Opinion
Criminal Case No. 15-cr-394-WJM
07-27-2017
UNITED STATES OF AMERICA, Plaintiff, v. 1. DARYL FRANCIS YUREK 2. WENDY MARIE YUREK Defendants.
ORDER STATING REASONS AS TO COURT'S ORAL DENIAL IN PART OF DEFENDANTS' JOINT MOTION TO STRIKE IRRELEVANT AND PREJUDICIAL SURPLUSAGE FROM INDICTMENT
This matter is before the Court on the Defendants' Joint Motion to Strike Irrelevant and Prejudicial Surplusage From Indictment. (ECF No. 160 (Defendants' "Motion").) The Court deferred ruling on this Motion before trial. (ECF No. 179.) On July 27, 2017, following the close of all evidence, the Court orally granted the motion in limited part, only to the extent of striking Paragraph 16.z. from the Indictment as presented to the jury, while denying the Motion in all other respects. The Court hereby enters this written Order stating its reasons for that disposition.
I. LEGAL STANDARD
Federal Rule of Criminal Procedure 7(d) provides, "Upon the defendant's motion, the court may strike surplusage from [an] indictment or information." The advisory committee's note to Rule 7(d) elaborates, that this Rule is designed to provide "a means of protecting the defendant against immaterial or irrelevant allegations in an indictment . . . which may . . . be prejudicial." Fed. R. Crim. P. 7 advisory committee's note. In the Tenth Circuit, a court "may strike from an indictment allegations which are both independent of and unnecessary to the offense on which a conviction ultimately rests." United States v. Brooks, 438 F.3d 1231, 1237 (10th Cir. 2006). Conversely, "[l]anguage in the indictment . . . describing the essential elements of the crime alleged is not surplusage and cannot be stricken under Rule 7(d)." United States v. Collins, 920 F.2d 619, 631 (10th Cir. 1990).
II. ANALYSIS
As to Counts 1 and 2 charged against them, Defendants argue that certain language and paragraphs of the Indictment are not legally relevant to any element of the crimes charged or to any issue in dispute and should be stricken as prejudicial.
A. Count One: Tax Evasion
Count One charges Defendants with tax evasion in violation of 26 U.S.C. § 7201. Under this statute, "[t]o obtain a conviction, the government must prove three elements, namely [1] the existence of a tax deficiency, [2] an affirmative act constituting an evasion or attempted evasion of the tax, and [3] willfulness." United States v. Boisseau, 841 F.3d 1122, 1125 (10th Cir. 2016).
This statute addresses "the offense of willfully attempting to evade or defeat the assessment of a tax as well as the offense of willfully attempting to evade or defeat the payment of a tax." Sansone v. United States, 380 U.S. 343, 354 (1965) (emphasis added). This case presents the latter form of the offense, that is, attempting to evade the payment of a tax, after it had been assessed. Specifically, the Indictment alleges that the affirmative acts of evasion allegedly violating § 7201 began with an Offer in Compromise that Defendants submitted to the Internal Revenue Service ("IRS") in 2006, with respect to then-existing tax liabilities, primarily arising from tax years 1999 and 2004. (ECF No. 1 ¶ 16.a.)
1. Relevance of Alleged Conduct to Charge of Tax Evasion
As to numerous of the Government's specific allegations, Defendants argue that even if true, these acts could not possibly constitute an affirmative or positive act designed to evade taxes, and are therefore legally irrelevant to the charge of tax evasion.
Defendants first contest several paragraphs of the Indictment alleging various acts related to the Government's theory that Defendants purchased the loft condominium in which they lived using their son as a "straw buyer" or nominee owner, as well as paragraphs alleging Defendants directed their affiliated business entities (including Bolder Venture Partners and Veracity Credit Consultants) to pay mortgage and condominium fee payments for the loft and certain of Defendants' personal expenses. (See ECF No. 160 at 5-10; see also, e.g., ECF No. ¶¶ 16.c.-g., h., v.-z.)
These allegations were the subject of significant evidence at trial. The Court addressed some of the evidence tending to support these allegations in its bench ruling denying Defendants' oral motion for acquittal under Federal Rule of Criminal Procedure 29, entered July 26, 2017. The Court therefore incorporates by reference that ruling and discussion of the evidence here, to the extent that the evidence touches on the relevance of the conduct alleged in Count 1, and the presentation of evidence corresponding to those allegations.
The Court concludes that Defendants' argument regarding the charge of tax evasion misconstrues the Government's theory of the case, and construes the controlling case law too narrowly. Defendants argue, as to each of the challenged paragraphs of the Indictment, that even if the alleged fact is true and/or the alleged action occurred, it could not constitute an affirmative act of evasion. For example, Defendants argue that the alleged act of assigning their contract to purchase their residence to their son in 2006 did no more than "openly transferred the contractual right to purchase" to their son and "could have no effect . . . on the payment of [Defendants'] outstanding tax liabilities from 1999 and 2004. (ECF No. 160 at 6.) The Defendants therefore argue that the alleged conduct could not possibly constitute an affirmative act of willful tax evasion, as prohibited under § 7201.
Defendants' argument mis-states the Government's theory of prosecution and seeks to apply the law too narrowly. While neither the statute nor controlling precedent has precisely defined or limited what constitutes an "affirmative act," of tax evasion, it is clear that a broad range of conduct may constitute affirmative acts under § 7201. United States v. Boisseau, 841 F.3d 1122, 1125 (10th Cir. 2016)); accord United States v. Conley, 826 F.2d 551, 558 (7th Cir. 1987) ("It cannot be expected that all tax payment evaders approach their problem in the same way. They have demonstrated a certain misguided freedom to use their own devices as they deem best to suit their own circumstances. * * * The statute does not require any similarity or pattern, and specifically prohibits attempts to evade or defeat tax 'in any manner.'").
Thus, non-exhaustive examples of the kinds of affirmative acts which may constitute tax evasion include: "maintaining a double set of books, creating false documents, destroying books or other records, concealing assets, covering up sources of income, conducting one's business in a manner that avoids usual recordkeeping, and conduct that is likely to mislead or conceal." Boisseau, 841 F.3d at 1125 (citing Spies v. United States, 317 U.S. 492, 499 (1943)). Likewise, "[m]isstating income is an affirmative act." Tenth Circuit Criminal Pattern Jury Instructions § 2.92 (2011 ed. Updated Jan. 2017), Comment (citing United States v. Jones, 816 F.2d 1483, 1488 (10th Cir. 1987)).
Here, as to the loft residence, the Government's allegation is that Defendants used their son as a "straw buyer," purchasing the residence for themselves in his name. If proved, this constitutes a form of "concealment of assets." Spies, 317 U.S. at 499. Likewise, a defendant may be convicted under § 7201 for holding assets in the name of a nominee owner while retaining beneficial control. Cf. Boisseau, 841 F.3d at 1126 ("The use of a nominee owner of one's business is a common affirmative act supporting a conviction for tax evasion." (collecting cases addressing various kinds of property)); see also, e.g., Conley, 826 F.2d at 553-55 (affirming conviction under § 7201 where defendant first placed his home in trust and then conveyed it to his children in efforts to avoid tax collection).
The Court therefore finds that the portions of the Indictment challenged by the Defendants' Motion which relate to the purchase, refinancing, and delivery of rent and mortgage payments for the loft residence could, if proved, support the Government's allegation of a "straw purchase" or nominee-ownership arrangement of the loft, and thereby support a conviction under § 7201. The related specific individual acts, including facilitating refinancing of the loft, and directing mortgage and condominium fee payments by Defendants' affiliated businesses, may also be fairly viewed as "conducting one's business in a manner that avoids usual recordkeeping." Spies, 317 U.S. at 499. And, to the extent Defendants argue the purchase was "openly" recorded in the name of Defendants' son, this can be fairly viewed as "handling . . . one's affairs to avoid making the records usual in transactions of the kind." Id.; see also Boisseau, 841 F.3d at 1125 ("Lawful conduct can constitute an affirmative act under § 7201 when done with the intent to evade taxes, even if the conduct serves other purposes as well.").
Similarly, use of the affiliated business entities to pay Defendants' personal expenses, including through generous executive loan accounts, may support a charge of tax evasion as a means of concealing assets that allegedly belonged to Defendants and/or "covering up sources of income," Spies, 317 U.S. at 499, since the jury might find this amounted to additional compensation to Defendants that was not candidly disclosed to the IRS or the bankruptcy court. Cf. Jones, 816 F.2d at 1488 (defendant's failure to report all income sufficient to sustain conviction). By similar logic, the challenged portions of the Indictment alleging the transfer or sale of various stock holdings that were not fully disclosed by Defendants to the IRS and in their bankruptcy case may be fairly viewed as "conduct that is likely to mislead or conceal," and thus are not surplusage. (See ECF No. 160 at 9-10.)
2. Continuing Tax Liability After Bankruptcy Discharge Order
Defendants also argue that because their tax debts were discharged in bankruptcy, the Government cannot prove the existence of a continuing tax liability, thus making proof of tax evasion "a logical impossibility" as to any affirmative acts committed after the date of the bankruptcy discharge order. (See ECF No. 160 at 10.)
However, as the Court has previously held and explained, "there is no effective bankruptcy discharge as to any debt 'for a tax . . .with respect to which the debtor[s] . . . willfully attempted in any manner to evade or defeat such tax.'" (ECF No. 195 at 14-15 (quoting 11 U.S.C. § 523(a)(1)(C)). Thus "the question of whether Defendants' tax liability was or was not discharged in bankruptcy remains disputed, and is therefore an issue to be proved by the Government at trial as part its charge of tax evasion in violation of 26 U.S.C. § 7201." (Id. at 15-16 (citing In re Everly, 346 B.R. 791, 795 (B.A.P. 8th Cir. 2006); In re Range, 48 F. App'x 103 (5th Cir. 2002) (table), 2002 WL 31016592, at * 5; Bussell v. Comm'r of Internal Revenue, 130 T.C. No. 13, 240 (2008); see also United States v. Comer, 222 B.R. 791, 795-96 (E.D. Mich. 1998)).
Accordingly, the Court rejects Defendants' argument that all charged acts occuring after the date of the bankruptcy court's discharge order must be stricken from the Indictment as surplusage.
B. Bankruptcy Fraud
Count 2 of the Indictment charges both Defendants with bankruptcy fraud in violation of 18 U.S.C. § 157(1). The Indictment incorporates by reference many of the factual allegations of conduct which are charged in Count 1 into the charge of Count 2. Defendants argue that many of these incorporated allegations must be stricken from the Indictment as to Count 2. The Court disagrees.
To convict either Defendant under § 157(1), the Government must prove three elements, including: (1) a specific intent to defraud; (2) a scheme to defraud; and (3) the filing of a bankruptcy petition to conceal or execute that scheme. United States v. Spurlin, 664 F.3d 954 (5th Cir. 2011).
In their present Motion, Defendants argue that certain of the allegations related to payments made by the business entities for Defendants' alleged personal expenses could not possibly form part of any scheme to defraud the Internal Revenue Service or the bankruptcy court of money or property, and therefore must be stricken. (See ECF No. 160 ¶ 23.) They argue that these payments could, at most, have altered Defendants' calculation of taxes due for the years in which they occurred, but could not seek to defraud the IRS in its efforts to collect taxes that were already due. (Id.) Consistent with the analysis above, the Court disagrees. These allegations, if proven, could tend to support a finding that Defendants acted with intent to defraud the IRS and/or the bankruptcy court and creditors by concealing income that might have been used to pay their outstanding tax liability, or at a minimum, by concealing information that could have materially altered the investigation and collection efforts of the IRS and the bankruptcy trustee. The Court therefore finds these allegations are material and relevant to the charge made in Count 2 of the Indictment and are not surplusage.
As with the tax evasion count, Defendants arguments regarding surplusage are related to arguments Defendants made in support of their oral motion for acquittal pursuant to Federal Rule of Criminal Procedure 29. As noted above, the Court therefore incorporates into its ruling here its oral ruling and discussion of the evidence in regards to Defendants' Rule 29 motion, made on the record July 26, 2017. --------
In addition, Defendants argue that no acts taken after the date they filed their bankruptcy petition can be charged as part of Count 2, because the filing of the petition itself constituted the alleged violation of § 157(1), marking the end of any alleged criminal conduct. (See ECF No. 160 ¶¶ 21-22 (citing United States v. Milwitt, 475 F.3d 1150, 1155 (9th Cir. 2007) and United States v. DeSantis, 237 F.3d 607, 613 (6th Cir. 2001).) This argument reads too much into the DeSantis and Milwitt cases. It is true, in a sense, that "[t]he statute makes the crime complete upon the filing of the bankruptcy petition." DeSantis, 237 F.3d at 613. But the subsequent factual allegations, if proved, are still relevant to the Government's charge because they would tend to establish the elements necessary for conviction under § 157(1) other than the filing itself, including showing the existence of an overall scheme or artifice to defraud, showing the bankruptcy filing was with the purpose of furthering or concealing that scheme, and/or proving Defendants' intent to defraud. These are elements the Government must prove, and the allegations setting out facts which the Government seeks to prove in support of these elements of the charge are, by definition, not surplusage. See United States v. Daniels, 159 F. Supp. 2d 1285, 1300 (D. Kan. 2001) ("If the language in the indictment is information which the government hopes to properly prove at trial, it cannot be considered surplusage no matter how prejudicial it may be (provided, of course, it is legally relevant).") (internal quotation marks omitted)).
C. Prejudice
Because the Court finds that all the challenged portions of the Indictment set out matters the Government properly sought to prove at trial, and the Court finds these allegations legally relevant to the charges against the Defendants, there is no basis to strike them on the grounds of claimed prejudice against Defendants. Id. That being said, even if the Court were to review the Indictment for such prejudice, it would not strike any portions of the Indictment on that basis. The Court finds that the Indictment in this case, although somewhat lengthy in light of the facts at issue, nevertheless meets the requirement of being a "plain concise and definite written statement of the essential facts constituting the offense[s] charged," and does not exceed those bounds in any unduly prejudicial manner. See Fed. R. Crim. P. 7(c)(1).
D. Paragraph 16.z.
At the charging conference on July 26, 2017, the Government acknowledged that it had not introduced sufficient evidence to support the facts alleged in Paragraph 16.z. of Count 1 of the Indictment, given the Court's exclusion of certain materials at trial. Accordingly, the Government agreed that this Paragraph should be stricken from the Indictment before it was provided to the jury, and the Court has implemented this redaction in conjunction with its final jury instructions provided to the jury earlier today.
III. CONCLUSION
For the reasons set forth above, and consistent with the Court's oral ruling on the record on July 27, 2017, Defendants' Joint Motion to Strike Irrelevant and Prejudicial Surplusage From Indictment is GRANTED to the extent that Paragraph 16.z. has been stricken from Count 1 of the Indictment, as set forth above, and Defendants' Motion is in all other respects DENIED.
Dated this 27th day of July, 2017.
BY THE COURT:
/s/_________
William J. Martínez
United States District Judge