U.S. v. Chevalier

• Decision Date: 03 August 1993
• Docket Number: No. 92-1598,92-1598
• Citation: 1 F.3d 581
• Parties: -5644, 93-2 USTC P 50,581, 39 Fed. R. Evid. Serv. 730 UNITED STATES of America, Plaintiff-Appellee, v. Mark A. CHEVALIER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 581

1 F.3d 581

72 A.F.T.R.2d 93-5644, 93-2 USTC P 50,581,

39 Fed. R. Evid. Serv. 730

UNITED STATES of America, Plaintiff-Appellee, v. Mark A. CHEVALIER, Defendant-Appellant.

No. 92-1598.

United States Court of Appeals Seventh Circuit.

Argued Feb. 23, 1993.

Decided Aug. 3, 1993.

Mel Johnson (argued), Stephen J. Liccione, Asst. U.S. Atty., Office of the U.S. Atty., Milwaukee, WI, for plaintiff-appellee.

Marna M. Tess-Mattner, Franklyn M. Gimbel, Kathryn A. Keppel, Raymond M. Dall'Osto (argued), Gimbel, Reilly, Guerin & Brown, Milwaukee, WI, for defendant-appellant.

Before POSNER and MANION, Circuit Judges, and WOOD, Jr., Senior Circuit Judge.

MANION, Circuit Judge.

On June 11, 1991, a federal grand jury returned a superseding indictment against Mark A. Chevalier alleging three counts of tax fraud, 26 U.S.C. Sec. 7206(1), and two counts of making false statements in connection with loan extensions, 18 U.S.C. Sec. 1014. On November 1, 1991, the district court granted Chevalier's motion to sever the tax and bank fraud counts. At the close of trial, the jury convicted Chevalier of the three tax fraud counts. He later pleaded guilty to one count of bank fraud, and by agreement the other count was dismissed. On appeal he challenges the scope of the government's cross-examination after he took the witness stand at the tax trial and the district court's computation of his sentence for bank fraud. We affirm Chevalier's conviction, but vacate his sentence and remand to the district court for resentencing.

I. Background

A. Tax Fraud.

Chevalier operated a business in Wisconsin that sold heavy construction equipment. This began as an adjunct operation with his father's automobile dealership, and by 1982 Chevalier was on his own. Gross receipts and sales totaled between one and two million dollars. He alone kept the books and records of his business, and he filed the necessary income tax forms. What started out as a profitable business, however, eventually evolved into desparate schemes to stay afloat.

Beginning with his 1984 tax return, Chevalier underreported his gross receipts and sales by $279,000; in 1985, $83,000; in 1986, $23,000. For example, from 1984 to 1986 Chevalier failed to report the sales of parts and tires, and only portions of customer trade-ins. Although he collected sales tax from customers, Wisconsin never received the money. This led to Chevalier's indictment on three counts of tax fraud, 26 U.S.C. Sec. 7206(1).

B. Bank Fraud.

Stephenson National Bank financed a significant amount of the operation. It was a simple security arrangement. Chevalier would borrow money and pledge his inventory as collateral. However, Chevalier lied to the bank on several occasions in order to obtain loan renewals. On August 30, 1988 Chevalier had borrowed $100,000 to finance the purchases of three pieces of construction equipment. He sold that equipment on September 30, 1988, but the loan was not paid off. During the bank's on-site inventory inspections, Chevalier would point out various pieces of other equipment on the lot that matched the description of the pledged inventory; however, the bank employee did not check serial numbers. If similar equipment was not in the yard, Chevalier would tell the bank employee that the equipment was being repaired. On February 27, 1989 Chevalier renewed the note for $65,000, again pledging the previously sold equipment as collateral. He likewise renewed the note again in May, August and November. In the end, the bank wrote off the $65,000 loss. This led to Chevalier's indictment on Counts four and five of making false statements in connection with loan extensions, 18 U.S.C. Sec. 1014.

The district court severed the tax and bank fraud counts, trying the tax fraud counts first. The jury convicted Chevalier as charged. He thereafter pleaded guilty to the bank fraud as alleged in Count four; Count five was dismissed as part of the plea agreement. ¹

II. Cross-examination

At trial on the tax fraud, Chevalier admitted that he filed false tax returns subject to the penalties of perjury. Tax fraud, however, requires an element of intent. The sole issue for the jury was whether Chevalier willfully signed the tax returns believing that they were not correct. Chevalier took the stand as his only defense witness. During cross-examination the district court allowed the government to question Chevalier about the facts surrounding the alleged bank fraud counts, which had been severed for a later trial.

Chevalier vigorously objected, arguing that the bank fraud counts were irrelevant to the government's proof of tax fraud, and that the bank fraud counts involved alleged conduct that occurred three years after the end of the 1986 tax year. In Chevalier's view the government was attempting to convince the jury that if Chevalier lied to the bank in 1989, he probably lied to the Internal Revenue Service ("IRS") from 1984 to 1986. In support of this argument, Chevalier relied on Fed.R.Evid. 404(b):

Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident,....

The government on the other hand relied on Fed.R.Evid. 608(b):

Specific instances of the conduct of a witness, for the purpose of attacking or supporting the witness' credibility, ... may not be proved by extrinsic evidence. They may, however, in the discretion of the court, if probative of truthfulness or untruthfulness, be inquired into on cross-examination of the witness (1) concerning the witness' character for truthfulness or untruthfulness,....

We review the introduction of such evidence under the abuse of discretion standard. United States v. Wilson, 985 F.2d 348, 351 (7th Cir.1993).

The question at the tax trial was whether Chevalier lied to the IRS on his 1984-1986 tax returns. Granted, if Chevalier had not taken the witness stand, the government could not have introduced evidence of the alleged bank fraud without facing Rule 404(b). The government could not have attempted to show that because Chevalier committed bank fraud, he likely would have committed tax fraud as well. But by electing to testify, Chevalier placed his credibility in issue. United States v. Covelli, 738 F.2d 847, 856 (7th Cir.), cert. denied, 469 U.S. 867, 105 S.Ct. 211, 83 L.Ed.2d 141 (1984). Thus, the government could introduce evidence relevant to whether Chevalier was testifying truthfully, pursuant to Rule 404(b) (evidence of other crimes admissible for other purposes) and Rule 608(b)(1) (if probative of truthfulness). Wilson, 985 F.2d at 351-52 (bribery, perjury and the defendant's failure to file income tax returns are acts of dishonesty within the scope of cross-examination under Rule 608(b)); United States v. Fulk, 816 F.2d 1202, 1206 (7th Cir.1987) (under Rule 608(b) the court should have allowed the government to impeach the defendant regarding whether his chiropractor's license had been suspended for deceptive practices); United States v. Howard, 774 F.2d 838, 844-45 (7th Cir.1985) (Rule 608(b) allowed the government to question the defendant as to whether he had lied on employment applications).

Chevalier does not deny that submitting false statements to obtain loan extensions constitutes specific instances of conduct probative of truthfulness. He also admits that a defendant who takes the stand may be impeached with prior instances of misconduct, citing Covelli, 738 F.2d at 856, and a plethora of cases from other circuits. United States v. Sperling, 726 F.2d 69 (2d Cir.), cert. denied, 467 U.S. 1243, 104 S.Ct. 3516, 82 L.Ed.2d 824 (1984); United States v. Mansaw, 714 F.2d 785 (8th Cir.), cert. denied, 464 U.S. 964, 104 S.Ct. 403, 78 L.Ed.2d 343 (1983); United States v. Cole, 617 F.2d 151 (5th Cir.1980), cert. denied, 452 U.S. 918, 101 S.Ct. 3055, 69 L.Ed.2d 422 (1981); and United States v. Reid, 634 F.2d 469 (9th Cir.1980). Yet he insists that the rule allowing impeachment with prior instances of misconduct does not allow evidence of bank fraud that occurred after the tax fraud. We reject such syllogism. Rule 608(b) allows specific instances of misconduct prior to Chevalier taking the witness stand, not prior to the crime in which he is charged. See McCormick on Evidence, p. 102 (3d ed. 1984). Thus, the government's cross-examination was proper. ² Chevalier's convictions for tax fraud are AFFIRMED.

III. Sentencing

The court sentenced Chevalier to concurrent sentences of twelve months on the three tax fraud counts, which were not under the sentencing guidelines. He does not appeal this decision. As to his conviction for bank fraud pursuant to the guilty plea, the court ordered a presentence report and thereafter sentenced him to twelve months and one day under the sentencing guidelines. Chevalier appeals the court's upward adjustment of his base offense level because of the amount involved in the bank fraud. He also appeals the court's refusal to adjust downward because of his acceptance of responsibility. We address each in turn.

A. Amount of Fraud.

On August 30, 1988 Chevalier had borrowed $100,000 to finance the purchases of three pieces of construction equipment. That equipment was sold on September 30, 1988. In the next six months, Chevalier had paid off approximately $35,000 of principal. Thus, on February 27, 1989 he renewed the note for $65,000, again pledging the previously sold equipment as collateral. This note was renewed for the same amount in May, August and November of 1989. In March, 1990, the bank consolidated a number (but not all) of Chevalier's loans, including the $65,000 note that formed the basis of the bank fraud count. After the loan consolidation no separate records were kept on the $65,000 note. The consolidated loan amount totalled $1,065,966,...