620 F.3d 238 (3rd Cir. 2010), 09-1575, United States v. Stadtmauer

Docket Nº:09-1575.
Citation:620 F.3d 238
Opinion Judge:AMBRO, Circuit Judge.
Party Name:UNITED STATES of America v. Richard STADTMAUER, Appellant.
Attorney:David Debold, Esquire, Miquel A. Estrada, Esquire, (Argued), Scott P. Martin, Esquire, Gibson, Dunn & Crutcher LLP, David M. Zinn, Esquire, Williams & Connolly LLP, Washington, D.C., Robert S. Fink, Esquire, Kostelanetz & Fink, LLP, New York, NY, Counsel for Appellant. Ralph J. Marra, Jr., Acting...
Judge Panel:Before: AMBRO, ALDISERT, and ROTH, Circuit Judges.
Case Date:September 09, 2010
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 238

620 F.3d 238 (3rd Cir. 2010)

UNITED STATES of America

v.

Richard STADTMAUER, Appellant.

No. 09-1575.

United States Court of Appeals, Third Circuit.

September 9, 2010

Argued Nov. 17, 2009.

Page 239

[Copyrighted Material Omitted]

Page 240

David Debold, Esquire, Miquel A. Estrada, Esquire, (Argued), Scott P. Martin, Esquire, Gibson, Dunn & Crutcher LLP, David M. Zinn, Esquire, Williams & Connolly LLP, Washington, D.C., Robert S. Fink, Esquire, Kostelanetz & Fink, LLP, New York, NY, Counsel for Appellant.

Page 241

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, Newark, NJ, Counsel for Appellee.

Before: AMBRO, ALDISERT, and ROTH, Circuit Judges.

OPINION

AMBRO, Circuit Judge.

Table of Contents
I. Background 242
A. Richard Stadtmauer and the Kushner Companies 242
B. The Other Players 242
C. The Alleged Conspiracy 243
1. The General Ledgers 244
i. Charitable Contributions 244
ii. " Non-Property" Expenses 244
iii. Capital Expenditures 245
iv. Gift and Entertainment Expenses 245
2. KC's Internal Financial Statements 245
3. SSMB's Preparation of the Partnerships' Tax Returns 246
D. Evidence of Stadtmauer's Knowledge 247
1. " Thursday Meetings" 247
2. " Richard Specials" and Other Special Financial Statements 248
3. Other Circumstantial Evidence of Stadtmauer's Knowledge of Tax Law and Consciousness of Guilt 249
i. Rationale for Private School Tuition Payments 249
ii. The 1996 IRS Audit 250
iii. Dissenting Limited Partners and Executives 250
E. The Verdict and Stadtmauer's Post-Verdict Motions 251
II. Jurisdiction 252
III. Discussion 252
A. Willful Blindness 252
1. Whether the District Court's Willful Blindness Instruction Applied to Stadtmauer's Knowledge of the Law 252
2. Willful Blindness and Cheek 254
3. Whether the District Court's Willful Blindness Instruction Applied to the Element of Specific Intent 258
4. Whether Trial Evidence Warranted the Willful Blindness Instruction 259
B. Lay Opinion Testimony 260
1. Background 260
2. Analysis 262
C. Prosecutorial Misconduct 267
D. Expert Testimony 269
E. Restrictions on Cross-Examination 271

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 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 Page 242 Cheek v. United States, 498 U.S. 192, 111 S.Ct. 604, 112 L.Ed.2d 617 (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. Background1 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 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 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 Page 243 Plotkin was 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 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, 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 Page 244 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 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...

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