U.S. v. Fletcher

• Decision Date: 04 March 1991
• Docket Number: D,No. 1706,1706
• Citation: 928 F.2d 495
• Parties: -5208, 91-1 USTC P 50,137, 32 Fed. R. Evid. Serv. 607 UNITED STATES of America, Appellee, v. Calvert H. FLETCHER, a/k/a "Hugh Fletcher," N. Karene Fletcher, a/k/a "Karene Grimsley," a/k/a "Karene Hagan," a/k/a "Karene (Grimsley) Hagan," a/k/a "Kay Hagan," a/k/a "N.K. (Grimsley) Fletcher," Defendants-Appellants. ockets 90-1081, 90-1082.
• Court: U.S. Court of Appeals — Second Circuit

Page 495

928 F.2d 495

68 A.F.T.R.2d 91-5208, 91-1 USTC P 50,137,

32 Fed. R. Evid. Serv. 607

UNITED STATES of America, Appellee, v. Calvert H. FLETCHER, a/k/a "Hugh Fletcher," N. Karene

Fletcher, a/k/a "Karene Grimsley," a/k/a "Karene Hagan,"

a/k/a "Karene (Grimsley) Hagan," a/k/a "Kay Hagan," a/k/a

"N.K. (Grimsley) Fletcher," Defendants-Appellants.

No. 1706, Dockets 90-1081, 90-1082.

United States Court of Appeals, Second Circuit.

Argued Sept. 14, 1990.

Decided March 4, 1991.

William M. Bloss, Jacobs, Grudberg, Belt & Dow, P.C., New Haven, Conn. (Ira B. Grudberg, of counsel) and Ronald A. Bredemann, Flood, Bredemann & Evans, Park Ridge, Ill. (James J. Ruane, of counsel), for defendants-appellants.

Linda K. Lager, Asst. U.S. Atty., D. Connecticut (Stanley A. Twardy, Jr., U.S. Atty., of counsel), for appellee.

Before PRATT, MAHONEY and WALKER, Circuit Judges.

WALKER, Circuit Judge:

Calvert H. and N. Karene Fletcher appeal from judgments of the United States District Court for the District of Connecticut, T.F. Gilroy Daly, Judge, convicting them of conspiracy to defraud the Internal Revenue Service in violation of 18 U.S.C. Sec. 371. They assert that the statute of limitations expired before they were indicted, that the trial judge erroneously excluded certain expert testimony and that the trial judge erroneously instructed the jury that it might infer their participation in a conspiracy from their conscious avoidance of knowledge of that conspiracy and from Mr. Fletcher's educational background. Because we find these arguments to be without merit, we affirm the judgments of the district court.

BACKGROUND

In late 1979, Calvert H. Fletcher (Fletcher) was director of manufacturing for the Winchester Firearms Division of the Olin Corporation, later the United States Repeating Arms Company (Winchester). Unindicted co-conspirator Robert G. Morrison (Morrison), president and sole owner of Morrison's Security Wholesale, Inc. (MSW), approached Fletcher with a plan to manufacture and market a commemorative rifle. Although Fletcher was concerned that independently marketing the commemorative rifle might create a conflict of interest with his position at Winchester, he agreed to convince Winchester to manufacture the rifle. Fletcher demanded and received a 50% interest in the anticipated rifle profits. To conceal his conflict of interest from Winchester, Fletcher arranged to have his interest in the rifle business represented by an associate, unindicted co-conspirator Gene Quirini, and by his future wife, N. Karene Fletcher (Mrs. Fletcher).

In 1980, Morrison and Quirini, acting on Fletcher's behalf, created a partnership called Commemorative Products, Ltd. (CPL) to market the rifles. The defendants used CPL as part of a two-part plan to defraud the Internal Revenue Service (IRS). First, Morrison, Fletcher, Mrs. Fletcher and Quirini agreed to record any profits of CPL on the books of MSW where they could be offset by MSW's carry-forward losses. Second, they agreed to minimize CPL's taxable profits by distributing numbered lithographic prints of an oil painting together with rifles, and artificially inflating the cost of the prints. The co-conspirators also agreed to transfer certain of the profits from the sale of the At Fletcher's direction, between May and November, 1981, Mrs. Fletcher and Morrison transferred $200,000 of the proceeds from the commemorative firearm undertaking to the Willowdale account in the Bahamas. In November, 1981, Morrison personally withdrew $50,000 from the account and then distributed the funds to himself and Fletcher. In February, 1982, Fletcher, Mrs. Fletcher and Morrison withdrew additional funds from the Willowdale account, and distributed the funds to themselves. At that time, Fletcher led Mrs. Fletcher and Morrison to believe there would be a later distribution of the balance of the hidden funds.

rifles to a preexisting Bahamian bank account controlled by Fletcher in the name of a shell corporation, Willowdale Industries, ostensibly to cover the costs of printing the lithographs. The parties further agreed that they would let the money remain off-shore in the Willowdale Industries account for some time before spending it, and that any spending would be off-shore. Morrison concealed the CPL partnership agreement from his accountant.

In 1982, however, the scheme soon began to unravel due to co-conspirator infighting. During 1980 and early 1981, MSW had collected advance money from gun customers on behalf of CPL and, at Fletcher's direction, Morrison had transferred $253,000 of that money to a Chicago bank. Fletcher's agent Quirini, unbeknownst to Morrison, employed these funds to pay bills, taxes and loans for other non-CPL businesses in which he and the Fletchers were interested. Quirini, using a non-existent taxpayer ID number, also opened a bank account, to which only he and Fletcher had access, where he deposited some of the CPL money.

In 1983, after CPL fell behind in its payments to Winchester and Fletcher's manipulation of CPL funds came to light, Morrison threatened to expose Fletcher's participation to Winchester. In March, 1983, Fletcher bought Morrison's silence by arranging for Winchester to redeem stock owned by Morrison. Fletcher also promised Morrison that he would receive his full share of the commemorative rifle profits. On April 5, 1983, Fletcher made good on this promise by directing Mrs. Fletcher to execute a stock escrow agreement that would turn over certain stock to Morrison effective January 1, 1984. In addition, on April 5, 1983 Fletcher directed Quirini and Mrs. Fletcher to execute a $50,000 promissory note to Morrison. Despite these measures, after the stock redemption in March, 1983, Morrison approached an executive of Winchester and told him about Fletcher's involvement with CPL. On April 5, 1983--the date of Morrison's profit payoff--Morrison, Quirini and Mrs. Fletcher dissolved CPL. Morrison concealed from his accountant the termination of the CPL partnership agreement, as he had its formation, and did not file partnership returns for CPL in 1981 and 1982 as required by law.

At the trial, in which Morrison and Quirini testified for the government, Fletcher and Mrs. Fletcher were each convicted of a single count of conspiracy "to defraud the United States by impeding, impairing, obstructing and defeating the lawful Government functions of the Internal Revenue Service of the Treasury Department in the ascertainment, computation, assessment, and collection of revenue, to wit, income taxes," in violation of 18 U.S.C. Sec. 371. This appeal followed.

DISCUSSION

I. Statute of Limitations

The Fletchers argue that the government had failed to plead and prove that the conspirators committed an overt act within the six-year statute of limitations applicable to tax fraud conspiracies. 26 U.S.C. Sec. 6531(1); see United States v. Ingredient Technology Corp., 698 F.2d 88, 98-99 (2d Cir.), cert. denied, 462 U.S. 1131, 103 S.Ct. 3111, 77 L.Ed.2d 1366 (1983). The limitations period begins to run after the last overt act in furtherance of the main goals of the conspiracy. Grunewald v. United States, 353 U.S. 391, 396-97, 77 S.Ct. 963, 969-70, 1 L.Ed.2d 931 (1957); United States v. Brasco, 516 F.2d 816, 818 (2d Cir.), cert. denied, 423 U.S. 860, 96 S.Ct. 116, 46 L.Ed.2d 88 (1975). Since the indictment was filed on April 4, 1989, the central issue is whether any of the actions taken on April 5, 1983--specifically the partnership dissolution and the execution of the promissory note and escrow agreement in favor of Morrison--furthered the main goals of the conspiracy.

A. Partnership Dissolution

In Grunewald, the Supreme Court explained that

after the central criminal purposes of a conspiracy have been attained, a subsidiary conspiracy to conceal may not be implied from circumstantial evidence showing merely that the conspiracy was kept a secret and that the conspirators took care to cover up their crime in order to escape detection and punishment.... [A] vital distinction must be made between acts of concealment done in furtherance of the main criminal objectives of the conspiracy, and acts of concealment done after the central objectives have been attained, for the purpose only of covering up after the crime.

Grunewald, 353 U.S. at 401-02, 405, 77 S.Ct. at 972, 974. Thus, the life of a conspiracy cannot be extended for statute of limitations purposes by acts of concealment occurring after the conspiracy's criminal objectives have been fully accomplished even if those acts are "done in the context of a mutually understood need for secrecy." Grunewald, 353 U.S. at 402, 77 S.Ct. at 972; see Ingram v. United States, 360 U.S. 672, 679 n. 10, 79 S.Ct. 1314, 1319 n. 10, 3 L.Ed.2d 1503 (1959); Krulewitch v. U.S., 336 U.S. 440, 443-44, 69 S.Ct. 716, 718, 93 L.Ed. 790 (1949). Rather, in determining whether acts are within the statute of limitations period, we look to the scope of the original conspiratorial agreement. See United States v. Sarantos, 455 F.2d 877, 883 (2d Cir.1972).

The government contends that the dissolution of the CPL partnership was an act of concealment that furthered the main goals of the conspiracy. First, it urges that because the IRS had three years from the date of the filing of the Fletchers' 1982 tax return on June 17, 1983 to audit the Fletchers and assess them a deficiency, see 26 U.S.C. Sec. 6501(a), the dissolution was a means of warding off or foiling an audit:

The dissolution agreement is ... an overt act to the extent that any IRS agent looking at that dissolution agreement would still not be able to figure out who the real parties and interests are in this Commemorative Products undertakings, not the consequences of the dissolution.

Second, at oral argument, the government urged that dissolving the partnership relieved CPL of the need to file false or misleading tax returns.

Although the government maintains, based on Morrison's...