U.S. v. Daraio

• Decision Date: 10 April 2006
• Docket Number: No. 05-2460.,05-2460.
• Citation: 445 F.3d 253
• Parties: UNITED STATES of America v. Dorothea DARAIO, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

445 F.3d 253

UNITED STATES of America v. Dorothea DARAIO, Appellant.

No. 05-2460.

United States Court of Appeals, Third Circuit.

Argued March 6, 2006.

Filed April 10, 2006.

COPYRIGHT MATERIAL OMITTED

George S. Leone, Assistant U.S. Attorney, Newark, N.J., Eileen J. O'Connor, Assistant Attorney General, Alan Hechtkopf, Gregory V. Davis, Brian D. Galle (argued), Attorneys, Tax Division, Department of Justice, Washington, D.C., for Appellee.

Richard G. Tuttle (argued), John C. Connell, Archer & Greiner, Philadelphia, PA, for Appellant.

Before ROTH and GREENBERG, Circuit Judges, and BUCKWALTER, District Judge.^*

GREENBERG, Circuit Judge.

I. INTRODUCTION

Defendant Dorothea Daraio ("Daraio") appeals from a judgment of conviction and sentence entered on May 5, 2005, in this tax evasion case. Daraio raises three issues on this appeal. First, she argues that the evidence at trial coupled with the jury instructions constructively amended the indictment returned against her on which she was tried. Second, she contends that there was at trial, in the alternative to a constructive amendment of the indictment, a prejudicial variance in the evidence from the terms of the indictment. In these two contentions Daraio asserts that the government's proofs may have led the jury to convict her of unlawful conduct the indictment did not charge. Third, Daraio argues that the district court erred in admitting evidence under Federal Rule of Evidence 404(b) ("Rule 404(b) evidence") of her prior non-compliance with federal tax laws to prove her intent to commit the crime charged in this case. Daraio contends that by reason of any of these errors she is entitled to an outright reversal of her conviction or at least a new trial. For the reasons set forth below, we will affirm.

II. FACTS AND PROCEDURAL HISTORY

On August 17, 2004, a grand jury returned a superseding indictment charging Daraio with one count of tax evasion in violation of 26 U.S.C. § 7201 and 18 U.S.C. § 2.¹ In particular, the indictment charged Daraio with "knowingly and willfully attempt[ing] to evade and defeat the payment of a substantial part of the payroll taxes due and owing by Eagle Security, Inc.² to the United States for the quarterly periods that included April 1994 through April 1998, in the amount of approximately $222,607.40, by directing clients of Eagle Security, Inc. to pay their unpaid balances that they owed to Eagle Security, Inc. to E.S.S. Co." J.A. at 598. The indictment charged that Daraio gave those directions after or at about the time that the Internal Revenue Service ("IRS") issued levies on ten clients of Eagle Security, Inc. ("Eagle Security") requiring them to pay their balances due to Eagle Security to the IRS. The government produced evidence at the trial supporting the indictment which we need not describe at length.³

Before the start of the presentation of evidence at the trial, the prosecutor in in limine proceedings filed and served a notice that the government would seek to introduce evidence of Daraio's prior tax non-compliance as demonstrated by her personal tax records and tax records from several corporations with which she was involved pursuant to Rule 404(b). The government sought to introduce this evidence on the theory that, as the district court recognized, "general feelings or general attitude toward the IRS can be proof of willingness or intent." J.A. at 109-10. The Rule 404(b) evidence ultimately included the following items:

(1) Payroll tax records for Joseph Daraio, Daraio's husband,⁴ trading as ESS-Co. and Quest Investigators, pertaining to tax periods from 1989-1993 including the records themselves, as well as, for certain tax periods, certifications of a "lack of records" indicating the failure to file tax returns;

(2) Certifications by the IRS that Eagle Security did not file payroll tax returns in 1990-1993 and 1999-2004;

(3) Payroll tax records, again including certifications of lack of records, for ESS-Co., beginning in the third quarter of 1998 through the first quarter of 2004;

(4) Certifications of lack of records for ESS-Co. from 1992-1998 and 2000-2004;

(5) Corporate tax records for Eagle Security from 1990-2003,⁵ that showed that it had not filed forms with the IRS in 1999, 2001, and 2002;

(6) Corporate tax records for ESS-Co. from 1998-2003;

(7) Joint personal income tax returns for Joseph Daraio and Daraio from 1984 and 1989-2003.

Over Daraio's continuing objection, the district court admitted the Rule 404(b) evidence, reasoning that evidence of past conduct is relevant when, as in this case, "the defendant has square[ly] raised intent."⁶ J.A. at 23. The district court, however, gave the jury the following limiting instruction:

Ladies and gentlemen of the jury, you will soon, and at various other times during the trial, hear evidence of acts the defendant — of acts of the defendant that may be similar to those charged in the indictment, but which were committed on other occasions.

You must not consider any of this evidence in deciding if the defendant committed the acts charged in this indictment. However, you may consider this evidence for other very limited purposes.

If you find beyond a reasonable doubt from other evidence in this case, that the defendant did commit the acts charged in the indictment, then you may consider the evidence of similar acts allegedly committed on other occasions, to determine, one, whether the defendant had the intent necessary to commit the crime charged in the indictment; two, whether the defendant had the motive to commit the act charged in the indictment; or, three, whether the defendant willfully committed the acts for which she is on trial, or rather committed them by accident, negligence, or mistake.

J.A. at 79-80.⁷

In addition to the admission of the Rule 404(b) evidence, Daraio takes issue with certain of the prosecutor's arguments and statements at trial. First, in the government's opening statement, the prosecutor identified Daraio as "a woman . . . who thumbed her nose at the IRS for more than a decade," J.A. at 37, and stated that "defendant failed to file her own personal income tax returns for the years 1996, 1997 and 1998." J.A. at 41. The prosecutor also explained the "long and numerous" attempts by the IRS to "get compliance from [Daraio]," J.A. at 41, as well as the "trust fund penalt[ies] that were assessed against [Daraio] from the mid 1980s." J.A. at 50-51. Moreover, the prosecutor contended that "this was not the first time that [Daraio] was involved in shutting down a company that amassed a huge payroll tax liability using a new company to continue the business, leaving out payroll tax liabilities behind." J.A. at 51.

During the government's case-in-chief, the prosecutor elicited testimony that Daraio was a "pyramiding taxpayer," J.A. at 129, and elicited testimony concerning the seizure of her residence. The prosecutor also stated:

After 20 years of snubbing the IRS, or doing absolutely everything in her powers to avoid paying her personal corporate and payroll taxes, the defendant is sitting here in this courtroom telling all of you that now she is a champion for the rights of the IRS.

. . . .

The defendant's attitude toward the IRS in paying taxes in general is another indication of willfulness. At every turn the defendant was refusing to become compliant with the IRS. She has shown complete and utter disregard for the IRS in her duty to pay taxes. She says thinks [sic] this she can essentially life [sic] tax free life for the past 20 some years not paying the payroll tax liability for at least three corporations, working her finances so that she pays not more than six dollars of individual income taxes in the same year that she takes $108,000 of horse expenses, not even filing individual income tax returns for three years, and not filing corporate income tax returns since 1993.

J.A. at 416-17.

The prosecutor argued that "[w]e are here for one reason only; that is because the defendant, Dorothea Daraio, is a tax cheat. She has done everything in her power for the last 20 years to live essentially a tax-free life." J.A. at 418. The prosecutor then described Daraio's assets, including her home and her racehorses, and suggested to the jury that Daraio should have sold her home or her racehorses to "pay the IRS what she owes." J.A. at 419-20. Finally, the prosecutor emphasized that from 1994 to 2002, "she could have been compliant ... [but] she chose not to." J.A. at 454. The prosecutor added that her non-compliance "is why we are here today." J.A. at 454. The prosecutor then asked the jury, "how long is it reasonable for the IRS to wait for this woman to finally decide to get compliant[?]" J.A. at 454.

Much of the defense strategy focused on Daraio's assertion that she "had nothing to do with the preparation of th[e] invoices" asking Eagle Security's clients to make their payments to E.S.S. Co. See, e.g., J.A. at 325-26 (Daraio's denial of preparing invoices or directing employees to prepare the invoices requesting Eagle Security's clients to pay E.S.S. Co.). For example, Cheryl Daraio, Daraio's daughter, an employee at Eagle Security, testified that she mistakenly prepared the duplicate invoices directing Eagle Security's clients to pay E.S.S. Co. instead of Eagle Security. Cheryl testified that she prepared the false invoices, but denied that Daraio directed her to prepare or send the invoices, or even knew about them.

In its final charge, the district court instructed the jury that, "[t]o find defendant guilty[,] . . . you must find that the defendant . . . took an affirmative act or acts in an attempt to evade or defeat this tax as described in the indictment . . .," J.A. at 546, and explained the three elements of tax evasion under 26 U.S.C. § 7201:(1) willfulness; (2) existence of a tax deficiency; and (3) an affirmative act constituting an evasion or an attempted evasion of the tax. The court then reminded the jury...