U.S. v. Defazio, No. 89-1953

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Writing for the CourtBefore CUDAHY and POSNER, Circuit Judges, and FAIRCHILD; FAIRCHILD
Parties-1010, 90-1 USTC P 50,204, 30 Fed. R. Evid. Serv. 190 UNITED STATES of America, Plaintiff-Appellee, v. Louis DEFAZIO, Defendant-Appellant. 1
Decision Date09 April 1990
Docket NumberNo. 89-1953

Page 626

899 F.2d 626
65 A.F.T.R.2d 90-1010, 90-1 USTC P 50,204,
30 Fed. R. Evid. Serv. 190
UNITED STATES of America, Plaintiff-Appellee,
v.
Louis DEFAZIO, Defendant-Appellant. 1
No. 89-1953.
United States Court of Appeals,
Seventh Circuit.
Argued Nov. 27, 1989.
Decided April 9, 1990.

Page 627

Thomas M. Durkin, Asst. U.S. Atty., Collen D. Coughlin, Chicago, Ill., for plaintiff-appellee.

William Hedrick, Skokie, Ill., for defendant-appellant.

Before CUDAHY and POSNER, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

FAIRCHILD, Senior Circuit Judge.

The defendant appeals from his conviction under a multi-count indictment for filing a false income tax return, failing to file tax returns, attempting to evade income taxes, and bankruptcy fraud. The chief question is whether the district court compromised the defendant's sixth amendment right to counsel when it disqualified his chosen lawyer from representing him. The defendant also challenges (1) the exclusion of evidence allegedly bearing on his state of mind, (2) the admission of a communication from his attorney to him, (3) the giving of an "ostrich" instruction to the jury, and (4) his conviction of both tax evasion and failure to file a tax return for the same tax years.

I.

Louis Defazio is a self-employed builder and developer of real estate. The Internal Revenue Service began an audit of Mr. Defazio's income tax liabilities in 1984. Mr. Defazio consulted an accountant, Carol Anderson, for advice about the audit, and Ms. Anderson accompanied Mr. Defazio to two meetings with an IRS agent to discuss Mr. Defazio's businesses and finances. The IRS audit continued through 1985. In the spring of 1986, the IRS referred Mr. Defazio's case to the United States Attorney's office for criminal prosecution. On June 6 of that year, Mr. Defazio filed a petition in bankruptcy under Chapter 11, and in July and August gave sworn testimony in three examinations in his bankruptcy case. The Chapter 11 petition was dismissed on October 7 on the motion of a creditor. In April of 1987, Mr. Defazio

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filed a second bankruptcy petition, this time under Chapter 7. Mr. Defazio gave statements under oath in examinations in this case, also.

A grand jury indicted Mr. Defazio on September 16, 1987. A superseding indictment of eleven counts was filed August 24, 1988. Tax code violations were charged for the tax years 1981 through 1984, along with bankruptcy fraud charges based on Mr. Defazio's testimony at the examinations during two bankruptcy cases. More specifically:

As to tax year 1981, Count One charged Mr. Defazio with filing a return which he did not believe to be true and correct as to every material matter. 26 U.S.C. Sec. 7206(1).

As to tax year 1982, Count Two charged an attempt to evade and defeat income tax by filing a false return and by other false statements and acts of concealment of assets. 26 U.S.C. Sec. 7201.

As to tax year 1983, Count Three charged an attempt to evade and defeat income tax by failing to file a return and by false statements and acts of concealment. Count Four charged willful failure to file a tax return. 26 U.S.C. Sec. 7203.

And for tax year 1984, Count Five similarly charged an attempt to evade and defeat income tax. Count Six charged willful failure to file.

Counts Seven, Eight, and Nine charged false declarations under oath in the 1986 bankruptcy case. Counts Ten and Eleven made similar charges regarding the 1987 case. 18 U.S.C. Sec. 152.

The proof at trial showed the following:

For tax year 1981, Mr. Defazio's joint return had shown an adjusted gross income and taxable income of negative $24,085, and a tax of $0. The government proved he actually had an adjusted gross income of negative $20,247, taxable income (after deductions and exemptions which Mr. Defazio had not taken) of negative $38,628, and a tax of $0. (This is the reason why the government did not charge Mr. Defazio with attempting to evade taxes for that year.) What was significant, though, was that Mr. Defazio's tax return had omitted interest income of $2,546, and gross income from four sources totalling $65,517. Income from these same sources was omitted from Mr. Defazio's 1982 return as well, and some of the false statements Mr. Defazio made in the bankruptcy cases tended to conceal his interest in these sources.

For tax year 1982, Mr. Defazio's joint return had shown an adjusted gross income of $1,050, taxable income of negative $949 and a tax of $0. The government proved he actually had an adjusted gross income of $94,229, taxable income of $75,369, and a tax of $25,236. Interest received but omitted was $29,248. The 1982 gross income from the other sources omitted from the 1981 and 1982 returns was $95,181.

As to 1983, Mr. Defazio did not file a return, although he did obtain an extension of time to file, and in applying for the extension had estimated his tax at $15,000 and paid that amount. The government proved an adjusted gross income (assuming a joint return) of $121,476, taxable income of $95,067, and a tax liability of $63,152 (of which Mr. Defazio had paid $15,000). Unreported interest was $18,952. The gross income from the other sources omitted from the earlier returns totalled $179,052.

As to 1984, Mr. Defazio filed no return. The government proved an adjusted gross income (assuming a joint return) of $61,796, taxable income of $58,877, and a tax of $14,741. Interest received was $15,118. The gross income from other sources omitted from the earlier returns totalled $28,086.

As to the bankruptcy fraud charges, the evidence showed that Mr. Defazio gave evasive, misleading, and untrue answers to questions concerning his ownership of assets at examinations during his two bankruptcy proceedings.

The jury found Mr. Defazio guilty on all counts, and the district court entered judgment according to the verdict. He was sentenced to concurrent three year terms of imprisonment on Counts One, Two, and Three, followed by five years of probation

Page 629

on Counts Four through Eleven, probation being conditioned on his honoring all future tax obligations, filing and paying all back taxes due, paying the costs of prosecution ($7,548.24) and paying a $10,000 fine on each of Counts Two and Three.

II.

The Sixth Amendment guarantees a criminal defendant the right to counsel and, within limits, the right to counsel of the defendant's own choosing. Wheat v. United States, 486 U.S. 153, 158-59, 108 S.Ct. 1692, 1696-1697, 100 L.Ed.2d 140 (1988). Disqualification of chosen counsel can have severe consequences, especially when the representation has already begun. The defendant starts with a presumption favoring his or her right to chosen counsel. The government can defeat this presumption by showing that representation by the chosen counsel poses either an actual conflict of interest, or a serious potential for such a conflict. Id. at 164, 108 S.Ct. at 1699. Although judges should hesitate before granting disqualification, "[t]he evaluation of the facts and circumstances of each case ... must be left primarily to the informed judgment of the trial court." Id. Therefore, we review a district court's decision to disqualify defense counsel only for abuse of discretion. United States v. Micke, 859 F.2d 473, 481 (7th Cir.1988). Underlying factual determinations relied on by the district court to support its decision to disqualify are reviewed under the clearly erroneous standard. United States v. O'Malley, 786 F.2d 786, 792 (7th Cir.1986).

At Mr. Defazio's arraignment on the initial indictment, on September 23, 1987, Nicholas Spina appeared on behalf of the defendant. Two other attorneys previously retained by the defendant were also there, and asked permission to withdraw. The prosecutor informed the court that Mr. Spina had represented Mr. Defazio in bankruptcy and was present at the time Mr. Defazio was examined. Responding to questions from the court, she said she did not believe that Mr. Spina would be needed as a witness, apparently because Mr. Defazio's testimony had been transcribed and could readily be proved. She made no objection to Mr. Spina's appearance "if there is no problem" and indicated that she then knew of no problem. The court permitted Mr. Spina to proceed as counsel for Mr. Defazio.

Ten months later, the government filed a motion to disqualify Mr. Spina. In its motion, the government asserted that in 1985 Mr. Defazio sought counsel from Mr. Spina on how to avoid a foreclosure sale at what Mr. Defazio considered an unfair price. Mr. Spina advised him to see an attorney named Barry Yacker, a bankruptcy specialist, who then represented Mr. Defazio in his 1986 Chapter 11 case. The government asserted that Mr. Yacker had obtained Defazio's signature in blank on the Chapter 11 petitions, filled them in and filed them without reviewing their contents with Mr. Defazio. 2 The government claimed that substantial assets were not disclosed in the petition, and that its evidence would show that during every examination under oath in that proceeding, Mr. Defazio lied. The government's motion noted that the Chapter 11 proceeding was dismissed on a judgment creditor's motion, and continued as follows:

the evidence will show that on May 15, 1987, with now-defense counsel Nicholas Spina acting as his attorney, Defazio filed for personal bankruptcy under Chapter 7 of Title 11. On these second petitions, presumably prepared by Nicholas Spina on the basis of information provided by Defazio, Defazio essentially denied having any assets, stating he lived on handouts from his wife and children. The government's evidence will show these representations were false. At the succeeding examinations under oath by [creditors], Defazio was represented by Spina. The evidence will show that he again lied in answers to questions about vehicles and boats, real estate,

Page 630

stock transfers, bank accounts and sources of income....

... it is apparent that...

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73 practice notes
  • Judson Atkinson Candies v. Latini-Hohberger, No. 07-1660.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • June 3, 2008
    ...if they constitute legal advice, or tend directly or indirectly to reveal the substance of a client confidence." United States v. Defazio, 899 F.2d 626, 635 (7th Cir.1990). The Seyfarth Shaw memorandum is between two of CIC's attorneys, is printed on Seyfarth Shaw letterhead and is labeled ......
  • U.S. v. Collins, No. 90-6077
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • November 27, 1990
    ...questions, district court's decision "subject to careful examination by the appellate court."); but see United States v. DeFazio, 899 F.2d 626, 629 (7th Cir.1990) (abuse of discretion standard governs review of defense attorney Here, the district court found that Dickstein's conduct violate......
  • United States v. Hassebrock, No. 10–3296.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • November 22, 2011
    ...of tax evasion. See Becker, 965 F.2d at 390–91 (finding this issue of law to be “well settled in this Circuit”); United States v. Defazio, 899 F.2d 626, 636 (7th Cir.1990) (finding the lesser included offense argument to be “foreclosed in this circuit” by Foster ). Hassebrock urges us to re......
  • U.S. v. Spears, Nos. 89-3154
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • June 9, 1992
    ...court's decision to remove Meeks's counsel is thus deferential--we will reverse only for abuse of discretion. United States v. Defazio, 899 F.2d 626, 629 (7th We begin our inquiry, however, by examining for clear error the district court's factual findings that a conflict existed. Id. Durin......
  • Request a trial to view additional results
73 cases
  • Judson Atkinson Candies v. Latini-Hohberger, No. 07-1660.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • June 3, 2008
    ...if they constitute legal advice, or tend directly or indirectly to reveal the substance of a client confidence." United States v. Defazio, 899 F.2d 626, 635 (7th Cir.1990). The Seyfarth Shaw memorandum is between two of CIC's attorneys, is printed on Seyfarth Shaw letterhead and is labeled ......
  • U.S. v. Collins, No. 90-6077
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • November 27, 1990
    ...questions, district court's decision "subject to careful examination by the appellate court."); but see United States v. DeFazio, 899 F.2d 626, 629 (7th Cir.1990) (abuse of discretion standard governs review of defense attorney Here, the district court found that Dickstein's conduct violate......
  • United States v. Hassebrock, No. 10–3296.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • November 22, 2011
    ...of tax evasion. See Becker, 965 F.2d at 390–91 (finding this issue of law to be “well settled in this Circuit”); United States v. Defazio, 899 F.2d 626, 636 (7th Cir.1990) (finding the lesser included offense argument to be “foreclosed in this circuit” by Foster ). Hassebrock urges us to re......
  • U.S. v. Spears, Nos. 89-3154
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • June 9, 1992
    ...court's decision to remove Meeks's counsel is thus deferential--we will reverse only for abuse of discretion. United States v. Defazio, 899 F.2d 626, 629 (7th We begin our inquiry, however, by examining for clear error the district court's factual findings that a conflict existed. Id. Durin......
  • Request a trial to view additional results

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