U.S. v. Cunningham

Decision Date28 November 1983
Docket Number27,Nos. 25,26,D,s. 25
Citation723 F.2d 217
Parties83-2 USTC P 9730, 14 Fed. R. Evid. Serv. 1297 UNITED STATES of America, Appellee-Cross-Appellant, v. Patrick J. CUNNINGHAM, Defendant-Appellant-Cross-Appellee, and John J. Sweeney, Defendant-Appellant. ockets 83-1046, 83-1052, 82-1402.
CourtU.S. Court of Appeals — Second Circuit

Michael E. Tigar, Washington, D.C. (Samuel J. Buffone, John J. Privitera, Tigar & Buffone, Washington, D.C., of counsel), for defendant-appellant-cross-appellee Cunningham.

Taylor R. Briggs, New York City (Donald J. Greene, Kim Hoyt Sperduto, Leon E. Roday, LeBoeuf, Lamb, Leiby & MacRae, New York City, of counsel), for defendant-appellant Sweeney.

Gerard E. Lynch, Asst. U.S. Atty., New York City (John S. Martin, Jr., U.S. Atty., S.D.N.Y., New York City, of counsel), for appellee-cross-appellant.

Before MANSFIELD, KEARSE and WINTER, Circuit Judges.

MANSFIELD, Circuit Judge:

Experience teaches that unlawful cover-up offenses are often more heinous than the crime sought to be concealed. This case falls squarely within that maxim. Patrick J. Cunningham and John J. Sweeney appeal from judgments of the Southern District of New York entered by Judge Charles L. Brieant, Jr. after a jury convicted them of offenses related to income tax evasion, obstruction of investigations by the Internal Revenue Service (IRS) and a grand jury, and making false statements to the IRS, the U.S. Attorney, a grand jury and a federal district court. 1 The jury found Cunningham guilty of conspiracy, 18 U.S.C. Sec. 371 (Count 1), tax evasion for the years 1974 and 1975, 26 U.S.C. Sec. 7201 (Counts 2 and 4), filing false returns for 1974 and 1975, 26 U.S.C. Sec. 7206(1) (Counts 3 and 5), inducing John Spain to make false statements to IRS agents, 18 U.S.C. Secs. 1001 and 2 (Counts 6 and 7), making false statements to agents of the IRS and the U.S. Attorney, 18 U.S.C. Sec. 1001 (Count 11), and giving false testimony before a United States district court, 18 U.S.C. Sec. 1623 (Count 13). Sweeney was found guilty of conspiracy, 18 U.S.C. Sec. 371 (Count 1), making false statements in testimony before a federal grand jury on July 10, 1980, and July 17, 1980, 18 U.S.C. Sec. 1623 (Counts 9 and 10), and making false statements to agents of the IRS and the U.S. Attorney, 18 U.S.C. Sec. 1001 (Count 12). 2

Following the trial, Judge Brieant granted Cunningham's motion to set aside the guilty verdicts on Counts 2, 4 and 5 and enter a judgment of acquittal on those counts, from which the government appeals. We affirm the convictions, reverse the district court's order and judgments acquitting Cunningham on Counts 2, 4 and 5, and remand these counts for sentencing and entry of judgments of conviction.

The record, viewed as it must be in the light most favorable to the government, Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942), reveals the following. From 1964 to September 1971 Cunningham and Sweeney, his brother-in-law, practiced law under a loose partnership arrangement in New York City with James F. O'Donoghue. Thereafter until 1978 they ceased to be partners but practiced separately in the same office suite. From September 30, 1978 through September 1981 they resumed law practice together with Marc Krieg in a professional corporation.

In 1974 and 1975, when Cunningham and Sweeney were practicing law separately, Sweeney made a series of payments in an unusual manner to or for the benefit of Cunningham. The payments were made not by checks drawn on Sweeney's regular business checking account but by means of bank checks drawn on an Irving Trust Company escrow savings account into which Sweeney normally deposited funds belonging to his clients (e.g., settlement proceeds, tenants' funds, or payments toward closings). There was no requirement that the bank checks be reported to any authority. Nor were the payments, with one exception, recorded in Cunningham's ordinary personal or business records or bank accounts. In 1974, for instance, Sweeney drew four bank checks totalling $9,436 on the escrow account, one to Cunningham and three to schools attended by his children. In 1975 Cunningham received similar checks totalling $6,062 made out to schools in payment of his children's tuition bills. In addition, Sweeney paid $13,870 in connection with Cunningham's purchase of a new home.

There was evidence from which the jury could reasonably infer that the payments were made from the escrow account rather than from Sweeney's regular business account and not recorded on Cunningham's records in order to conceal the fact that Cunningham, who was at various times Chairman of the Bronx and New York State Democratic Committees and a member of the National Committee of the Democratic Party, was receiving a portion of fees resulting from state court appointments in probate and guardianship matters in which Cunningham did no work. Disclosure of the income or its source would have embarrassed him as a political leader by giving the appearance that the appointments were the result of his exercise of political influence with respect to the appointing judges and would also have required him to pay income taxes on the monies received. 3

Sweeney kept a careful private accounting of these payments through pencilled notations in his own handwriting on his copies of monthly escrow account statements received from Irving Trust Co. The pencilled notations showed that after deduction of certain expenses the amounts paid to or for the benefit of Cunningham represented roughly half of the sums Sweeney received from court-appointed matters. That Sweeney and Cunningham were trying to conceal these payments could further be inferred from Sweeney's efforts to avoid turning over his copies of the escrow account statements to a federal grand jury convened in January 1979 to investigate Cunningham's possible tax evasion. Sweeney initially advised the grand jury on April 5, 1979, that he was not producing the statements because IRS Agent Glenn Ripa had told him that they were not needed and he was later acquitted of the charge (Count 8) that this statement was perjurious. However, after it became clear that his copies of the statements were being subpoenaed he refused to comply. On July 10, 1980, when he appeared before the grand jury for a second time, he expressly refused to turn over the statements, now claiming that they were protected by the attorney-client privilege. After that hearing, when he was ordered to show cause why he should not be held in contempt, Sweeney agreed to produce the statements. Yet when he returned to the grand jury on July 17, he did not do so. The statements finally were turned over by his attorney while Sweeney was out of the country; by that time, the pencilled notations--which were at the heart of the government's case--had been erased. It was only through infrared enhancement that the FBI was able to restore the notations and uncover the secret accounting.

In October 1975 Cunningham filed his federal income tax return for the year 1974, which did not report as income $9,436 received in 1974 from the Sweeney escrow account. If disclosure had been made he would have had to pay an additional $5,057 in taxes over the $37,539 paid. In October 1976, by which time Cunningham knew he was under IRS investigation, Cunningham filed his federal tax return for income received in the year 1975, which reported the $6,062 received in 1975 from the escrow account but did not report the $13,870 received from Sweeney in April 1975. If reported as income the $13,870 would have increased his tax liability by $9,709.

There was additional evidence supporting the jury's verdict that Cunningham, acting in concert with Sweeney, attempted to evade reporting the $9,436 income received from Sweeney in 1974 and at least part of the $13,870 received from Sweeney in 1975. They engaged in conduct designed to obstruct government investigations into the nature and source of these payments and to cover up the evasion. In December, 1975, Cunningham learned that he was under IRS investigation. His 1974 return had been filed and little could be done to alter his failure to report the $9,436 of covert income he received that year from Sweeney. However, Sweeney's Irving Trust escrow account statements made it plain that Cunningham would in 1976 be obligated to report as income payments totalling $19,932 received in 1975 from Sweeney (including the $6,062 paid as tuition for Cunningham's children) as a division of legal fees. Instead of reporting this income and the sources on his federal income tax return for 1975, however, Cunningham decided to report only the $6,062 and to claim that $13,870 represented a non-taxable loan.

With respect to the $13,870, Sweeney corroborated Cunningham's account by advising Cunningham's tax lawyer, Barry London, that $10,000 of this sum represented part of a non-taxable $45,000 "gap" loan needed by Cunningham to purchase a new house, $35,000 of which had been borrowed from the Sterling National Bank, and that the balance of $3,870 constituted the portion of the non-taxable advance from Sweeney that had yet to be repaid. Recognizing that this story could be refuted by his pencilled notations on his copies of the Irving Trust escrow account statements, Sweeney made repeated efforts to avoid turning over his copies of these bank records. As noted above, his pencilled computations showing the actual nature of the payments to Cunningham were erased and his copies were not turned over to the government until he was threatened with contempt.

In the meantime Sweeney testified before the grand jury that he loaned Cunningham nearly $13,900 in 1975 whereas his obliterated notations together with other evidence showed that the payments represented a division of legal fees from 1974-75 court appointments. 4 In 1980 Sweeney also falsely advised the U.S....

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