U.S. v. Pree

• Decision Date: 20 May 2005
• Docket Number: No. 03-1516.,03-1516.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Bette J. PREE, also known as Betts Pree, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

408 F.3d 855

UNITED STATES of America, Plaintiff-Appellee, v. Bette J. PREE, also known as Betts Pree, Defendant-Appellant.

No. 03-1516.

United States Court of Appeals, Seventh Circuit.

Argued December 12, 2003.

Decided May 20, 2005.

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Gregory M. Gilmore, Office of the United States Attorney, Springfield, IL, Patrick J. King, Jr. (argued), Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellee.

Jenny L. Johnson (argued), Katten Muchin Rosenman, Chicago, IL, for Defendant-Appellant.

Before COFFEY, RIPPLE and KANNE, Circuit Judges.

RIPPLE, Circuit Judge.

Bette J. Pree was indicted by a grand jury for one count of failing to file a tax return for the tax year 1994, in violation of 26 U.S.C. § 7203, and for two counts of filing false tax returns for the tax years 1995 and 1996, in violation of 26 U.S.C. § 7206(1). After trial, a jury found Ms. Pree not guilty of the failure to file charge but guilty of both counts of filing false tax returns. The district court sentenced Ms. Pree to 18 months' imprisonment, to be followed by a one-year term of supervised release, with the special condition that she pay taxes owed to the Internal Revenue Service ("IRS") in the amount of $38,852. Ms. Pree appealed her convictions. On September 14, 2004, this court affirmed the judgments of conviction but vacated the sentence and remanded the case to the district court for resentencing. We stayed our mandate pending the Supreme Court's decision in United States v. Booker, ___ U.S. ____, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005).¹ On January 12, 2005, the Supreme Court issued its decision in Booker. At this court's invitation, each party has submitted a memorandum presenting its views on the application of Booker to this case. For the reasons set forth in the following opinion, we revise our prior instructions with respect to Ms. Pree's sentence. In light of Booker, 125 S.Ct. 738, while retaining jurisdiction of this case, we remand this case to the district court in accordance with this court's decision in United States v. Paladino, 401 F.3d 471 (7th Cir.2005).

I BACKGROUND

A. Facts

Ms. Pree was convicted of filing false returns for tax years 1995 and 1996. To present a coherent background of the circumstances upon which those convictions are based, we first must relate some events that transpired prior to those tax years.

In 1993, Maurice Furlong, the President of Health Care Centers of America ("HCCA") contacted Ms. Pree's daughter, a former lobbyist for the Illinois Chiropractic Society, about a potential job opportunity with HCCA. Ms. Pree and her daughter met Furlong, and he discussed the company and its expansion plans with them. After this meeting, Furlong developed an interest in hiring Ms. Pree as well as Ms. Pree's daughter because Ms. Pree was a nurse and held a real estate license.

After this meeting, Ms. Pree and her daughter moved to Las Vegas. On December 8, 1993, Ms. Pree signed a lease that was assigned to "HCCA—Health Care Centers of America and/or Bette Pree." Gov't Ex.81A. Ms. Pree and her daughter received approximately $4,000 from Furlong for moving expenses.

Beginning in 1994, Ms. Pree began selling HCCA stock to friends, family, former co-workers and other acquaintances. In January 1994, Ms. Pree wrote to one former co-worker and noted, "This company I work for HCCA Health Care Centers of America is going on the Stock Market right away." Gov't Ex.91A. Ms. Pree encouraged the co-worker to buy as much stock as she could. The letter further indicated: "I'm Exec. Assistant to President of Co." Gov't Ex.91A.

Ms. Pree continued selling stock through 1996. In selling stock, Ms. Pree would provide prospective purchasers with her HCCA business card on which her title was listed as "Administrator of Aquisition [sic]," Gov't Ex.15G, and would distribute company literature. She also would correspond on company letterhead. Ms. Pree explained to prospective purchasers that she had been hired to oversee the opening of an office and "in lieu of salary they [HCCA] were issuing her stocks in the company to do with what she chose." R.67 at 106.

Although Ms. Pree began selling stock in January of 1994, she first received HCCA stock in May of 1994. The stock she received consisted of 350,000 shares of restricted stock formerly registered to Furlong. The restricted stock bore the statement: "The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be sold, transferred or otherwise disposed of by the holder unless registered under said Act . . . ." Gov't Ex.2A.² When a securities investigator from the Illinois Secretary of State investigated Ms. Pree's stock sales, Ms. Pree wrote a letter in response, justifying the transactions as personal sales from stock received for services. She described the stock as

given to me by Maurice Furlong from his own personal shares for my assistance in the development and arrangement of the chiropractic presentation and business plan, and for introducing him to Chiropractors and Associates in Illinois, as well as assisting with various administrative duties or tasks.

Gov't Ex.49.

Throughout the course of Ms. Pree's stock sales, the prices at which she sold the stock fluctuated. During 1994, she sold stock at prices between a nickel and a dollar per share. During 1995, her stock prices ranged from a quarter to a dollar per share. In 1996, she sold the stock at prices between nine cents and fifty cents per share. During 1995, Ms. Pree received $21,500 from sales of the HCCA stock. In 1996, Ms. Pree received $60,450 from stock sales.³ In a 1996 declaration to a casino, Ms. Pree indicated that she had an annual income of $80,000 from stocks, retirement and social security.

Ms. Pree did not file her 1995 and 1996 tax returns when due but instead requested and received automatic extensions to file. She later met with Ann Westphal, a part-time H & R Block tax preparer, to prepare her 1995 and 1996 returns. Westphal prepared returns indicating pension and social security income for 1995 in the amount of $3,441, and pension, taxable interest and gambling income for 1996 in the amount of $7,231.⁴ Neither return included any income from stock sales, nor did either return include Schedule D, the schedule on which capital gain or loss from sale of stock is calculated. Westphal prepared the returns at her home as a personal favor to Ms. Pree. Westphal did not prepare them through H & R Block, nor did she sign them. Ms. Pree ultimately signed and submitted her 1995 and 1996 tax returns on March 1, 1998. While meeting with Westphal, Ms. Pree also told her about the opportunity to purchase HCCA stock, and Westphal agreed to purchase 25,000 shares for $500 from Ms. Pree.

Ms. Pree later was indicted on several charges.⁵ Count II charged Ms. Pree with filing an income tax return for 1995 in which she "listed total income of $3,441, whereas, as she then and there well knew and believed, she had received additional income substantially in excess of that amount in calendar year 1995." R.1 at 2. Count III charged Ms. Pree with filing an income tax return for 1996 in which she "listed total income of $7,231, whereas, as she then and there well knew and believed, she had received additional income substantially in excess of that amount in calendar year 1996." R.1 at 3.

B. District Court Proceedings

Ms. Pree's case proceeded to trial. Before trial, Ms. Pree filed a motion in limine to exclude evidence related to fraud in her sale of stock to investors. The district court granted this motion in part, barring testimony as to whether her investors were satisfied or dissatisfied with their HCCA investments.

The Government's theory of the case, pertinent to this appeal, was that, during the relevant time period, Ms. Pree worked for HCCA and sold HCCA stock that she received as compensation for her services.⁶ Despite a significant increase in her income from these stock sales and despite being informed that she had an obligation to report the income she received from such sales, Ms. Pree filed belated returns for 1995 and 1996, on which she willfully failed to report income from her stock sales.⁷

1. Evidence

At trial, the Government presented evidence pertaining to the nature of the stock Ms. Pree sold. An officer of the stock transfer agent for HCCA testified that the stock originally was registered to Furlong. In May 1994, however, Furlong's stock certificate was divided, and one of fifty-eight new certificates was issued to Ms. Pree. The transfer agent testified that the stock was restricted and that the effect of the restriction on the stock certificate was to limit the stock's value to "whatever [the seller] can obtain from the purchaser." R.67 at 25.

Several individuals who obtained stock from Ms. Pree testified to their purchases. Stipulations pertaining to Ms. Pree's stock sales to other investors also were read into evidence by the Government. The testimony and stipulations together revealed that Ms. Pree sold stock before any was registered in her name, that she sold stock after she received her certificate in May 1994, that she sold stock throughout 1995 and 1996, and that she continued selling stock after exhausting the shares originally registered in her name.⁸

Additionally, the Government presented the testimony of an IRS Special Agent who investigated Ms. Pree in 1996. The Special Agent testified that Ms. Pree had indicated to her that she was aware of her obligation to report stock sales on her tax returns in the year of sale. Further, the Government presented the testimony of Westphal. Westphal testified that she had prepared Ms. Pree's 1995 and 1996 taxes in September of 1997. She testified that Ms. Pree had brought her an interest statement, pension and social security information and gambling W-2Gs. Westphal indicated that Ms. Pree had denied any other...