
time he spent reviewing each, proved that he lacked actual
knowledge of their contents (App. 4082, 4135), the Government
did not make arguments based on a willful blindness theory in
its summation.
35
No one can avoid responsibility for a crime
by deliberately ignoring what is obvious. Thus,
you may find that the defendant knew that the tax
returns at issue were false or fraudulent as to a
material fact based on evidence that you find
exists that proves beyond a reasonable doubt that
the defendant was aware of a high probability
that the tax returns at issue were false or
fraudulent as to a material matter; and two, that
defendant consciously and deliberately tried to
avoid learning about this fact or circumstance.
(App. 3973–74 (emphases added).) Thus, though the Court’s
willful blindness instruction referred to Stadtmauer’s
“knowledge of a fact or circumstance,” it also instructed the jury
that the Government could satisfy its burden of proof on “the
element of knowledge” by proving that Stadtmauer consciously
avoided learning that the returns were “false or fraudulent as to
a material matter,” using language that tracks the applicable
statute. See 26 U.S.C. § 7206(2).
The Government argues that the Court’s reference to
Stadtmauer’s knowledge that the tax returns were “false or
fraudulent as to a material matter” was merely “addressed to
Stadtmauer’s knowledge of the contents of the returns.”
(Appellee’s Br. at 77.) The Government notes, for example, that
regardless of Stadtmauer’s knowledge of the relevant tax laws,
he could have consciously avoided learning of “the fact that an
36
expenditure from one partnership was falsely represented as a
deduction of another partnership,” a question of fact that did not
require proof of Stadtmauer’s knowledge of tax law. (Id. at 79.)
We disagree.
The Government’s charges in this case were not limited
to improper deductions for “non-property” expenses (i.e.,
expenses paid by a partnership different than the one that
actually incurred the expense). Indeed, the bulk of the allegedly
improper deductions were for expenditures that should have
been capitalized, and it was undisputed that these amounts were
paid for work that was actually performed. Rather, for this
category of deductions (and others), the Government’s theory
was that legitimate expenditures were deducted in a fraudulent
manner on the partnerships’ tax returns.
To prove that Stadtmauer knew the partnership tax
returns were “false or fraudulent as to a material matter” with
respect to these deductions, the Government needed to establish
two “facts” beyond a reasonable doubt: (1) that Stadtmauer
knew that these expenditures were claimed as fully deductible
business expenses; and (2) that he knew those deductions were
impermissible under the relevant tax laws (i.e., that they
rendered the tax returns “false or fraudulent as to a material
matter”). Cf. United States v. Schiff, 801 F.2d 108, 113 (2d Cir.
1986) (noting that in a criminal tax case the defendant’s
“knowledge of tax law [is], itself, a fact to be proved as part of
the government’s case”) (emphasis in original). In that light, we
37
believe a reasonable juror could have interpreted the District
Court’s willful blindness instruction as applying not only to
Stadtmauer’s knowledge of facts (i.e., which expenditures were
claimed as deductible business expenses on the tax returns), but
also his knowledge of the law (i.e., whether those deductions
were materially “false or fraudulent” under the Tax Code).
Accordingly, we turn to Stadtmauer’s argument that the Court’s
instruction incorrectly stated the law in that regard.
2. Willful Blindness and Cheek
Stadtmauer argues that a willful blindness charge that
applies to a defendant’s knowledge of the law is “categorically
and unequivocally” inappropriate in a criminal tax case in light
of the Supreme Court’s decision in Cheek. (Appellant’s Br. at
69.) We disagree.
We begin with the facts of Cheek. The defendant there
stopped filing federal income tax returns in 1980 and was
charged with (1) willfully failing to file federal income tax
returns and (2) willfully attempting to evade income taxes. 498
U.S. at 194. Cheek’s defense at trial was that, as a result of
“indoctrination” he received as a member of a group that
believed the federal tax system is unconstitutional, he “sincerely
believed that the tax laws were being unconstitutionally
enforced and that his actions . . . were lawful,” and thus had
“acted without the willfulness required” for the offenses
charged. Id. at 196.
38
The trial court instructed the jury that, to satisfy the
element of “willfulness,” the Government was required to
“prove the voluntary and intentional violation of a known legal
duty, a burden that could not be proved by showing mistake,
ignorance, or negligence.” Id. However, the court also
instructed the jury that only “an objectively reasonable good-
faith misunderstanding of the law would negate willfulness.”
Id. (emphasis added). The Seventh Circuit Court affirmed
Cheek’s conviction, holding that “even actual ignorance is not
a defense unless the defendant’s ignorance was itself objectively
reasonable.” Id. at 198.
The Supreme Court reversed. It first reaffirmed that the
term “willfully,” as used in criminal tax statutes, “carv[es] out
an exception to the traditional rule” that ignorance of the law is
not a defense to criminal liability. Id. at 200. Second, it
reaffirmed its prior decisions establishing that “the standard for
the statutory willfulness requirement is the ‘voluntary,
intentional violation of a known legal duty.’” Id. at 201 (quoting
Pomponio, 429 U.S. at 12); see also United States v. Bishop,
412 U.S. 346, 360 (1973).
Turning to the jury instruction given in Cheek’s trial, the
Court concluded that the trial judge erred in instructing the jury
that “a claimed good-faith belief must be objectively
reasonable” to “negat[e] . . . evidence purporting to show a
defendant’s awareness of the legal duty at issue.” 498 U.S. at
203. The Court explained that, in proving that a defendant had
39
“actual knowledge” of the legal duty imposed on him by the tax
laws, the Government must also
negat[e] a defendant’s claim of ignorance of the
law or a claim that because of a misunderstanding
of the law, he had a good-faith belief that he was
not violating any of the provisions of the tax laws.
This is so because one cannot be aware that the
law imposes a duty upon him and yet be ignorant
of it, misunderstand the law, or believe that the
duty does not exist. In the end, the issue is
whether, based on all the evidence, the
Government has proved that the defendant was
aware of the duty at issue, which cannot be true if
the jury credits a good-faith misunderstanding and
belief submission, whether or not the claimed
belief or misunderstanding is objectively
reasonable.
Id. at 202. The Court thus distinguished between two types of
persons: (1) a person with “actual knowledge” of a legal duty,
and (2) a person who, in good faith, is ignorant of the duty,
misunderstands it, or believes that it does not exist. It held that
criminal tax liability could not attach to a person in the latter
category.
Stadtmauer’s attempt to equate a person who deliberately
avoids learning of a legal duty with a person falling within the
40
latter category (e.g., one who is ignorant of that duty by virtue
of a good-faith belief or misunderstanding) is not persuasive.
The willful blindness charge, also known as a “deliberate
ignorance” charge, originates from the Ninth Circuit Court’s
decision in United States v. Jewell, 532 F.2d 697 (9th Cir.
1975). See United States v. Caminos, 770 F.2d 361, 365 (3d
Cir. 1985). Jewell explained that
[t]he substantive justification for the [charge] is
that deliberate ignorance and positive knowledge
are equally culpable. The textual justification is
that in common understanding one “knows” facts
of which he is less than absolutely certain. To act
“knowingly,” therefore, is not necessarily to act
only with positive knowledge, but also to act with
an awareness of the high probability of the
existence of the fact in question. When such
awareness is present, “positive” knowledge is not
required.
Jewell, 532 F.2d at 700 (emphasis added). Thus, willful
blindness is a “subjective state of mind that is deemed to satisfy
a scienter requirement of knowledge,” United States v. One
1973 Rolls Royce, 43 F.3d 794, 808 (3d Cir. 1994), and “cannot
become a safe harbor for culpable conduct,” Wert-Ruiz, 228
F.3d at 258.
We see nothing in Cheek—which did not involve a
41
willful blindness instruction—that suggests the Supreme Court
intended to exempt criminal tax prosecutions from this general
rule. Cf. United States v. Bussey, 942 F.2d 1241, 1249 (8th Cir.
1991) (defendant’s reliance on Cheek in challenging willful
blindness instruction in criminal tax trial was “seriously
misplaced” because “Cheek did not involve a willful blindness
instruction”). The justification for requiring knowledge of the
relevant tax laws is that, “in our complex tax system, uncertainty
often arises even among taxpayers who earnestly wish to follow
the law, and it is not the purpose of the law to penalize frank
difference[s] of opinion or innocent errors made despite the
exercise of reasonable care.” Cheek, 498 U.S. at 205 (internal
quotation marks and citation omitted); see also Bryan v. United
States, 524 U.S. 184, 195 (1998) (explaining that “[t]he danger
of convicting individuals engaged in apparently innocent
activity” is what “motivated [the Court’s] decision[]” in Cheek);
United States v. Murdock, 290 U.S. 389, 396 (1933) (“Congress
did not intend that a person, by reason of a bona fide
misunderstanding . . . , should become a criminal by his mere
failure to measure up to the prescribed standard of conduct.”),
overruled on other grounds by Murphy v. Waterfront Comm’n,
378 U.S. 52 (1964). By definition, one who intentionally avoids
learning of his tax obligations is not a taxpayer who “earnestly
wish[es] to follow the law,” or fails to do so as a result of an
“innocent error[] made despite the exercise of reasonable care.”
Cheek, 498 U.S. at 205 (internal quotation marks and citation
omitted). Rather, a person who deliberately evades learning his
legal duties has a subjectively culpable state of mind that goes
42
beyond mere negligence, a good faith misunderstanding, or even
recklessness. Cf. Wert-Ruiz, 228 F.3d at 237 (“Willful blindness
is not to be equated with negligence or lack of due care, for
willful blindness is a subjective state of mind that is deemed to
satisfy a scienter requirement of knowledge.” (internal quotation
marks and citation omitted)); see also 1973 Rolls Royce, 43 F.3d
at 808 (describing the “mainstream conception of willful
blindness as a state of mind of much greater culpability than
simple negligence or recklessness, and more akin to
knowledge”).
Several of our sister circuit courts have similarly
concluded that a willful blindness instruction that applies to a
defendant’s knowledge of tax law does not run afoul of Cheek.
See United States v. Anthony, 545 F.3d 60, 64–65 (1st Cir.
2008); United States v. Dean, 487 F.3d 840, 851 (11th Cir.
2007); Bussey, 942 F.2d at 1248–49.21 The First and Eleventh
21
The Fifth and Seventh Circuit Courts have also approved
of a willful blindness instruction that applies to a defendant’s
knowledge of the law, though those Courts did not specifically
discuss Cheek. See United States v. Hauert, 40 F.3d 197, 203
n.7 (7th Cir. 1994) (affirming conviction for tax evasion where
the facts “support[ed] the inference that the defendant was
aware of a high probability of the existence of the fact in
question [tax liability] and purposefully contrived to avoid
learning all of the facts” (internal quotation marks and citation
omitted; second alteration in original)); United States v.
43
Circuit Courts have interpreted Cheek as counseling that, though
a belief that one is complying with the tax laws need not be
“objectively reasonable” to constitute a defense, it nonetheless
must be “held in good faith.” Anthony, 545 F.3d at 65; see also
Dean, 487 F.3d at 851 (reasoning that the Cheek Court had,
“albeit, not in so many words,” held that “the law would not
countenance” willful blindness to one’s tax obligations).
Accordingly, “the defense that the accused did not know of his
[legal] duty fails if he came by his ignorance through deliberate
avoidance of materials that would have apprised him of his duty,
as such avoidance undermines the claim of good faith.”
Anthony, 545 F.3d at 65; see also Dean, 487 F.3d at 851 (“A
willful blindness instruction is entirely appropriate where the
evidence supports a finding that a defendant intentionally
insulated himself from knowledge of his tax obligations.”).
We agree with the reasoning of these Courts and join
them in concluding that a willful blindness instruction that
applies to a defendant’s knowledge of the law in a criminal tax
case (such as the instruction at issue here) does not run afoul of
Cheek.
Wisenbaker, 14 F.3d 1022, 1027–28 (5th Cir. 1994) (willful
blindness instruction was appropriate in tax evasion case in light
of the defense theory, i.e., that the defendant “belie[ved] that he
was not responsible for . . . taxes,” and evidence that he failed
to file tax returns even after his accountants “brought to his
attention his duty to do so”).
44
The District Court’s willful blindness instruction in this
case also adhered to our precedent requiring that such an
instruction “‘make clear that the defendant himself was
subjectively aware of the high probability of the fact in question,
and not merely that a reasonable man would have been aware of
the probability.’” Wert-Ruiz, 228 F.3d at 255 (quoting Caminos,
770 F.2d at 365). The Court instructed the jury that it must find
beyond a reasonable doubt that Stadtmauer (1) “was aware of a
high probability that the tax returns at issue were false or
fraudulent as to a material matter,” and (2) “consciously and
deliberately tried to avoid learning about this fact.” (App.
3974.) The Court told the jury that it could not find the element
of knowledge satisfied if it found only that Stadtmauer “should
have known that the tax returns at issue were false as to a
material matter[,] or that a reasonable person would have known
of a high probability of that fact.” (Id. (emphases added).)
Finally, the Court stressed that it was insufficient that
Stadtmauer “may have been stupid or foolish or may have acted
out of inadvertence or accident. A showing of negligence or of
a good-faith mistake of law is not . . . sufficient to support a
finding of . . . knowledge.” (Id.)
The instruction as a whole thus belies Stadtmauer’s
claims that the District Court “allowed the jury to substitute a
failure to inquire for evidence of actual knowledge of the tax
laws”; allowed the jury to convict him simply for being
“ignorant of” or “for misunderstanding” the law; and instructed
the jury to apply an “objective test[]” in determining whether he
45
had knowledge of the law.22 (Appellant’s Br. at 70–71.)
Accordingly, we conclude that the Court’s willful blindness
instruction correctly stated the law.
3. Whether the District Court’s Willful
Blindness Instruction Applied to the
Element of Specific Intent
22
Stadtmauer suggests that permitting willful blindness to
satisfy the element of legal knowledge will “surely alarm the
many thousands of taxpayers who provide records to their
accountants, let the accountants prepare the returns, and then
sign them. . . without flyspecking the tax professionals’ work.”
(Appellant’s Reply Br. at 39 n.23.) We cannot agree. Such a
taxpayer cannot be said (without more) to be “‘subjectively
aware of [a] high probability’” that the returns being prepared
on his behalf are false or fraudulent. Wert-Ruiz, 228 F.3d at 255(quoting Caminos, 770 F.2d at 365). Rather, to prove
willfulness beyond a reasonable doubt, the Government would
have to negate the taxpayer’s claim that he relied in good faith
on the advice of his accountant. Cf. Cheek, 498 U.S. at 202;
Anthony, 545 F.3d at 65 n.6; see also United States v. Moran,
493 F.3d 1002, 1013 (9th Cir. 2007) (noting that “[t]he burden
is on the government to negate the defendant’s claim that he had
a good faith belief that he was not violating the tax law,” and
“[g]ood faith reliance on a qualified accountant has long been a
defense to willfulness in cases of tax fraud” (internal quotation
marks and citation omitted)).
46
Though we agree with Stadtmauer that the District
Court’s willful blindness instruction could be interpreted as
applying to his knowledge of the law, we reject his argument
that the instruction also (and impermissibly) applied to the
element of intent.
In addition to requiring a “known legal duty,” Cheek
requires proof that the defendant “voluntarily and intentionally
violated that duty.” 498 U.S. at 201. “Willfulness” thus
requires more than a general intent to accomplish an act; it
requires proof that the act was done with the specific intent to do
something that the law forbids. See id. at 200–01; Pomponio,
429 U.S. at 12–13; Murdock, 290 U.S. at 394–95; see also
Carter v. United States, 530 U.S. 255, 268 (2000) (explaining
that general intent (as opposed to specific intent) requires “that
the defendant possessed knowledge [only] with respect to the
actus reus of the crime”).
The penultimate paragraph of the District Court’s willful
blindness instruction stated:
[Y]ou may find that the defendant acted
knowingly and willfully if you find beyond a
reasonable doubt either that the defendant actually
knew that the tax returns were false or fraudulent
as to a material matter or that the defendant
deliberately closed his eyes to what he had every
reason to believe.
47
(App. 3974.) Stadtmauer argues that the Court’s instruction that
the jury could find that Stadtmauer “acted knowingly and
willfully” if he “deliberately closed his eyes to what he had every
reason to believe” improperly substituted willful blindness for
proof of a specific intent, as the element of “willfulness”
encompasses both a knowledge and intent component. In that
light, Stadtmauer argues that the Court’s instruction by analogy
ran afoul of Pierre, where we held that, although “[w]illful
blindness can be used to establish knowledge,” it “does not
satisfy the specific intent requirement” under the Convention
Against Torture (“CAT”). 23 528 F.3d at 190.
Even assuming that the inclusion of these two words
(“and willfully”) in the District Court’s willful blindness
instruction was technically an incorrect statement of the law,24
23
In Pierre, our Court rejected the petitioner’s argument that
he could show that he was more likely than not to be tortured if
removed to Haiti through evidence that pain and suffering
would be the “practically certain result” of his confinement by
Haitian authorities upon returning. Id. at 189. In so holding, we
rejected a dictum in an earlier precedent suggesting that
“specific intent could be proven through ‘evidence of willful
blindness.’” Id. at 188, 190 (quoting Lavira v. Att’y Gen., 478
F.3d 158, 188 (3d Cir. 2007)).
24
The Government suggests that we should review this claim
for plain error, as Stadtmauer did not raise a challenge specific
to the inclusion of the words “and willfully” in the
48
we conclude that the Court’s “instructions, taken as a whole,
properly instructed the jury as to the proof required” for the
element of intent. United States v. Leahy, 445 F.3d 634, 650 (3d
Cir. 2006). The Court’s instructions made clear that willful
blindness applied only to the element of knowledge. See App.
3973 (“The element of knowledge on the part of the defendant
may be satisfied by inferences drawn from proof that the
defendant closed his eyes to what would otherwise have been
obvious to him.” (emphasis added)). Indeed, aside from two
isolated instances where the Court mentioned the words
“willfully” or “willfulness,” 25 its eight-paragraph instruction
referred only to the “element of knowledge,” Stadtmauer’s
“knowledge that the tax returns at issue were false or
fraudulent,” or his “knowledge of a fact or circumstance.” It
never mentioned “intent,” “purpose,” or any other language that
could be reasonably interpreted as applying to the element of
Government’s proposed instruction. (Appellee’s Br. at 82 &
n.28.) We need not decide this issue because, as explained
below, we would affirm regardless of the standard of review.
25
In the second instance, not quoted previously, the Court
stated: “[A] showing of negligence or of a good-faith mistake of
law is not . . . sufficient to support a finding of willfulness or of
knowledge.” (Id. at 3974 (emphasis added).) This was, in fact,
a correct statement of the law. As discussed, the element of
“willfulness” encompasses a legal knowledge component, see
infra Part III.A.1, which cannot be satisfied by negligence or a
good-faith mistake of law, see infra Part III.A.2.
49
intent.
In this context, we cannot agree that a reasonable juror
would have concluded from the District Court’s instructions that
a finding of willful blindness may also satisfy the element of
specific intent. See United States v. Gurary, 860 F.2d 521, 527
n.6 (2d Cir. 1988) (though the trial court “also mentioned
conscious avoidance in connection with willfulness, the
components of which are knowledge and intent, a fair reading
of . . . the charge as a whole indicate[d] that conscious
avoidance was to be used only in connection with the knowledge
component”). Accordingly, we reject Stadtmauer’s contention
that the Court’s willful blindness instruction improperly charged
the jury as to the element of intent.
4. Whether Trial Evidence Warranted the
Willful Blindness Instruction
Stadtmauer finally argues that the trial evidence did not
warrant a willful blindness instruction, noting simply that “[n]ot
one” of the Government’s witnesses directly claimed that he
“deliberately tried to shield himself from learning any fact about
the tax returns.” (Appellant’s Br. at 75.) We disagree. The
Government need not present direct evidence of conscious
avoidance to justify a willful blindness instruction. E.g., United
States v. Singh, 222 F.3d 6, 11 (1st Cir. 2000). In any event, the
District Court did not err in concluding that the instruction was
warranted in this case.
50
At trial, there was abundant evidence that Stadtmauer
was intimately involved with the operations of the partnerships
and was aware of how the partnerships characterized capital
expenditures, charitable contributions, gift and entertainment
expenses, and “non-property” expenses in the general ledgers
and financial statements. There was also evidence that, despite
this knowledge—and despite the logical inference that, as
Bentzlin described, “if there is garbage in, [there’s] garbage out”
(App. 2281)—Stadtmauer spent very little time reviewing the
partnerships’ tax returns, and never asked questions of SSMB as
to the propriety of the expenses deducted therein. One possible
inference from this is what Stadtmauer asked the jury to draw:
that he relied in good faith on his accountants to prepare the tax
returns consistent with applicable law (and thus had no need to
review them closely). However, another possible inference is
that Stadtmauer deliberately avoided “ask[ing] the natural
follow-up question[s]”—e.g., whether the deductions claimed in
the tax returns were consistent with how expenses were falsely
characterized in the general ledgers and reported on the financial
statements—despite his awareness of a high probability of that
fact. Wert-Ruiz, 228 F.3d at 257; United States v. Brodie, 403
F.3d 123, 158 (3d Cir. 2005); see also United States v. Stewart,
185 F.3d 112, 126 (3d Cir. 1999) (evidence justified willful
blindness instruction in mail fraud and money laundering trial,
where the defendant maintained that he “lacked the intent to
defraud because he relied upon the findings of solvency reported
in state examinations and audit reports,” and where the jury
reasonably could have concluded that the defendant “recognized
51
the likelihood of insolvency yet deliberately avoided learning
the true facts”).
In this context, we conclude that the Court did not abuse
its discretion in giving a willful blindness instruction.26
B. Lay Opinion Testimony
Stadtmauer next contends that the District Court admitted
impermissible lay opinion testimony as to his knowledge of the
falseness of the partnerships’ tax returns by SSMB partner
Stanley Bekritsky. We review the admission of lay opinion
testimony for abuse of discretion. United States v. Hoffecker,
530 F.3d 137, 170 (3d Cir. 2008).
1. Background
About one month into trial, the Government informed
defense counsel that, during a recent interview in preparation for
his testimony, Bekritsky had recalled a tax return signing session
26
Even assuming the trial evidence did not support a finding
of willful blindness, we believe that any resulting error was
harmless, given that “the instruction itself contained the proper
legal standard,” and in light of the “ample evidence” of
Stadtmauer’s “actual knowledge” of the falsity of the tax
returns. Leahy, 445 F.3d at 654 n.15 (collecting cases). See
infra Part III.B.2.
52
during which Stadtmauer asked him “whether the returns were
okay to sign.” The Government disclosed that Bekritsky (1)
“understood [Stadtmauer’s] question [to be] about whether the
IRS would be likely to detect the problems with the returns,”
and (2) stated “I signed them” in response to Stadtmauer’s
question. (Supp. App. 1049.)
Stadtmauer filed a motion in limine to prevent Bekritsky
from testifying as to his “‘understanding’ of Mr. Stadtmauer’s
intended meaning of the question that Mr. Stadtmauer posed to
Mr. Bekritsky.” (Id. at 1051.) Stadtmauer argued that such
testimony would be impermissible lay opinion testimony under
Federal Rule of Evidence 701. The Government opposed the
motion, arguing that, as a participant in the conversation,
Bekritsky should be permitted under Rule 701 to testify as to his
understanding of what Stadtmauer was attempting to convey to
him. The Government further noted that, unless Bekritsky was
permitted to testify as to that understanding, Stadtmauer’s
question could be interpreted as having an exculpatory meaning
(i.e., that he was seeking Bekritsky’s confirmation that the tax
returns were accurate 27 ). (Id. at 1057.)
27
This potential exculpatory interpretation of Stadtmauer’s
question is what prompted the Government—“[i]n furtherance
of [its] Brady obligations”—to disclose Bekritsky’s anticipated
testimony to Stadtmauer. (Id. at 1049.) Indeed, Stadtmauer
contended in his motion in limine that the “more plausibl[e]”
meaning of his question was that he “relied on Mr. Bekritsky to
53
The District Court granted the motion in limine,
reasoning that the jurors could “come to their own conclusions
[about] what Mr. Stadtmauer meant” by the question. (App.
3217.) The Court nonetheless made clear that the Government
was authorized to ask Bekritsky “what . . . he mean[t] when he
said, ‘I signed it[.]’” (Id.)
At trial, Bekritsky testified on direct examination as
follows:
Q. Did [Stadtmauer] ever ask you generally about the
returns?
...
A. Yes.
Q. What did he ask you?
A. On one occasion, he asked me if he could—if he
should sign the returns—if the returns were okay,
and—
...
prepare the tax returns and trusted Mr. Bekritsky to advise him
of any concerns.” (Id. at 1052.)
54
A. —and I said, I signed the returns.
Q. What did he 28 mean by that?
...
[Defense Counsel]: Objection.
...
THE COURT: I don’t want you to tell us what you
thought Mr. Stadtmauer [meant] by asking you the
question[.] You can testify, however, as to what you
meant by your answer.
...
28
Stadtmauer contends that the prosecutor violated the
District Court’s order granting Stadtmauer’s motion in limine by
asking Bekritsky what Stadtmauer meant by his question. The
Government maintains that the court reporter mis-transcribed
the prosecutor’s question, which actually asked, “What did you
mean by that?” (Appellee’s Br. at 52 n.18 (emphasis added).)
This dispute is beside the point, as the Court immediately
interceded and rephrased the question to make clear that
Bekritsky was not to opine on what he thought Stadtmauer
meant by the question.
55
A. What I meant by my answer was that I knew that
there were problems with these tax returns, and
based upon my understanding of Richard’s
involvement, Richard knew—
[Defense Counsel]: Objection.
(Id. at 3262–63 (emphases added).)
The parties then went to sidebar, where defense counsel
objected to Bekritsky “testifying to what [Stadtmauer] knew or
didn’t know.” (Id. at 3263.) Counsel argued that Bekritsky
testifying about “what [Stadtmauer] knew” was “the basis for
[the] motion” in limine. (Id.)
The District Court disagreed:
I disagree with you that was the basis of the
Court’s ruling. The basis was his interpretation of
a statement by Mr. Stadtmauer as to what
Stadtmauer’s statement meant, because those
words, in my view, did not need interpretation to
help the jury.
That is different than this witness testifying
about what, based on his perception, he believed
Mr. Stadtmauer knew or didn’t know, so I will
allow it.
56
(Id.) Bekritsky’s testimony then resumed:
THE COURT: . . . [You] said, what I meant by my
answer was that I knew there were problems with these
tax returns, and based on my understanding of Richard’s
involvement. What did you mean by that?
A. Richard was involved with the details of the
operations of the partnerships. He knew that
professional expenses of one entity were being
paid by another entity.
[Defense Counsel]: Same objection to his testimony as to
what [Stadtmauer] knew or didn’t know.
THE COURT: . . . Overruled.
...
THE COURT: . . . What did you intend to convey when
you said you signed it?
A. What I intended to convey was there were
problems that we both knew that existed in the
returns. The returns were prepared in a way that
I thought that they would get by the Government
and questions would not be raised.
57
(Id. at 3264 (emphasis added).)
Defense counsel then moved to strike Bekritsky’s
statement as to what Stadtmauer “knew”; in the alternative, he
moved for a mistrial. Defense counsel argued that Bekritsky’s
testimony was “incredibly prejudicial,” had no “probative value
at all,” and lacked a foundation. (Id. at 3264–65.) The District
Court denied Stadtmauer’s motions, reasoning that (1)
Bekritsky’s perception of Stadtmauer’s involvement in and
knowledge of the partnerships provided a sufficient foundation
for his testimony as to what Stadtmauer knew; and (2) in
testifying that Stadtmauer “knew that things were being
expensed that shouldn’t have been,” Bekritsky was merely
“explaining what he meant when he said . . . ‘I signed it.’” (Id.
at 3266.)
At the close of its summation, the Government quoted
Bekritsky’s testimony and emphasized that, instead of asking
whether the returns were “accurate” or “a hundred percent
correct,” Stadtmauer had asked whether they were “okay to
sign.” (Id. at 4060.) In that context—and in light of Bekritsky’s
testimony regarding what he intended to convey by his answer,
“I signed [them]”—the Government argued that Stadtmauer’s
goal was not to file “accurate[,] true returns,” but to file returns
that would not raise “flags . . . with the IRS.” 29 (Id.)
29
The prosecutor who gave the rebuttal argument on behalf
of the Government also referenced Bekritsky’s testimony, and
58
By contrast, defense counsel urged the jury to draw the
opposite inference from Bekritsky’s testimony. Counsel argued
in summation that “any reasonable person” would have
interpreted Stadtmauer’s question to “mean[] the returns are
okay to sign, meaning that they are correct.” (Id. at 4062.) In
that light, defense counsel contended that “Bekritsky’s
testimony [as a] whole . . . exonerate[d]” Stadtmauer. (Id.)
2. Analysis
Stadtmauer argues that Bekritsky’s testimony that
Stadtmauer “knew” there were “problems” with the tax returns
was inadmissible under Federal Rule of Evidence 701. In
relevant part, it limits lay testimony “in the form of opinions or
inferences” to those “which are (a) rationally based on the
perception of the witness, [and] (b) helpful to a clear
understanding of the witness’ testimony or the determination of
a fact in issue[.]” Fed. R. Evid. 701.
Rule 701 represents “a movement away from . . . courts’
historically skeptical view of lay opinion evidence,” and is
argued that Stadtmauer’s question itself was suggestive of a
consciousness of guilt. See id. at 4148 (“If he didn’t think there
was anything to worry about, why did he ask?”). However, this
prosecutor did not quote the portion of Bekritsky’s testimony
that Stadtmauer challenges on appeal (i.e., that Stadtmauer
“knew” there were “problems” with the returns).
59
“rooted in the modern trend away from fine distinctions between
fact and opinion and toward greater admissibility.” Asplundh
Mfg. Div. v. Benton Harbor Eng’g, 57 F.3d 1190, 1195 (3d Cir.
1995); see also Teen-Ed, Inc. v. Kimball Int’l, Inc., 620 F.2d
399, 403 (3d Cir. 1980). The Rule is nonetheless designed to
exclude lay opinion testimony that “amount[s] to little more than
choosing up sides,” Fed. R. Evid. 701 advisory committee’s
note, or that “‘merely tell[s] the jury what result to reach,’”
United States v. Rea, 958 F.2d 1206, 1215–16 (2d Cir. 1992)
(quoting Fed. R. Evid. 704 advisory committee’s note on 1972
Proposed Rules). Lay testimony in the form of an opinion about
what a defendant did or did not know often comes dangerously
close to doing just this. Though “we have never held that lay
opinion evidence concerning the knowledge of a third party is
per se inadmissible,” 30 we have explained that “this kind of
evidence [is] difficult to admit” under either prong of Rule 701:
If the witness fails to describe the opinion’s basis,
in the form of descriptions of specific incidents,
the opinion testimony [should] be rejected on the
ground that it is not based on the witness’s
30
We note that the mere fact that Bekritsky’s testimony
related to an ultimate issue to be decided by the jury—i.e.,
whether Stadtmauer had knowledge that the tax returns he
signed were false or fraudulent as to a material matter—does not
alone render Bekritsky’s testimony inadmissible. See Fed. R.
Evid. 704(a).
60
perceptions. To the extent the witness describes
the basis of his or her opinion, that testimony
[should] be rejected on the ground that it is not
helpful because the fact finder is able to reach his
or her own conclusion, making the opinion
testimony irrelevant.
United States v. Polishan, 336 F.3d 234, 242 (3d Cir. 2003)
(internal citation omitted).
In our case, Stadtmauer primarily argues that Bekritsky’s
testimony was inadmissible under the first prong of Rule 701.
Bekritsky’s opinion that Stadtmauer “knew” there were
“problems” in the tax returns was not, according to Stadtmauer,
“rationally based” on Bekritsky’s perceptions because he never
discussed with Stadtmauer the falseness of any specific tax
return (or any deduction claimed on a return). (Appellant’s Br.
at 49.) We do not follow this path.
Rule 701’s “rationally based” requirement is essentially
a restatement of the personal knowledge requirement necessary
for all lay witness testimony. See Fed. R. Evid. 701 advisory
committee’s note; see also Christopher B. Mueller & Laird C.
Kirkpatrick, Federal Evidence § 7:3, at 751 (3d ed. 2007). We
agree with the District Court that Bekritsky’s testimony that
Stadtmauer “knew” there were “problems” with the partnership
tax returns—specifically, that certain partnerships were claiming
deductions for expenses paid on behalf of other partnerships
61
(“non-property” expenses)—was at least “rationally based” on
his perception of Stadtmauer’s (1) involvement with and control
over the operations of the partnerships, (2) knowledge of how
certain kinds of expenditures were characterized in the
partnerships’ general ledgers and financial statements, and (3)
knowledge that those materials were used to prepare the
partnerships’ tax returns. Cf. Polishan, 336 F.3d at 242 (“Lay
opinion testimony may be based on the witness’s own
perceptions and ‘knowledge and participation in the day-to-day
affairs of [the] business.’” (alteration in original) (quoting
Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1175 (3d Cir.
1993)); Rea, 958 F.2d at 1216 (“[T]here are a number of
objective factual bases from which it is possible to infer . . . that
a person knows a given fact,” including what the person “was in
a position to see or hear . . . , conduct in which he engaged, and
what his background and experience were.”).
Indeed, our Court (and other circuit courts) have held far
more prejudicial statements to satisfy this Rule 701 requirement
(even where such statements violated Rule 701’s helpfulness
requirement). See United States v. Anderskow, 88 F.3d 245, 250
(3d Cir. 1996) (lay witness’s testimony that defendant “must
have known” of loan fraud scheme satisfied the “rationally
based” requirement of Rule 701, as the testimony was based on
the witness’s “first-hand knowledge” of the defendant’s frequent
exposure to fraudulent loan schedules); see also United States
v. Wantuch, 525 F.3d 505, 512–14 (7th Cir. 2008) (lay witness’s
testimony that defendant “knew all the time that everything that
62
he was doing was illegal” satisfied the “rationally based”
requirement of Rule 701, as the witness was “deeply involved
in” the fraudulent scheme and was the defendant’s “contact
every step of the way”); Rea, 958 F.2d at 1217, 1219 (lay
witness’s testimony that defendant “had to” have known of
scheme to evade taxes satisfied the “rationally based”
requirement of Rule 701, as the witness testified that he
repeatedly told the defendant that he lacked a license that would
exempt their transactions from federal excise taxes).
Whether Bekritsky’s testimony violated the helpfulness
prong of Rule 701 requires closer attention.31 At first blush,
31
We reach this issue only by construing Stadtmauer’s
opening brief as liberally as possible. Though he analogizes
Bekritsky’s testimony to the testimony we ruled impermissible
in Anderskow in his opening brief, his argument appears to be
limited to the first requirement of Rule 701 (a prong we held
was satisfied in Anderskow). (Appellant’s Br. at 49.)
Stadtmauer first makes an argument specific to the helpfulness
prong in his Reply Brief. But “an issue is waived unless a party
raises it in its opening brief, and for those purposes a passing
reference to an issue will not suffice . . . .” Skretvedt v. E.I.
DuPont De Nemours, 372 F.3d 193, 202–03 (3d Cir. 2004)
(internal quotation marks and citation omitted).
Moreover, plain error review is arguably appropriate in
these circumstances. Though Stadtmauer claimed in his motion
in limine that allowing Bekritsky to testify as to what
Stadtmauer meant by his question would violate Rule 701’s
63
Bekritsky’s testimony that Stadtmauer “knew” there were
“problems” with the returns seems unhelpful because the basis
for Bekritsky’s opinion—e.g., Stadtmauer’s intimate knowledge
of the partnerships’ operations and how their books and records
were maintained—was already in evidence. Cf. Rea, 958 F.2d
at 1216 (“[W]hen a witness has fully described what a defendant
was in a position to observe, what the defendant was told, and
what the defendant said or did, the witness’s opinion as to the
defendant’s knowledge will often not be ‘helpful’ . . . because
the jury will be in as good a position as the witness to draw the
inference as to whether or not the defendant knew.”).
Bekritsky’s testimony is nonetheless different in
important respects from the lay opinion testimony we found
helpfulness prong, he raised different arguments in support of
his motion to strike Bekritsky’s testimony as to what he meant
by his answer to Stadtmauer’s question (e.g., that the statement
was unfairly prejudicial). See Fed. R. Evid. 103(a)(1) (an
objection to the admission of evidence must “stat[e] the specific
ground of objection”); see also United States v. Gomez-Norena,
908 F.2d 497, 500 (9th Cir. 1990) (“[A] party fails to preserve
an evidentiary issue for appeal not only by failing to make a
specific objection, but also by making the wrong specific
objection.” (internal citations omitted) (emphasis in original)).
However, the Government does not argue waiver or
forfeiture, and, as we explain below, we would affirm in any
event because any error in admitting Bekritsky’s testimony was
harmless.
64
inadmissible in Anderskow, the principal case on which
Stadtmauer relies. In that case, a cooperating conspirator in a
loan fraud conspiracy testified that he provided one of the
defendants, Donald Anchors, with fraudulent loan schedules to
be passed along to borrowers. 88 F.3d at 249. On direct
examination, the Government asked the witness whether
Anchors would have been “deceived by the information that [the
witness was] sending him.” Id. The witness responded:
Donald Anchors had probably 20 or 30 borrowers,
maybe more for all I know, who had been
promised millions of dollars for a long time, some
as long as a year. He had never seen one dime
funded or loaned, and he kept on with the
business at hand. I had no reason to believe that
he wasn’t fully aware of what was occurring, as
long as he was getting paid.
Id. at 250 (emphasis added). We held that this testimony was
inadmissible under Rule 701’s helpfulness prong, reasoning that
“a witness’ subjective belief that a defendant ‘must have known’
[of the object of a conspiracy] is [not] helpful to a factfinder that
has before it the very circumstantial evidence upon which the
subjective opinion is based.” Id. at 251. Stated another way, the
witness’s testimony was not helpful—and thus inadmissible
under Rule 701—because the jury was in just as good a position
as the witness to infer what Anchors “must have known.”
65
However, unlike the witness in Anderskow, Bekritsky did
not offer his opinion as to what Stadtmauer “knew” in a
vacuum. Rather, Bekritsky was responding to a question asking
him to explain what he meant by his ambiguous answer (“I
signed them”) to Stadtmauer’s equally ambiguous questions
(whether “he should sign the returns,” and whether “the returns
were okay”). Rather than opining as to what Stadtmauer “must
have known,” Bekritsky more specifically testified as to what he
believed Stadtmauer knew at the time of this conversation (in
the context of explaining why he answered Stadtmauer’s
questions the way he did). In that light, even if Bekritsky’s
opinion regarding what Stadtmauer “knew” was unhelpful to
“the determination of a fact in issue” (i.e., whether Stadtmauer
had guilty knowledge), it arguably was helpful to “a clear
understanding of [Bekritsky’s] testimony.” Fed. R. Evid. 701.
Cf. United States v. De Peri, 778 F.2d 963, 977 (3d Cir. 1985)
(lay witness’s testimony was helpful to a clear understanding of
conversations consisting of “unfinished sentences and
punctuated with ambiguous references to events that [were] only
clear to [the participants]”); see also United States v. Urlacher,
979 F.2d 935, 939 (2d Cir. 1992) (lay witness’s testimony was
helpful to a clear understanding of “statements or words
[recorded] on the tape that would be ambiguous or unclear to
someone who was not a participant in the conversation”); United
States v. Awan, 966 F.2d 1415, 1430 (11th Cir. 1992) (same).32
32
We are not asked to determine whether the District Court
was correct in barring Bekritsky from testifying as to what he
66
This question is close. However, even assuming that the
believed Stadtmauer intended to convey by his questions. We
note, however, that other courts have upheld the admission of
testimony by a participant in a conversation as to what another
participant intended to convey. See, e.g., United States v.
Kozinski, 16 F.3d 795, 809 (7th Cir. 1994) (witness was
permitted under Rule 701 to testify “about the context and
meaning of conversations to which he was a party,” including
his “understanding of the thoughts that were being
communicated to him”). As Professors Mueller and Kirkpatrick
explain:
[F]irsthand observers often understand the mental
state of another in ways not captured in literal
meanings of words spoken by the other, nor
readily conveyed in close analytical accounts of
what exactly transpired. The old adage that “you
had to be there” makes this point, and witnesses
asked to give “factual” accounts of what another
said or did may be confounded by their
knowledge that doing so would be misleading,
and that the surface of the words carries little of
their real meaning. In everyday life, personal
interaction is nuanced and nonliteral, . . . and
knowledgeable witnesses can easily satisfy the
rational basis and helpfulness criteria [of Rule
701] in providing interpretive opinions on the
mental states of others.
Mueller & Kirkpatrick, Federal Evidence § 7:5, at 775.
67
District Court erred in refusing to strike Bekritsky’s testimony,33
we conclude that any error was harmless. A non-constitutional
error at trial does not warrant reversal where “it is highly
probable that the error did not contribute to the judgment.”
United States v. Helbling, 209 F.3d 226, 241 (3d Cir. 2000)
(internal quotation marks and citation omitted); see also
Kotteakos v. United States, 328 U.S. 750, 764–65 (1946). This
“high probability” standard “requires that we have a sure
conviction that the error did not prejudice the defendant[]”;
however, “we may be firmly convinced that the error was
harmless without disproving every ‘reasonable possibility’ of
prejudice.” United States v. Jannotti, 729 F.2d 213, 220 n.2 (3d
Cir. 1984).
When Bekritsky’s testimony is viewed in the context of
the record as a whole, we conclude that it is highly probable that
any error in admitting that testimony did not prejudice
Stadtmauer. See, e.g., United States v. Zehrbach, 47 F.3d 1252,
33
We note that even if testimony similar to Bekritsky’s
could satisfy the requirements of Rule 701, it may be
inadmissible on other grounds, e.g., because its probative value
(and helpfulness) are substantially outweighed by the potential
for unfair prejudice. Fed. R. Evid. 403; see also Rea, 958 F.2d
at 1216. Because Stadtmauer does not raise such an argument
on appeal, we express no opinion on whether Bekritsky’s
testimony should have been struck under Rule 403 (assuming it
satisfied the Rule 701 requirements).
68
1265 (3d Cir. 1995) (“The harmless error doctrine requires that
the court consider an error in light of the record as a whole
. . . .”). Though Stadtmauer challenges Bekritsky’s testimony
that Stadtmauer “knew” there were “problems” with the returns,
he does not challenge Bekritsky’s testimony that, by his answer
(“I signed them”), he intended to convey that (1) “there were
problems . . . that existed in the returns”; and (2) “[t]he returns
were prepared in a way that [Bekritsky] thought that they would
get by the Government and questions would not be raised.”
(App. 3264.) The plain and unmistakable implication of these
unchallenged portions of Bekritsky’s testimony is that he
believed Stadtmauer also “knew” that there were “problems”
with the return. Otherwise, Bekritsky’s explanation of what he
intended to convey by answering “I signed [them]” would be
nonsensical.34
34
This conclusion is bolstered when Bekritsky’s statement is
viewed in light of the even more damaging testimony that
defense counsel elicited during cross-examination of
Bentzlin—who testified before Bekritsky—regarding why
Bentzlin similarly told Stadtmauer to “just sign” the returns:
Q: Isn’t it a fact that you didn’t tell
[Stadtmauer] . . . that the returns were in
any way incorrect?
A. I didn’t need to tell Mr. Stadtmauer,
because he was fully aware between the
Richard Specials and the Tuesday signing,
69
Moreover, any error in refusing to strike Bekritsky’s
testimony regarding what he believed Stadtmauer “knew” was
harmless in light of the “mountain of circumstantial evidence
supporting the inference that” Stadtmauer knew that improper
deductions were claimed in the partnerships’ tax returns,
Anderskow, 88 F.3d at 251, including evidence that Stadtmauer:
(1) was intimately familiar with how the partnerships operated
and maintained their general ledgers; (2) was involved in
and the [practice of “losing” bills] and the
Thursday presentations and signing the
checks for all the entities, he was fully
aware of the type of information that was
in there, so I didn’t see that there was any
need to tell [him]. He was a very
accomplished financial leader. He was
familiar with the tax returns. So, no, I
didn’t feel the need to tell him, just sign it
or not.
...
I kn[ew] the nature of the stuff that
was in the tax returns. If you have repair
and maintenance items processed on a
regular basis through various entities all
over the place, . . . logic would dictate that
that stuff is reflected somewhere in the tax
return.
(Id. at 2478–79 (emphases added).)
70
deciding which partnerships would pay certain expenditures; (3)
was aware that certain expenditures were falsely characterized
as expenses in the ledgers and financial statements; (4)
mischaracterized expenditures in the partnerships’ financial
statements when expedient; and (5) made all of these decisions
with awareness of their tax consequences (e.g., the tuition
payments for Zecher’s children, and the decision to continue
appreciating capital expenditures for the partnerships involved
in the WNY transaction). In that light, we are conviced that,
regardless of Bekritsky’s testimony, the jury would have
rejected Stadtmauer’s defense that he genuinely believed that
SSMB—led by Plotkin, to whom KC was funneling yearly
bonuses and private school tuition payments—was, for purposes
of the partnerships’ tax returns, correcting the extensive mis-
characterizations of expenditures as reflected in the
partnerships’ general ledgers and financial statements.
In sum, any error in admitting Bekritsky’s testimony is
harmless and thus does not require reversal.
C. Prosecutorial Misconduct
Stadtmauer claims that the Government violated his due
process rights by “improperly standing silent” when one of its
witnesses, former COO Scott Zecher, made several statements
during cross-examination that the lead prosecutor knew to be
false. (Appellant’s Br. at 41.) To succeed on this claim,
Stadtmauer bears the burden of establishing that: (1) Zecher
71
committed perjury; (2) the Government knew or should have
known that Zecher committed perjury but failed to correct his
testimony; and (3) there is a reasonable likelihood that the false
testimony could have affected the verdict. See Hoffecker, 530
F.3d at 183. Because Stadtmauer cannot meet his burden as to
the first two of these elements, we need not address the third.
In 2005, Zecher was interviewed several times by FBI
agents and prosecutors (including one of the prosecutors that
tried Stadtmauer’s case). During trial, defense counsel sought
to impeach Zecher with his statements during these interviews,
as recorded in summaries prepared by the FBI agents present
(known as “Form 302s”). To take one example, defense counsel
asked Zecher during cross-examination whether he recalled
telling investigators that Kushner, and not Stadtmauer, had
raised the idea of paying Zecher’s children’s private school
tuition “rather than paying [Zecher] a bonus.” (App. 3045.)
Zecher first stated that he did not recall making the statement,
and then denied that he made such a statement. Defense counsel
then showed Zecher the Form 302 to refresh his recollection,
which stated:
ZECHER stated when he was hired KUSHNER
told him that he could not pay ZECHER the salary
he wanted, but instead would make up the
difference in bonuses in June and December. KC
normally issues bonuses to employees in
December, but does not issue bonuses in June.
72
ZECHER stated that because no bonuses were
paid in June, KUSHNER would pay ZECHER’s
. . . school tuition rather than paying him a bonus.
(Id. at 567.) Zecher denied that the Form 302 refreshed his
recollection, and was adamant that the only conversations he had
regarding the issue were with Stadtmauer. (Id. at 3045.)
Though the District Court permitted Stadtmauer to cross-
examine Zecher on the content of his statements, it refused on
several occasions to admit the Form 302s themselves as prior
inconsistent statements, rulings, we note, that Stadtmauer does
not challenge. The Court’s reasoning was that the Form 302s
contained the FBI’s characterizations of what Zecher said
(which Zecher had not adopted).35
After both sides rested, defense counsel moved for a
35
Federal Rule of Evidence 613 permits a party to examine
“a witness concerning a prior statement made by the witness,
whether written or oral,” Fed. R. Evid. 613(a) (emphasis added),
and permits a party to introduce “extrinsic evidence” of a
witness’s prior inconsistent statement as long as “the witness is
afforded an opportunity to explain or deny” it, id. 613(b).
Several of our sister circuit courts have affirmed the exclusion,
under Rule 613, of interview memoranda prepared by law
enforcement that the witness had not adopted. See, e.g., United
States v. Adames, 56 F.3d 737, 744–45 (7th Cir. 1995); United
States v. Saget, 991 F.2d 702, 710 (11th Cir. 1993); United
States v. Almonte, 956 F.2d 27, 29 (2d Cir. 1992).
73
mistrial based on “the perjured testimony of Scott Zecher and .
. . the Government’s failure to correct that testimony.” (Id. at
3731.) Defense counsel argued that, when considered in light
of the totality of Zecher’s testimony—which included numerous
instances where Zecher testified that he could not recall certain
events and conversations—there was enough for the District
Court to determine that Zecher’s testimony was demonstrably
false. The Court denied the motion, explaining that it could not
find that Zecher’s “apparent lack of recollection in some
instances . . . was due to confusion or mistake or faulty memory
or a willful lie.” (Id. at 3871.)
We review a district court’s factual finding that a
witness’s testimony was not false for clear error, and “will not
disturb that finding unless it is wholly unsupported by the
evidence.” Hoffecker, 530 F.3d at 183. We have little trouble
concluding that the District Court’s finding in this case was not
clearly erroneous. As the Court noted, other than the
inconsistencies between the FBI agent’s notes and Zecher’s
recollection of his statements, there was no other evidence that
Zecher perjured himself. Cf. United States v. Dunnigan, 507
U.S. 87, 94 (1993) (a witness does not commit perjury if his
false testimony is the “result of confusion, mistake, or faulty
memory”).
Even assuming the District Court clearly erred in finding
that Zecher’s testimony was not false, Stadtmauer has not
demonstrated that the Government knew or should have known
74
that Zecher’s testimony was false. See Hoffecker, 530 F.3d at
183. Stadtmauer relies on United States v. Harris, 498 F.2d
1164 (3d Cir. 1974), where the Government failed to correct a
witness who falsely testified during cross-examination that
prosecutors had made no promises to help her achieve a reduced
sentence on pending state charges in exchange for her testimony
against the defendant. In concluding the Government had
violated its “duty to disclose a promise made to a Government
witness,” id. at 1169, we first noted that the witness arguably
had not committed perjury by her responses because she may
have “believed in good faith” that the questions posed to her
“only referred to specific promises concerning her sentence,”
which the Government did not (and could not) make. Id. at
1168. We reasoned, however, that the prosecution’s duty to
disclose false testimony should not be “narrowly and technically
limited to those situations where the prosecutor knows that the
witness is guilty of the crime of perjury.” Id. at 1169. Rather,
“when it should be obvious to the Government that the witness’
answer, although made in good faith, is untrue,” it has an
obligation to correct that testimony. Id.The circumstances of Zecher’s testimony are far afield
from the witness’s testimony in Harris, where it was undisputed
that the prosecutor had personal knowledge that the witness’s
answers were not correct. See id. at 1168 (prosecutor admitted
that he had promised the cooperating witness that the
Government would do “whatever [it] could” to get her state
sentence reduced). Here, there was no way for the prosecutor to
75
know whether Zecher was giving false testimony when he
denied—or could not recall—making certain statements during
the 2005 interviews. Thus, Stadtmauer’s assertion that the
Government’s counsel refused “to speak up when he knew for
a fact that Zecher had made” false statements is simply
unsupported by the record. Cf. Tapia v. Tansy, 926 F.2d 1554,
1563 (10th Cir. 1991) (“Contradictions and changes in a
witness’s testimony alone do not constitute perjury and do not
create an inference, let alone prove, that the prosecution
knowingly presented perjured testimony.”).
D. Expert Testimony
Over Stadtmauer’s objection, the District Court permitted
IRS Agent Susan Grant to testify as an expert (and summary)
witness. See Fed. R. Evid. 702, 703. Stadtmauer argues that the
Court erred in admitting Agent Grant’s testimony because she
“opined, with insufficient factual or legal foundation, that the
[KC] partnership returns were false and fraudulent.”
(Appellant’s Br. at 51.) We review a district court’s admission
of expert testimony for abuse of discretion. Estate of Schneider
v. Fried, 320 F.3d 396, 404 (3d Cir. 2003).
Prior to trial, the Government disclosed the expert
testimony that Agent Grant intended to provide and produced to
defense counsel a set of her summary charts. Stadtmauer moved
in limine to preclude Grant from testifying, arguing that her
proposed testimony would improperly bear on the ultimate legal
76
issues in the case, and would be unhelpful and unreliable. The
District Court denied Stadtmauer’s motion, finding that Grant’s
testimony had “sufficient indicia of reliability and relation to the
facts of this case.” (App. 89–92.)
In her direct testimony, Grant described how a
partnership tax return is prepared, and explained where on the
return different categories of deductions were reported. Grant
explained how she totaled the expenses she determined were
improperly deducted from each partnership return, and carried
them through to a summary chart for each partnership for each
tax year, illustrating how the total amount of improper
deductions affected the net income reported to the IRS. Defense
counsel vigorously cross-examined Grant for two days,
including questions on many specific deductions, and nearly
every category of deductions, she determined were improperly
claimed.
Our sister circuit courts that have addressed the issue are
unanimous that “expert testimony by an IRS agent which
expresses an opinion as to the proper tax consequences of a
transaction is admissible evidence.” United States v.
Mikutowicz, 365 F.3d 65, 72 (1st Cir. 2004) (internal quotation
marks and citation omitted); see, e.g., United States v. Bedford,
536 F.3d 1148, 1158 (10th Cir. 2008); United States v. Pree,
408 F.3d 855, 870 (7th Cir. 2005); United States v. Sabino, 274
F.3d 1053, 1067 (6th Cir. 2001), modified on other grounds, 307
F.3d 446 (6th Cir. 2002); United States v. Duncan, 42 F.3d 97,
77
101–02 (2d Cir. 1994); United States v. Moore, 997 F.2d 55,
58–59 (5th Cir. 1993). The “primary limitation” on such
testimony is that the expert “may not testify about the
defendant’s state of mind when the challenged deductions were
claimed.” Mikutowicz, 365 F.3d at 72; see Fed. R. Evid. 704(b)
(an expert witness may not opine “as to whether the defendant
did or did not have the mental state or condition constituting an
element of the crime charged”); see also Sabino, 274 F.3d at
1067.
In our case, it is undisputed that Grant did not opine on
Stadtmauer’s knowledge or intent. Stadtmauer nonetheless
argues that the District Court impermissibly allowed her to
“interpret the tax laws” and “add her unreliable and otherwise
inadmissible opinion that the tax returns were false and
fraudulent.” (Appellant’s Br. at 51.) Stadtmauer seeks to
compare Grant’s testimony to expert testimony the Second
Circuit Court found objectionable in United States v. Scop, 846
F.2d 135 (2d Cir. 1988). There an investigator from the
Securities and Exchange Commission testified as an expert in
securities trading practices, and opined, drawing “directly upon
the language of the statute,” that the defendants’ scheme of
buying and selling securities to create artificial price levels
constituted market “manipulation” and “fraud.” Id. at 140. The
Second Circuit Court determined that, through this testimony,
the expert had “invade[d] the province of the court to determine
the applicable law and to instruct the jury as to that law.” Id.(internal quotation marks and citation omitted). In addition, the
78
expert conceded on cross-examination that his opinion was
largely based not on his expertise in securities trading, but on his
“positive assessment of the trustworthiness and accuracy of the
testimony of the government’s witnesses.” Id. at 142.
Agent Grant’s testimony is far from the expert testimony
deemed objectionable in Scop. She never used the words “false”
or “fraudulent” to describe any of the deductions she concluded
were improper, and did not base any portion of her testimony on
her assessment of the credibility of other witnesses.
Accordingly, Scop is unavailing to Stadtmauer. Cf. Hoffecker,
530 F.3d at 171 (distinguishing the testimony in Scop from
testimony that defendant’s commodities investment program
was a “scam,” where the witness “did not couch his view . . . on
the language of the mail fraud statute, and did not base his
opinion on the credibility or testimony of others”); see also
Duncan, 42 F.3d at 101–02 (distinguishing the testimony in
Scop from IRS agent’s testimony that did not “use any legally
specialized terms” and was “based on [the agent’s] own
investigation of the facts and review of the records”).
Stadtmauer also contends that the District Court erred in
admitting Grant’s testimony because she made “out-and-out
mischaracterizations” and “bald assertions” of the law in
explaining her opinions. (Appellant’s Br. at 53, 55.) The record
79
belies these assertions.36 In any event, all expert testimony as to
the “proper tax consequences of a transaction” is bound to touch
on the law to some extent, Mikutowicz, 365 F.3d at 72, and we
have little trouble concluding that Grant’s testimony did not
improperly invade the province of the Court. Indeed, the Court
not only gave extensive instructions on the applicable tax laws,
and during Grant’s testimony emphasized to the jury that it was
“bound to follow the law as [the Court] tell[s] you it applies in
this case.” (App. 3434.) The Court emphasized that only it, and
36
To take one example, Stadtmauer contends that Grant
erroneously testified that “only 50% of entertainment expenses
may ever be deducted” by a business, id. at 53, despite the fact
that entertainment expenses may be deducted in full when,
among other things, they are made for “recreational, social, or
similar activity . . . primarily for the benefit of [the taxpayer’s]
employees generally.” 26 C.F.R. § 1.274-2(f)(2)(v). Contrary
to Stadtmauer’s characterization, Grant never testified that there
is a per se rule that such expenses are only deductible up to
50%. Rather, in the portion of her testimony that Stadtmauer
cites, Grant simply: (1) identified the line on the tax return
where “travel and entertainment” expenses must be recorded
(Line 4B); and (2) testified that this line was “for the 50 percent
of travel and entertainment [expenses] that [are] . . . not
deductible by the partnership.” (App. 3411.) Moreover, Grant
agreed during cross-examination that the 50% rule “has
exceptions,” id. at 3548–49; see also id. at 3422, and the District
Court specifically instructed the jury as to four types of
exceptions to the general rule, id. at 3969.
80
not Grant, was authorized to instruct the jury as to the law. See
id. at 3411 (for example, instructing the jury that “to the extent
that [Agent Grant] use[s] the word ‘Law,’ I will instruct you as
to the law at the end of the case. [Agent Grant] can certainly
testify as to what her understanding based on her experience as
a tax expert is [and] to what the IRS’ view of things is”).
In sum, to the extent there were (as Stadtmauer contends)
shortcomings in the IRS Agent’s conclusions as to the propriety
of specific deductions, they were “raised properly on cross-
examination and went to the credibility, not the admissibility, of
[her] testimony,” Kannankeril v. Terminix Int’l, Inc., 128 F.3d
802, 809 (3d Cir. 1997), and the record in this case confirms that
defense counsel had ample opportunity to cross-examine Grant
on her specific conclusions, methodology, and assumptions.37
Accordingly, we conclude that the District Court did not abuse
37
Indeed, over the Government’s objections, the District
Court allowed defense counsel to cross-examine Grant regarding
her knowledge of specific provisions of the Tax Code, the IRS’s
field manual, and federal court and Tax Court decisions. This
went far beyond what other courts have permitted. Cf.
Mikutowicz, 365 F.3d at 72 (holding that trial court did not
violate defendant’s confrontation rights by refusing to allow
defense counsel to question the Government’s tax expert, an IRS
agent, “about various judicial opinions, which [the defendant]
claim[ed] would have established that the deductions were
properly taken”).
81
its discretion in admitting Agent Grant’s testimony.38
E. Restrictions on Cross-Examination
We end with the argument that Stadtmauer raises first:
that the District Court improperly barred him from affirmatively
admitting certain exhibits into evidence during cross-
examination of Government witnesses. We review a district
court’s rulings on the scope of cross-examination for abuse of
discretion, United States v. Casoni, 950 F.2d 893, 902 (3d Cir.
1991), “but to the extent the district court’s ruling turns on an
interpretation of a Federal Rule of Evidence[,] our review is
38
Stadtmauer also challenges the District Court’s decision to
allow the Government to admit summary charts prepared by
Grant, arguing that they impermissibly summarized her “pre-
trial conclusions.” (Appellant’s Br. at 56 (emphasis in
original).) This argument fails outright. Agent Grant—who
also served as a summary witness (based on her participation in
the Government’s investigation of KC’s partnerships)—testified
that she reached her conclusions (reflected in her summary
charts) based on the voluminous documentary evidence the
Government introduced during trial. Cf. United States v. West,
58 F.3d 133, 140 (5th Cir. 1995) (district court did not abuse its
discretion in permitting IRS agent to testify as an expert
summary witness where her “specialized training and experience
. . . made her adequately suited to assist the jury in
understanding the large amount of documentary evidence
presented by the [G]overnment and the tax implications”).
82
plenary,” United States v. Velasquez, 64 F.3d 844, 848 (3d Cir.
1995) (internal quotation marks and citation omitted).
Stadtmauer contends that the District Court erroneously
barred him from admitting several categories of exhibits during
defense counsel’s cross-examination of Bentzlin, Zecher, and
Bekritsky. For example, during cross-examination of Zecher,
defense counsel sought to introduce hundreds of advertisements
bearing the name “Kushner Companies” (instead of the name of
an individual partnership). Defense counsel sought to introduce
the concept of “branding” through these exhibits, and thus to
offer an exculpatory explanation for why expenses incurred by
one partnership were frequently paid by a different partnership.39
The District Court prevented Stadtmauer from admitting
these documents because they were “case-in-chief materials”
39
The general rule is that a taxpayer may not deduct expenses
incurred on behalf of another taxpayer’s business. See, e.g.,
Deputy v. du Pont, 308 U.S. 488, 494 (1940). An exception to
this rule is where a taxpayer’s payment of the business expenses
of another serves to “protect or promote” his own business. See,
e.g., Lohrke v. Comm’r, 48 T.C. 679, 684–85 (1967). Through
the “branding” theory, Stadtmauer sought to argue that the “non-
property” expenses deducted by the partnerships qualified under
this exception.
83
rather than “impeachment materials.” 40 See, e.g., App. 2405
(excluding proposed defense exhibits during cross-examination
because they were “not really specifically impeachment
material,” but “more akin to case-in-chief type evidence”); id. at
3002–03 (excluding proposed defense exhibits during cross-
examination because Stadtmauer was limited to “impeachment
material, not case-in-chief material”). Stadtmauer contends that
the District Court thereby violated Federal Rule of Evidence
611(b), which provides that cross-examination “should be
limited” to (1) “the subject matter of the direct examination,”
and (2) “matters affecting the credibility of the witness.” Fed.
R. Evid. 611(b). He argues that the Court erroneously barred
him from admitting the documents on the grounds that they (1)
did not “impeach” the witness (even though they pertained to the
“subject matter” of the witness’s direct testimony), and (2) could
be introduced in Stadtmauer’s case-in-chief. Cf. United States
40
The Government contends that the District Court actually
excluded all of the documents defense counsel sought to
introduce during cross-examination because Stadtmauer had
failed to comply with the Court’s pre-trial order requiring the
reciprocal exchange of trial exhibits. (Appellee’s Br. at 29–30.)
We see little in the record to support that blanket assertion.
Though the Court sometimes noted in ruling on Stadtmauer’s
requests to introduce exhibits during cross-examination that it
“could” bar their admission because they had not been produced
to the Government before trial, e.g., App. 2353–54, the record
reveals that the Court’s rulings were ultimately not based on any
violation of its pre-trial discovery order.
84
v. Segal, 534 F.2d 578, 582–83 (3d Cir. 1976) (“the fact that
some of the points which defendant sought to explore could
have been introduced in the defense case is not determinative”
of whether the evidence is within the “subject matter” of the
Government’s direct examination).
From our review of the record, however, it is apparent
that the District Court was using the terms “case-in-chief
materials” and “impeachment materials” as shorthand to
describe those documents that it would (or would not) permit
Stadtmauer to introduce during cross-examination so as to
manage effectively the presentation of evidence. The Court did
not rely on Rule 611(b) in its rulings, and, as it later described,
the question was not the admissibility of these exhibits but “the
timing of the[ir] introduction.” App. 3570; see also id. at 3322(agreeing that proposed defense exhibit was “within the subject
matter” of the Government’s direct examination, but excluding
it because it was more akin to a “case-in-chief document[]”).
In that light, the more pertinent provision of Rule 611 is
subsection (a), which grants district courts broad discretion to
“exercise reasonable control over the mode and order of
interrogating witnesses and presenting evidence.” Fed. R. Evid.
611(a); see also 28 Charles A. Wright & Victor J. Gold, Federal
Practice and Procedure § 6162, at 338 (1993) (Rule 611(a)
“gives trial courts broad powers to control the ‘mode and order’
of what is otherwise admissible evidence”). In our case, we
have little trouble concluding that the District Court did not
85
abuse its discretion in postponing the admission of Stadtmauer’s
proposed exhibits, even if they were technically within the
“subject matter” of the Government’s direct examination. See,
e.g., United States v. Lambert, 580 F.2d 740, 747 (5th Cir. 1978)
(district court did not abuse its discretion under Rule 611(a) by
excluding defendant’s “proffers of voluminous documentary
evidence” during cross-examination); United States v. Ellison,
557 F.2d 128, 135 (7th Cir. 1977) (district court did not abuse
its discretion by excluding proposed defense exhibits during
cross-examination, even assuming the documents “would have
been relevant rebuttal evidence if offered during the presentation
of [the defendant’s] own case”).
Finally, even assuming that the District Court relied on
an erroneous interpretation of Rule 611(b) in excluding
Stadtmauer’s proposed exhibits, the error was harmless. For
example, though the Court did not permit Stadtmauer to
introduce the KC advertisements themselves, it nonetheless gave
defense counsel broad leeway to use them in cross-examining
Zecher. The Court allowed defense counsel to show Zecher
approximately 20 advertisements, and he agreed that they
refreshed his recollection that KC placed advertisements in
“newspapers and professional journals” and “spent money
advertising the Kushner name.” (App. 3010–11.) He also
agreed that management used the name “Kushner Companies”
in a “generic sense,” rather than “listing all 100 or 200
partnerships” on corporate materials. (Id. at 2999.) Through
this testimony, defense counsel was able to establish the same
86
basic point: that the partnerships often did business under the
name “Kushner Companies” (rather than names of individual
partnerships).41 In this context, we conclude that any error in
excluding the exhibits during defense counsel’s cross-
examination of the Government’s witnesses did not prejudice
Stadtmauer.42
* * * * *
41
Moreover, these advertisements were only tangentially
relevant to the broader theory that defense counsel sought to
establish: that non-property expenses and charitable
contributions were properly paid by various partnerships
because they collectively benefitted from using the KC “brand.”
Even if Stadtmauer were permitted to introduce these exhibits,
we fail to see how they would have meaningfully rebutted the
testimony of Bentzlin, Lefkowitz, and Zecher that they never
discussed the concept of “branding” as a justification for certain
partnerships paying the expenses of other partnerships. (Id. at
2224, 2608, 2841.)
42
For these reasons, we also reject Stadtmauer’s claim that
the District Court’s exclusion of these exhibits violated his Sixth
Amendment right of confrontation. See Delaware v. Van
Arsdall, 475 U.S. 673, 679 (1986) (though the Sixth
Amendment “guarantees an opportunity for effective cross-
examination,” it does not guarantee “cross-examination that is
effective in whatever way, and to whatever extent, the defense
might wish” (internal quotation marks and citation omitted)
(emphasis in original)).
87
In summary, we conclude that a willful blindness
instruction may, where warranted by the trial evidence in a
criminal tax case, properly apply to a defendant’s knowledge of
his legal duties. The District Court did not abuse its discretion
in giving such an instruction in this case, and we disagree with
Stadtmauer’s contention that the instruction also impermissibly
applied to the element of specific intent.
Though the question whether Bekritsky’s lay opinion
testimony was admissible under Rule 701 is close, we conclude
that an error here, if any, was harmless. In addition, we reject
Stadtmauer’s prosecutorial misconduct claim based on the
Government’s supposed failure to “correct” Zecher’s testimony
that he could not recall statements he purportedly made to FBI
agents (with Government counsel present) during investigatory
interviews. Finally, we conclude that the District Court did not
abuse its discretion in (1) admitting the expert testimony of an
IRS agent in this complicated tax fraud case, and (2) preventing
Stadtmauer from affirmatively admitting certain categories of
exhibits into evidence during defense counsel’s cross-
examination of Government witnesses.
For these reasons, we affirm the District Court’s
judgment of conviction.
88