U.S. v. Rothrock, 86-1016

Decision Date04 December 1986
Docket NumberNo. 86-1016,86-1016
Citation806 F.2d 318
Parties-6294, 87-1 USTC P 9111 UNITED STATES of America, Appellant, v. Albert H. ROTHROCK and Vivian S. Rothrock, Defendants, Appellees.
CourtU.S. Court of Appeals — First Circuit

Donald W. Searles, Tax Div., Dept. of Justice, with whom Michael L. Paup and Robert E. Lindsay, Tax Div., Dept. of Justice, Roger M. Olsen, Acting Asst. Atty. Gen., Washington, D.C., and Richard S. Cohen, U.S. Atty., Augusta, Me., were on brief, for appellant.

Peter J. Detroy, III with whom Norman & Hanson, Portland, Me., and Robert J. Foley, Sanford, Me., were on brief, for defendants, appellees.

Before CAMPBELL, Chief Judge, WISDOM, * Senior Circuit Judge, and COFFIN, Circuit Judge.

LEVIN H. CAMPBELL, Chief Judge.

This is an appeal by the United States from the district court's granting of a judgment of acquittal (and, alternatively, a new trial) after appellees were convicted by a jury on four counts of tax evasion under 26 U.S.C. Sec. 7201 (1982). The district court stated its reasons for overturning the verdict in a comprehensive opinion.

Albert and Vivian Rothrock were indicted for willfully attempting to evade their joint income tax for the tax years 1979-1982. At a jury trial, the government showed that during the four years in question the Rothrocks did not report over $180,000 of taxable income 1 and underpaid their federal tax obligation by nearly $90,000. 2

The Rothrocks did not challenge the government's figures but defended on the ground the underreporting of income had been unintentional. They introduced evidence tending to show that Albert Rothrock, a physician specializing in proctology, was disorganized, had little talent for or interest in business-related matters, and had a reputation for honesty.

This evidence framed the primary issue at trial, whether the reporting errors resulted from a willful scheme or from the Rothrocks' misplaced reliance on an incompetent tax preparer. The Rothrocks contend that the doctor's dislike of finances caused them historically to delegate the preparation of taxes to another person. According to the Rothrocks, this delegation of responsibility was complete; they would simply sign the forms as presented by the tax preparer without even a cursory review of their accuracy. The Rothrocks thus insist that their underpayment of income tax was unintentional and not actionable under the criminal tax laws, which require a showing that the Rothrocks signed the returns knowing them to be false. United States v. Pomponio, 429 U.S. 10, 97 S.Ct. 22, 50 L.Ed.2d 12 (1976).

Warren Arthur, who prepared the Rothrocks' returns for the years in question, was the government's primary witness. An insurance salesman, Arthur originally met Dr. Rothrock in 1971 or 1972 when he convinced the doctor to purchase disability insurance. The business and social relationship between the two men blossomed over time. Ultimately, for either the tax year 1976 or 1977, Dr. Rothrock requested Arthur's assistance in preparing his tax forms. The doctor, according to Arthur, seemed unconcerned that he had no training or particular competence in accounting or tax skills. 3

In computing the Rothrocks' income, Arthur testified to having relied primarily on the doctor's receipts from medical insurance companies, as reported on Forms 1099. When asked why he did not search for direct patient payments or interest and investment income, which combined accounted for the bulk of the Rothrocks' unreported income, Arthur responded that he felt such a search was unnecessary. He testified that the doctor asserted that his and his wife's only source of income was from insurance companies; in those years where other income was reported, the doctor or his wife had specifically mentioned the existence of that income. Indeed, Arthur claimed that he would not make a "single entry without Dr. Rothrock telling ... me what that entry should be." Arthur also stated that when he completed the Rothrocks' taxes, he and the doctor would review the form line by line.

On cross-examination, defendants brought out significant inconsistencies in Arthur's testimony. 4 Nevertheless, the jury returned verdicts of guilty against defendants on all four counts of the indictment. Shortly thereafter, the Rothrocks moved for a judgment of acquittal notwithstanding the verdict and, in the alternative, a new trial. On December 13, 1985, the district court granted both motions. The government filed a timely notice of appeal and now challenges the court's decision to upset the jury's verdict.

I. JUDGMENT OF ACQUITTAL

In giving its reasons for allowing a judgment of acquittal, the district court recognized that its power to set aside a jury verdict was very circumscribed. It acknowledged that it was duty-bound to construe the evidence, together with all legitimate inferences to be drawn therefrom, in the light most favorable to the government. United States v. Lamare, 711 F.2d 3, 5 (1st Cir.1985); United States v. Smith, 680 F.2d 255, 259 (1st Cir.1982), cert. denied, 459 U.S. 1110, 103 S.Ct. 738, 74 L.Ed.2d 960 (1983). The court also properly acknowledged that it may not assess the credibility of a witness in determining the sufficiency of the government's evidence. Burks v. United States, 437 U.S. 1, 16, 98 S.Ct. 2141, 2149-50, 57 L.Ed.2d 1 (1978). So long as the evidence was such that a rational mind might fairly find guilt beyond a reasonable doubt, the court could not disturb the jury's verdict. See Jackson v. Virginia, 443 U.S. 307, 318-19, 99 S.Ct. 2781, 2788-89, 61 L.Ed.2d 560 (1979).

Nonetheless, the court here directed a verdict, resting its analysis in no small part on its low assessment of Arthur's credibility, concluding that his testimony was so "internally inconsistent and contrary to his testimony before the Grand Jury that we think he is thoroughly discredited." The court thought no "rational trier of fact could conclude beyond a reasonable doubt that Rothrock told Arthur not to report as income such things as fees received from patients, proceeds from the sale of real estate, or interest income." The court went on to weigh the government's remaining evidence of willfulness 5 against the defense's evidence of Dr. Rothrock's aversion to paperwork and his reputation for honesty. It concluded that the state of the record did not allow a rational finding of guilt beyond a reasonable doubt.

We think the district court underestimated the extent to which Arthur's testimony, together with the government's other evidence, was sufficient to support a rational finding of guilt beyond a reasonable doubt. Arthur's inconsistencies, brought out in cross-examination, could have been thought by the jury to reflect Arthur's desire to shield himself from criticism (and possibly prosecution) for not having prepared an honest and competent return. The same jury might still have believed, however, that the Rothrocks told Arthur, as he testified, what income to report, and that Arthur went over the returns with the Rothrocks after making them out. A jury is entitled to believe some part of a witness's testimony and not another. See, e.g., United States v. Cueto, 628 F.2d 1273, 1275 (10th Cir.1980). The government's other evidence could be thought by the jury to support Arthur's testimony that, with a few exceptions, the only reportable income mentioned to him as such by the Rothrocks was the medical insurance income. There was evidence that in conversations with an IRS agent, Dr. Rothrock denied having any direct patient income, and that both Rothrocks, in other conversations with an agent, denied having income from non-medical sources. As in fact Dr. Rothrock had significant direct patient income, and as there was evidence that he was personally involved in mortgage transactions that had resulted in interest income, a rational jury could have concluded that the Rothrocks were consciously untruthful in denying the existence of these other types of income, and that in failing to report them they had not relied entirely on the tax preparer. Dr. Rothrock was a law school graduate, had engaged in numerous real estate transactions, had mentioned his interest income in loan applications, and could be viewed as a sophisticated businessman. The district court erroneously seems to have believed that the government's case had to stand or fall on whether there was direct proof that the Rothrocks had specifically ordered the preparer to prepare fraudulent returns. In fact, the question was not whether the preparer was ordered to falsify but whether the Rothrocks knew, when they signed the returns, that the returns understated their income. We think there was evidence here from which a rational jury could infer beyond a reasonable doubt that the Rothrocks were aware that the returns were false when they signed them. Accordingly, we reverse the district court's decision to grant the judgment of acquittal.

II. NEW TRIAL ORDER

It is a harder question whether to sustain the district court's ordering of a new trial, based on its conclusions that the verdict was against the weight of the evidence and would result in "a miscarriage of justice." A district court has greater power to order a new trial than to overturn a jury's verdict through a judgment of acquittal. As stated in United States v. Wright, 625 F.2d 1017, 1019 (1st Cir.1980), "[m]otions for a new trial are directed to the discretion of the trial court. In considering such a motion, the court has broad power to weigh the evidence and assess the credibility of ... the witnesses who testified at trial...." See also United States v. Indelicato, 611 F.2d 376, 387 (1st Cir.1979) (district judge may weigh the evidence and evaluate the credibility of witnesses). We will not disturb the disposition of a new trial motion unless the court abused its discretion or misapplied the law. United States v. Rodriguez, 738 F.2d 13, 17...

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