821 F.2d 1456 (10th Cir. 1987), 83-1363-1369, United States v. Kilpatrick

Docket Nº:83-1363-1369, 84-2481-2487.
Citation:821 F.2d 1456
Party Name:UNITED STATES of America, Plaintiff-Appellant, v. William A. KILPATRICK, Declan J. O'Donnell, Sheila C. Lerner, the Bank of Nova Scotia, Michael Alberga, C.S. Gill, and C.M. Smith, Defendants-Appellees.
Case Date:June 18, 1987
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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Page 1456

821 F.2d 1456 (10th Cir. 1987)

UNITED STATES of America, Plaintiff-Appellant,

v.

William A. KILPATRICK, Declan J. O'Donnell, Sheila C.

Lerner, the Bank of Nova Scotia, Michael Alberga,

C.S. Gill, and C.M. Smith, Defendants-Appellees.

Nos. 83-1363-1369, 84-2481-2487.

United States Court of Appeals, Tenth Circuit

June 18, 1987

Rehearing Denied Aug. 19, 1987.

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Robert E. Lindsay, Tax Div., Dept. of Justice, Washington, D.C. (Glenn L. Archer, Jr., Asst. Atty. Gen., Robert M. Olsen, Acting Asst. Atty. Gen., Michael L. Paup, Alan Hechtkopf and James P. Springer, Tax Div., Dept. of Justice, Washington, D.C., and Robert N. Miller, U.S. Atty., Denver, Colo., were also on the brief) for plaintiff-appellant.

James E. Nesland, Ireland, Stapleton, Pryor & Pascoe, Denver, Colo., for all defendants-appellees (Theodore H. Merriam, Richard K. Rufner and Wagner & Waller, P.C., Englewood, Colo., and William C. Waller, Jr. and Denis H. Mark, Waller, Mark & Allen, P.C., Denver, Colo., were on the brief for defendant-appellee William A. Kilpatrick).

Robert G. Morvillo, Obermaier, Morvillo & Abramowitz, New York City (Robert J. Anello, was on the brief) for defendant-appellee The Bank of Nova Scotia.

Robert D. Grossman, Jr., Grossman and Flask, Washington, D.C. (James L. Treece, Treece, Bahr & Arkey, Littleton, Colo., was on the brief), for defendant-appellee Declan J. O'Donnell.

Sheila C. Lerner, pro se.

Donald E. Van Koughnet, Naples, Fla., for defendants-appellees Michael L. Alberga and Casey S. Gill.

Before HOLLOWAY, Chief Judge, SEYMOUR, Circuit Judge, and BOHANON, District Judge [*].

HOLLOWAY, Chief Judge.

After a twenty month investigation conducted before two grand juries, this case began with the return of a twenty-seven count indictment charging all defendants-appellants with conspiracy, and charging several of the defendants additionally with mail fraud and/or tax fraud. 1 Defendant

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Kilpatrick was charged in Count XXVII with obstruction of justice.

Initially the district court dismissed the first twenty-six counts of the indictment as improperly pleaded and for failure to charge a crime by failing to allege a lack of economic substance in the underlying transactions. United States v. Kilpatrick, 594 F.Supp. 1324, 1327 (D.Colo.1984). Following a separate motion by the Bank of Nova Scotia (Bank), the district court dismissed the counts in which the Bank was named for failure to allege the requisite knowledge and intent by the Bank to commit the crimes charged. Id. The Government appealed all these dismissals in Nos. 83-1363 through 83-1369.

Before argument here, as requested we partially remanded the case to the district court to determine whether misconduct on the part of Government attorneys in connection with the grand jury investigation and presentation constituted additional grounds for dismissal. Following the partial remand, Judge Winner issued an opinion which, among other things, summarized the status of the cases which were reassigned to Judge Kane, granted a new trial on the obstruction of justice count against Kilpatrick, and ordered disclosure of the grand jury transcript. See United States v. Kilpatrick, 575 F.Supp. 325 (D.Colo.1983).

After ten days of hearings Judge Kane dismissed all twenty-seven counts of the indictment because of prosecutorial misconduct 2. The Government also appealed these dismissals in Nos. 84-2481 through 84-2487. With the latter appeals we consolidated Nos. 83-1363 through 83-1369, discussed above. In this opinion we dispose of the issues raised in appeals Nos. 83-1363 through 83-1369 and Nos. 84-2481 through 84-2487. Our separate opinion to follow will address the issues raised in No. 83-2284, the Government's appeal from the order for a new trial for Kilpatrick challenging adverse publicity concerning Government counsel, and No. 84-1231, a mandamus proceeding also complaining of adverse publicity concerning Government counsel.

We conclude that we must reverse the dismissals by the district court and order reinstatement of all counts of the indictment.

I

Sufficiency of the indictment

A

The Government appeals the order dismissing the first twenty-six counts of the twenty-seven count indictment, Nos. 83-1363 through 83-1369. (I R. 274). The indictment was based on two alleged fraudulent investment enterprises sold to investor-taxpayers in the United States. The district court dismissed the first twenty-six counts because of their failure to allege the lack of economic substance in the transactions underlying the tax shelter program, and because of the court's concern that the defendants would not be able to plead a conviction or acquittal as a bar to subsequent prosecution. (IV R. 3-4). Furthermore, the ten counts naming the Bank were dismissed as to the Bank on the additional ground that the indictment failed to allege that the Bank or its representatives had the requisite knowledge or intent to commit the crimes charged. (IV R. 7-11).

Count I, which related to the structured coal programs in the United States, charged five of the individual defendants and the Bank with "unlawfully, willfully, and knowingly conspir[ing] ... to defraud the United States of America by impeding, impairing, obstructing and defeating the lawful functions of the Internal Revenue Service of the Treasury Department in the ascertainment, computation, assessment and collection of the revenue through false and fictitious claims of deductions for advance royalty 'payments' ..." in violation

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of 18 U.S.C. Sec. 371. (I R. 1-2). The crux of the conspiracy charged in Count I was the creation in mineral leases of false tax deductions for nonexistant advance royalty payments for investor-taxpayers. The charging paragraph of Count I is followed by an extensive listing of "Means And Methods" and sixty-four overt acts.

Count II, which concerned the funding of the research and development of methanol conversion processes, charged five of the individual defendants with a conspiracy similar to the conspiracy alleged in Count I in violation of 18 U.S.C. Sec. 371. The crux of the conspiracy charged in Count II was the creation of false tax deductions on nonexistant research and development payments resulting from investments in limited partnerships formed to fund research and development of methanol conversion processes.

Counts III through X charged various defendants under 26 U.S.C. Sec. 7206(2) with aiding and assisting in the preparation and presentation of false partnership and individual tax returns because of representations made to various taxpayers that the taxpayers were entitled to claim deductions for royalty payments (Counts III through VI), or research and development payments (Counts VII through X), when no such deductions were allegedly permissible. Counts XI and XII charged defendants Kilpatrick and O'Donnell with willfully making and subscribing false individual tax returns in violation of 26 U.S.C. Sec. 7206(1). Counts XIII through XXVI charged various defendants with substantive mail fraud violations under 18 U.S.C. Sec. 1341, based on their alleged defrauding of investors in connection with the programs alleged in Counts I and II.

After extensive briefing and hearings, the district court dismissed Counts I and II. First, the court dismissed the two counts for failure to allege lack of economic substance of the underlying enterprises. Such justification must necessarily rest on the view that such lack of economic substance is an essential element of a Sec. 371 crime in these circumstances. Second, the court dismissed the two counts because of its concern that the defendants would not be able to plead a bar to any subsequent prosecution. The parties stipulated that the programs which formed the basis of Counts I and II also served as the foundation of the fraud alleged in Counts III through XXVI. (I R. 274-75). The court thus dismissed those counts. (Id.) Moreover, the court dismissed as to the Bank, finding that knowledge and intent on the Bank's part was not sufficiently alleged.

B

An indictment is sufficient if it (1) contains the essential elements of the offense intended to be charged, (2) sufficiently apprises the accused of what he must be prepared to defend against, and (3) enables the accused to plead a judgment under the indictment as a bar to any subsequent prosecution for the same offense. Russell v. United States, 369 U.S. 749, 763-64, 82 S.Ct. 1038, 1046-47, 8 L.Ed.2d 240 (1962); see also United States v. Salazar, 720 F.2d 1482, 1486 (10th Cir.1983), cert. denied, 469 U.S. 1110, 105 S.Ct. 789, 83 L.Ed.2d 783 (1985).

The test is not whether the indictment could have been made more definite and certain. Rather, before a conviction, the indictment standing alone must contain the elements of the offense intended to be charged and must be sufficient to apprise the accused of the nature of the offense so that he may adequately prepare a defense. And, after a conviction, the entire record of the case must be sufficient so as to enable the accused to subsequently avail himself of the plea of former jeopardy if the need to do so should ever arise.

Clay v. United States, 326 F.2d 196, 198 (10th Cir.1963), cert. denied, 377 U.S. 1000, 84 S.Ct. 1930, 12 L.Ed.2d 1050 (1964) (footnote omitted); see also 1 C. Wright, Federal Practice and Procedure Sec. 125, at 364-65 (2d ed. 1982).

We hold that the indictment is sufficiently precise to meet the requirements of the Constitution and Rule 7(c) of the Federal

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Rules of Criminal Procedure. 3 We agree with the district court that the basis of Counts I and II also served as the foundation of the fraud alleged in Counts III through XXVI. Consideration of the first two counts alone was urged in the briefs submitted. Therefore, we direct our...

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