Opinion
11109-18 11153-18
05-03-2022
MICHAEL C. GIAMBRONE, ET AL., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Patrick J. Urda, Judge
We held a trial in this case in Chicago, Illinois, from March 14-16, 2022. [Doc. 80. During the course of trial, petitioners William and Michele Giambrone and Michael Giambrone (the Giambrones) objected on hearsay and relevance grounds to the admission of certain emails and email chains (Exs. 189-R, 190-R, 192-R, 195-R, 198-R, 208-R, 209-R, 214-R, 215-R, 229-R, 230-R, 232-R, 233-R, 268-R, and 269-R). The Court reserved ruling on these objections and requested post-trial briefing, which the parties have provided. [Docs. 83-85.]
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times. The term "Doc." refers to the documents as numbered by the Clerk of Court in Docket No. 11109-18, and the terms "Exhibits" or "Exs." refer to the exhibits marked at trial.
Since trial the Commissioner has withdrawn Exhibits 184-R, 191-R, 193-R, 236-R, 250-R, and 262-R. Further, the Commissioner does not seek to move into evidence Exhibit 237-R, which he only used for impeachment purposes. As to the remaining Exhibits, we will overrule the objections in part and sustain them in part.
The Giambrones challenged two general categories of exhibits. First, they objected to several exhibits consisting of email chains that included emails from either Mr. William Giambrone or Mr. Michael Linsner, both of whom testified at trial (Exs. 189-R, 190-R, 192-R, 198-R, 208-R, 214-R, 215-R, 229-R, 230-R, 232-R, and 269-R). Second, the Giambrones objected to a quartet of exhibits consisting of emails from either Mr. Lee Farkas or his associates, who (according to the Giambrones) were involved in obtaining control of Platinum Community Bank (Bank) from the Giambrones by fraud or deceit (Exs. 195-R, 209-R, 233-R, and 268-R). We address each category in turn.
References to Mr. Giambrone in this motion shall refer to Mr. William Giambrone.
Although the Giambrones also objected to Exhibit 195-R, which includes emails from Mr. Giambrone, we will discuss this exhibit in connection with the second category of exhibits.
I. Emails Sent by Testifying Witnesses and Accompanying Email Chains
We will first deny in large part the hearsay objection to the email chains that included emails sent by testifying witnesses. Hearsay is generally "a statement ...offered in evidence to prove the truth of the matter asserted." Fed.R.Evid. 801(c). Statements, including emails, providing context for other admissible statements are not hearsay because they are not offered for their truth. See, e.g., United States v. Foster, 701 F.3d 1142, 1150 (7th Cir. 2012); United States v. Tolliver, 454 F.3d 660, 666 (7th Cir. 2006); see also Probandt v. Commissioner, T.C. Memo. 2016-135, at *7 n.4 ("[T]he statements of his email correspondent are admissible to place petitioner's statements in context.").
Each of the exhibits in this category contains an email from either Mr. Giambrone or Mr. Linsner, both of whom testified at trial. In the parties' second stipulation of facts, the Giambrones waived all objections to the portion of these exhibits that contain emails sent by Mr. Giambrone or Mr. Linsner. [Doc. 74 ¶¶ 114, 115, 117, 120, 123, 133, 139, 140, 154, 155, 157, 203.] Given this waiver, we will admit the portions of the exhibits consisting of emails from Messrs. Giambrone and Linsner. See Hammett v. Commissioner, T.C. Memo. 1987-205, 1987 WL 40267, at n.7; accord Parks v. Commissioner, 145 T.C. 278, 295 n.25 (2015).
Turning to the remainder of the email chains, we conclude that the portions preceding the emails of Messrs. Giambrone and Linsner provide context for admissible evidence and thus are not hearsay. We will sustain, however, the Giambrones' objection with respect to portions of two email chains, Exhibits 198-R and 269-R, that were sent subsequent to the emails of Mr. Giambrone and Mr. Linsner, respectively. These emails do not provide context nor does the Commissioner offer another compelling reason to overcome the pending hearsay objection.
II. Emails Demonstrating the State of Mind of Mr. Farkas and His Advisors
The parties further dispute the admissibility of four other email chains (Exs. 195-R, 209-R, 233-R, and 268-R), with the Commissioner asserting that they qualify for the exception to hearsay embodied in Rule 803(3) of the Federal Rule of Evidence. That rule recognizes a hearsay exception for, inter alia, "[a] statement of the declarant's then-existing state of mind (such as motive, intent, or plan) . . . ." Id. As the U.S. Court of Appeals for the Seventh Circuit (the court to which an appeal in this case would ordinarily lie, see section 7482(a)(1)) has observed, "Rule 803(3) allows in hearsay evidence only if the [declarant's] state of mind is relevant." Grove Fresh Distribs., Inc. v. New England Apple Prods. Co., 969 F.2d 552, 556 (7th Cir. 1992). In this case, the parties agree that the states of mind of Mr. Farkas and his associates are relevant to whether he obtained control of the Bank by fraud or deceit.
As an initial matter, we hold that the emails from Mr. Farkas contained in Exhibits 195-R, 209-R, and 233-R qualify for the state-of-mind exception. Mr. Farkas' emails offer insights into his intentions and plans for the Bank [Doc. 74 at 431-33, 484, 762-64], which bear on whether Mr. Farkas stole the Giambrones' controlling interest in the Bank, as they assert [Doc. 83 at 8]. Moreover, these emails date from late 2007 and early 2008, within the relevant time period for determining whether Mr. Farkas was engaged in a fraud scheme with respect to the Bank. Mr. Farkas' emails pursuant to the Rule 803(3) exception. We will thus admit the other emails on the chains are not hearsay as they supply necessary context for Mr. Farkas' admissible emails.
Although it is a closer case, we reach a similar conclusion with respect to Exhibit 268-R. On this July 2009 email chain, (1) Mr. Paul Allen, the CEO of Mr. Farkas' company, communicated to a representative of the Federal Home Loan Mortgage Corporation (Freddie Mac) the intent to transfer certain funds to the Bank, (2) the Freddie Mac representative responded, and (3) Mr. Allen forwarded the response, characterizing it as an approval. [Doc. 74 at 1507-10.] Mr. Allen's emails show his then-existing state of mind with respect to plans for the Bank, which again may be relevant (given Mr. Allen's position) to the existence of Mr. Farkas' purported fraud scheme vis-à-vis the Bank. The response of the Freddie Mac representative is likewise admissible for context. The remaining emails on the chain, however, do not satisfy the dictates of Rule 803(3) and are not admitted. Accordingly it is, ORDERED that the Giambrones' hearsay objections are sustained in part and overruled in part as follows:
To be clear, our holding that these emails satisfy Rule 803(3) neither establishes their credibility nor dictates the weight to be given them. See, e.g., Kroner v. Commissioner, T.C. Memo. 2020-73, at *20-21; accord United States v. Peak, 856 F.2d 825, 834 (7th Cir. 1988) (finding that a district court does not have discretion to exclude testimony based on untrustworthiness); 30B Charles Alan Wright et al., Federal Practice and Procedure § 6834 (2022 ed.) ("There is, of course, no authority for adding an additional 'trustworthiness' requirement to Rule 803(3).").
(1) With respect to Exhibits 189-R, 190-R, 192-R, 208-R, 214-R, 215-R, 229-R, 230-R, 232-R, the emails from Mr. Giambrone and Mr. Lisner are admitted. The remainder of the emails on the email chains are admitted for the limited purpose of providing context for the emails from Mr. Giambrone and Mr. Lisner.
(2) With respect to Exhibits 198-R and 269-R, the emails from Mr. Giambrone and Mr. Lisner are admitted. The emails subsequent to Mr. Giambrone's October 25, 2007, 2:04 PM email in Exhibit 198-R and Mr. Linsner's July 13, 2009, 6:38 PM email in Exhibit 269-R are not admitted.
(3) With respect to Exhibits 195-R, 209-R, and 233-R, the emails from Mr. Farkas are admitted. The remainder of the emails on the email chains are admitted for the limited purpose of providing context for Mr. Farkas' emails.
(4) The emails from Mr. Paul Allen in Exhibit 268-R are admitted. The emails from the representative of the Federal Home Mortgage Loan Corporation are admitted for the limited purpose of providing context for Mr. Allen's emails. The remaining emails are not admitted.
It is further ORDERED that Exhibits 184-R, 191-R, 193-R, 237-R, 250-R, and 262-R are hereby deemed withdrawn.