U.S. v. Chavin, 01-2302.

• Decision Date: 13 December 2002
• Docket Number: No. 01-3414.,No. 01-2302.,01-2302.,01-3414.
• Citation: 316 F.3d 666
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Leonard CHAVIN and Martin Litwin, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

316 F.3d 666

UNITED STATES of America, Plaintiff-Appellee, v. Leonard CHAVIN and Martin Litwin, Defendants-Appellants.

No. 01-2302.

No. 01-3414.

United States Court of Appeals, Seventh Circuit.

Argued September 9, 2002.

Decided December 13, 2002.

COPYRIGHT MATERIAL OMITTED

David E. Bindi (argued), Office of U.S. Attorney, Chicago, IL, for Plaintiff-Appellee.

Elliott T. Price (argued), Northbrook, IL, for Defendant-Appellant.

Before EASTERBROOK, KANNE, and EVANS, Circuit Judges.

KANNE, Circuit Judge.

On July 22, 1998, this court affirmed the district court's decision to deny Leonard Chavin a discharge in bankruptcy. In re Chavin, 150 F.3d 726, 729 (7th Cir.1998). In our opinion, we noted an appearance of deliberate fraud in Chavin's bankruptcy filings. Accordingly, we referred the case to the Department of Justice for further investigation. Id. Eventually, a grand jury returned a fifteen-count superseding indictment charging Chavin and his attorney, Martin Litwin, with tax and bankruptcy fraud. Following a lengthy trial, a jury found them guilty on eleven of the fifteen counts, and the district court sentenced Chavin to 37 months in prison and Litwin to 33 months in prison. On appeal, they raise multiple issues, including various claims related to the district court's application of the federal sentencing guidelines. We reject all of Chavin's and Litwin's arguments and affirm the district court's disposition.

I. History

A. Tax Fraud

Leonard Chavin, a businessman and investor, owned a block of commercial real estate on South Halsted in Chicago ("the Halsted property"). He also controlled a corporation known as SCV Corporation ("SCV"), which held as its only asset a clothing store that did business under the name of Howard's Style Shop ("HSS").¹ The business struggled, and over a period of years Chavin personally lent SCV in excess of $900,000. In 1992, Chavin sold part of the Halsted property for $975,000, generating a substantial capital gain and greatly increasing his tax burden.² Chavin and his attorney, Litwin, devised a plan to offset the Halsted-property gain with the SCV-debt loss.

They discovered that the tax code allows an individual to take a deduction for worthless, unrecoverable debts, known as a "bad debt loss." 26 U.S.C. § 166(d) (2002). The only problem was that they had to somehow make the SCV debt worthless to Chavin. They did so by manufacturing a sham sale of SCV's only asset, the HSS clothing store, to Litwin's cousin, Michael Glickman. Glickman paid nothing out of his own pocket for HSS. He was told that the sale was nothing more than a "paper transaction"—meaning he would have no connection with the clothing store except that on paper he would be listed as the owner. Following the "sale," Chavin continued to control HSS and nothing about the business changed. And because SCV no longer had any assets of record, Chavin could claim that the debt SCV owed him was entirely worthless and thereby claim it as a bad debt loss. On his 1992 tax return, Chavin reported a capital gain from the sale of the Halsted property of $328,000. Against this, Chavin deducted $900,000 as a bad debt loss based on the SCV debt. In 1992, Chavin could only take the loss to the extent that it offset the capital gain from the Halsted-property sale plus $3000—in total $331,000; thus, he carried over the remaining portions of the loss on his returns for subsequent years.

After being alerted to possible fraud in Chavin's financial dealings, the government investigated and a federal grand jury returned a fifteen-count superseding indictment. The first six counts of the indictment related to the tax dealings just described. Count 1 charged Chavin and Litwin with conspiring to defraud the Internal Revenue Service ("IRS") through the creation of a fraudulent $900,000 bad debt loss in violation of 18 U.S.C. § 371. Count 2 charged Chavin with violating 26 U.S.C. § 7206(1) by making false statements on his 1992 tax return, in that he understated the sale price of the Halsted property and in that he claimed a $900,000 bad debt loss to which he knew he was not entitled. Counts 3 and 5 charged Chavin with making false statements on his 1993 and 1994 tax returns, respectively, in that he reported a false carryover loss from his 1992 return in violation of 26 U.S.C. § 7206(1). Similarly, Counts 4 and 6 charged Litwin with violating 26 U.S.C. § 7206(2) for aiding and assisting Chavin in the preparation and presentation of his 1993 and 1994 fraudulent tax returns. Following a trial, the jury convicted Chavin and Litwin on all of these tax counts.

B. Bankruptcy Fraud

The remaining charges in the superseding indictment, Counts 7 through 15, related to a bankruptcy fraud that developed when Chavin's creditors forced him into bankruptcy on December 30, 1994. As part of the bankruptcy proceeding, Chavin was required to file schedules disclosing all of his assets, income, and expenses. On the schedules he filed, he failed to disclose certain assets and income, including the interest he had in HSS. Also, as part of the bankruptcy proceeding, Glickman was deposed about his purported ownership of HSS. Litwin counseled Glickman on his responses so as to make it appear that Glickman owned HSS and that Chavin had no interest in the company.

The relevant portion of Count 7 charged Litwin with violating 18 U.S.C. § 1623 for aiding Glickman to commit perjury in the bankruptcy proceedings.³ Litwin was found guilty on this count. Counts 8 through 13 charged Chavin with concealing various assets from the bankruptcy trustee and his creditors in violation of 18 U.S.C. § 152(1). Of these counts, the jury convicted Chavin on Counts 10 and 11, which both related to life insurance polices. Chavin was convicted on Count 14, which charged him with failing to disclose assets on his bankruptcy filings in violation of 18 U.S.C. § 152(3). Finally, the jury convicted Chavin on Count 15, which charged him with converting an asset in bankruptcy in violation of 18 U.S.C. § 152(7).

C. The Sentencing and Appeal

Following a sentencing hearing, the district court determined that the appropriate sentencing level under the U.S. Sentencing Guidelines was 19 for both defendants, which corresponds to a sentencing range between 30 and 37 months. The district court sentenced Chavin to 37 months imprisonment and fined him $10,000 and sentenced Litwin to 33 months imprisonment and fined him $50,000.

II. Analysis

A. Trial Issues

1. Theory-of-Defense Jury Instruction

Chavin and Litwin argued as part of their defense to the tax-fraud charges that they relied in good faith on the advice of Chavin's accountant Kessler and therefore did not "willfully" perpetrate the tax fraud. Defendants tendered a theory-of-defense jury instruction that covered this point. The district court, however, refused to give the instruction to the jury, stating that the theory of defense was sufficiently covered by other instructions; specifically, by the pattern instruction on good faith and a further instruction that made clear that defendants must have acted "willfully" within the precise definition of that term.

We review a district court's refusal to give a theory-of-defense instruction de novo. United States v. Meyer, 157 F.3d 1067, 1074 (7th Cir.1998). To be entitled to a theory of defense instruction, a defendant must satisfy a four-part test by showing (1) that the proposed instruction is a correct statement of law; (2) that the evidence in the case supports the theory of defense; (3) that the theory of defense is not already part of the charge; and (4) that failure to include the proposed instruction would deny the defendant a fair trial. Id.

Here, defendants have, at the very least, failed to satisfy the third element. We have recognized in prior tax-evasion cases that a "`good faith reliance' defense is essentially a claim that the [defendant] did not act `willfully.'" United States v. Brimberry, 961 F.2d 1286, 1291 (7th Cir. 1992). Consequently, when, as here, instructions are given that require the jury to find that a defendant acted "willfully" and those instructions define "willfulness" and "good faith" as mutually exclusive, then a further "good faith reliance" theory-of-defense instruction would be unnecessarily redundant. Id.; United States v. Kelley, 864 F.2d 569, 573 (7th Cir.1989). Therefore, we find that the instructions given by the district court adequately covered the defendants' theory of defense.

2. Jury Instruction on Chavin's Signing of His Tax Return

Chavin further argues on appeal that the instruction the district court gave about the effect of his signature on his 1992 tax return could likely have led the jury to believe that his signature alone overrode his "reliance on a tax professional" defense. Chavin offered an alternative instruction based on language from United States v. White, 879 F.2d 1509, 1511 (7th Cir.1989). Ultimately, the district court rejected this instruction and instead used an instruction based on other language from the White opinion—language that was later cited with approval in United States v. Ellis, 50 F.3d 419, 425 (7th Cir. 1995). Both instructions were accurate statements of the law and did not substantially differ from one another. In this situation, we review a district court's decision on the precise wording of the instruction for abuse of discretion. Riemer v. Ill. Dep't of Transp., 148 F.3d 800, 804 (7th Cir.1998). The instruction given plainly stated that the determination of whether Chavin acted knowingly should be based on the "totality of the circumstances, including but not limited to the bare fact of the defendant's signature on various documents." (Tr. 2787) (emphasis added). We find that it was not an abuse of discretion for the district court to conclude that this language would not mislead the jury into thinking that Chavin's signature alone defeated his "reliance on a tax professional" defense.

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