U.S. v. Dijan

• Decision Date: 15 November 1994
• Docket Number: 93-2921,Nos. 93-2599,s. 93-2599
• Parties: -6667 UNITED STATES of America, Appellee, v. Sime DIJAN, Appellant. UNITED STATES of America, Appellee, v. John MARZULLO, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 398

37 F.3d 398

74 A.F.T.R.2d 94-6667

UNITED STATES of America, Appellee, v. Sime DIJAN, Appellant.

UNITED STATES of America, Appellee, v. John MARZULLO, Appellant.

Nos. 93-2599, 93-2921.

United States Court of Appeals,

Eighth Circuit.

Submitted June 15, 1994.

Decided Oct. 6, 1994.

Rehearing and Suggestion for Rehearing En Banc Denied Nov.

15, 1994 in No. 93-2921.

Rehearing Denied Dec. 2, 1994 in No. 93-2599.

Mary E. Ott, Clayton, MO, argued (J. Martin Hadican, on the brief), for Dijan.

Daniel P. Reardon, Clayton, MO, argued, for Marzullo.

James Crowe, Asst. U.S. Atty., St. Louis, MO, argued, for appellee.

Before MORRIS SHEPPARD ARNOLD, Circuit Judge, JOHN R. GIBSON, Senior Circuit Judge, and MICHAEL J. MELLOY, Chief District Judge. ^*

MORRIS SHEPPARD ARNOLD, Circuit Judge.

Sime Dijan and John Marzullo were indicted along with four others for conspiracy to bribe a revenue agent of the Internal Revenue Service, bribery of the revenue agent, money laundering, and wire fraud. Dijan and Marzullo were named in nine of the fourteen counts of the indictment; a jury convicted Marzullo of all nine counts, and convicted Dijan of seven of the nine counts, having failed to reach a verdict with respect to Dijan on the other two counts. The trial court ¹ sentenced Dijan to 84 months in prison, and Marzullo to 121 months. They appeal their convictions and sentences.

I.

We recite hereafter such facts as the evidence would support a reasonable person in believing.

In October of 1989 Dijan and Marzullo, through Sun Bay Group, a holding company that they controlled, acquired Envirocon International Corporation. Envirocon had several hundred employees in twelve states and specialized in asbestos abatement, wrap insulation, and fireproofing. Envirocon had been in business for more than thirty years. Shortly after acquiring Envirocon, Dijan and Marzullo began diverting Envirocon's cash receipts to themselves, to Sun Bay, and to other subsidiaries of Sun Bay, driving Envirocon to bankruptcy within eight months. They accomplished this by failing to pay Envirocon's creditors while more than doubling their own salaries, reimbursing themselves for personal expenses as if they were business expenses, paying salaries and consulting fees to members of Marzullo's family who did little or no work for Envirocon, and transferring funds to Sun Bay and Sun Bay's subsidiaries. Beginning in November of 1989, at the direction of Dijan and Marzullo, Envirocon stopped paying to the Internal Revenue Service the payroll taxes withheld from its employees. By the end of 1989, Envirocon owed more than eight hundred thousand dollars for unpaid payroll taxes for the fourth quarter of 1989, not including interest and penalties; by the end of March, 1990, Envirocon had failed to pay to the IRS an additional $789,000 for payroll taxes for the first quarter of 1990. In April of 1990, Envirocon stopped making payments to the appropriate parties money withheld from the paychecks of its employees pursuant to orders of garnishment. By April of 1990, Envirocon had ceased making payments to its employee's health insurance carrier and to their pension plans. In spite of Envirocon's growing difficulty in meeting its debts, caused in large part by the diversion of its assets, including receivables, that Dijan and Marzullo ordered, the defendants more than doubled their salaries from October, 1989 to February, 1990. The government established at trial that Dijan and Marzullo had defrauded Envirocon's employees and creditors, including the IRS, by diverting its operating funds and other assets to themselves or their other businesses or members of their families.

The conspiracy to bribe an IRS agent in order to abate liability for taxes had its genesis in the fall of 1988 when Scott Kootman attempted to bribe Revenue Agent Noel Baker in Missouri. Baker notified his supervisors and the Inspection Division of the IRS of Kootman's overtures. He was told not to suggest anything to Kootman, but to allow Kootman to make an attempt to bribe him if that was Kootman's intention. Kootman introduced others to Baker to discuss bribes to cancel taxes owed to the government. Through Kootman and others, Baker met Jeffrey Wolfson, one of the conspirators indicted with Dijan and Marzullo. Baker, still following the instructions of the Inspection Division, did not invite or suggest bribes, and did tape-record most of the conversations he had with the alleged conspirators. He acted, in effect, as an undercover agent.

In July of 1989 Wolfson and Howard Bloom, Bruce Margo, Jeffrey Wolfson, and Carl Pugliese arranged to pay Baker a bribe of fifteen percent of outstanding corporate and personal taxes in order to avoid paying the full amount of those taxes. Wolfson, Bloom, Margo, and Pugliese were indicted with Dijan and Marzullo. Bloom had business interests in Missouri and Florida, where Sun Bay and Envirocon had its offices. He cooperated with the government in its investigation of the conspiracy and testified at the trial of Dijan and Marzullo.

Dijan and Marzullo first became involved in the conspiracy in late 1989. Dijan met Bloom in October of 1989. Bloom soon became involved in trying to obtain financing for Envirocon. Bloom, Margo, Dijan, Marzullo, and others attended a meeting in the fall of 1989 to discuss financing for Envirocon and its parent Sun Bay. At that meeting Margo let it be known that he could fix taxes. In January of 1990, Bloom learned that Envirocon had failed to pay its payroll taxes for the fourth quarter of 1989. At that time, he discussed with Baker the possibility of bribing Baker to erase those taxes. In February, Dijan asked Bloom if his friend Margo could fix the taxes; Marzullo did not want to take any action at that time. At the end of March, Jerry Haxton, a Revenue Officer in the IRS office in Tampa, Florida, visited Sun Bay to obtain the quarterly tax return for the fourth quarter of 1989, a return that still had not been filed. Haxton's attention had been drawn to Sun Bay and Envirocon when Jean Bea, an accounting supervisor at Envirocon, had reported to the Criminal Investigation of the IRS in Tampa that Envirocon was not paying its employment taxes and was diverting company funds for the personal use of Dijan and Marzullo. Haxton's action was, at first, unrelated to Baker's undercover operation in Missouri. His action nonetheless put pressure on Dijan and Marzullo to address their rapidly growing tax liability.

Dijan and Marzullo provided Haxton with a fraudulent return and, with Bloom and Margo, bribed Baker to fix the taxes. Dijan and Marzullo agreed to pay twenty percent of the taxes due, five percent for Margo, and fifteen for Baker. Dijan and Marzullo made arrangements to pay Baker and Margo $120,000 and to structure the transaction in such a way that it could appear in the accounting records of Envirocon without raising suspicions. On Friday, April 6, 1990, Bloom, Margo, Dijan, and Baker met in St. Louis to pay the bribe to Baker. Margo had difficulty withdrawing the full amount from the Missouri bank that held the funds that had been transferred from Florida; the conspirators paid Baker only $28,000 on that day, but promised to pay the balance by the following Monday. Payment to Baker was not in fact made until several days later. During that time Dijan and Marzullo prepared the fraudulent tax return and a photocopied a check that was never to be negotiated in order to convince Haxton that the taxes had been paid. Haxton learned of the undercover operation on April 9.

An additional bribe followed by the end of the month to erase employment taxes owed for the first quarter of 1990. Envirocon was still failing to pay the taxes and plans were made to bribe Baker to cancel the taxes for the second quarter and also Marzullo's personal tax liability of $98,000. These bribes were not consummated, however, because Dijan, Bloom, and Margo were arrested on May 23, 1990. The IRS took over Sun Bay and Envirocon. Marzullo continued to divert Envirocon's assets by using his corporate American Express card to purchase $5,000 of goods and services during the weekend following Dijan's arrest. Marzullo was not charged until September.

II.

Dijan makes three arguments for the reversal of one or more of his convictions, and three arguments that the trial court did not impose the proper sentences under the Sentencing Guidelines. Marzullo joins in two of the first three, and two of the second.

Both appellants argue that the government failed to comply with the provisions of the Jencks Act, 18 U.S.C. Sec. 3500 et seq., and Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963). The government failed, according to Dijan, to provide discovery of the following materials: 1) Envirocon's records of its accounts payable; 2) the IRS manual for collection procedures that Baker and Haxton used; and 3) Haxton's and Baker's employment records, and any communications between the IRS offices in Tampa, Florida and St. Louis, Missouri. Appellants' argument is without merit. The district court ² found that the government had complied with the Jencks Act and with Brady, and had produced the documents that it had seized from the offices of Envirocon. Records of the accounts payable were even introduced into evidence at trial. The Internal Revenue Manual that Appellants sought is public. Finally, Haxton and Baker testified at trial that their offices had no contact with respect to this case prior to April 9, 1990; Bea's testimony together with that of Haxton make it clear that the IRS office in Tampa began its investigation of Envirocon prior to April 9 in response to Bea's notification that payroll taxes were not being paid. It is the role of the district court to determine whether information should be produced pursuant to the Jencks Act. United States v. Grunewald, 987 F.2d 531, 535 (8th Cir.1993). We will uphold the district court's ruling unless...