U.S. v. Fawaz

• Decision Date: 28 July 1989
• Docket Number: No. 88-1861,88-1861
• Parties: -5342, 89-2 USTC P 9654, 28 Fed. R. Evid. Serv. 819 UNITED STATES of America, Plaintiff-Appellee, v. Jerry FAWAZ, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 259

881 F.2d 259

64 A.F.T.R.2d 89-5342, 89-2 USTC P 9654,

28 Fed. R. Evid. Serv. 819

UNITED STATES of America, Plaintiff-Appellee, v. Jerry FAWAZ, Defendant-Appellant.

No. 88-1861.

United States Court of Appeals, Sixth Circuit.

Argued May 22, 1989.

Decided July 28, 1989.

Patricia L. Blake, Susan Murnane, Kathleen Moro Nesi, Asst. U.S. Atty. (argued), Office of the U.S. Atty., Detroit, Mich., for U.S.

Richard E. Zuckerman (argued), Honigman, Miller, Schwartz & Cohn, Detroit, Mich., for Jerry Fawaz.

Before MERRITT and NELSON, Circuit Judges; and LIVELY, Senior Circuit Judge.

MERRITT, Circuit Judge.

Jerry Fawaz, a gas station operator, appeals his conviction on nine counts of tax crimes under 26 U.S.C. Sec. 7206(1) ¹ and Sec. 7201. ² He was convicted by a jury of filing false individual and corporate income tax returns and of evading the retail dealer's excise tax on diesel fuel, all during the years 1981 through 1983. Judge Suhrheinrich of the Eastern District of Michigan sentenced him to three years on each count, with all sentences to be served concurrently, and imposed certain fines.

Fawaz raises a number of issues on appeal. He raises the question whether understated gasoline purchases are "material" misstatements within the meaning of Sec. 7206(1). Fawaz also argues that, assuming he prevails on the materiality issue, joinder of counts arising under Sec. 7206(1) with counts arising under Sec. 7201 resulted in undue prejudice to him; that the Government introduced no evidence that Fawaz had the requisite knowledge of falsity under three counts arising under Sec. 7201 and insufficient evidence that Fawaz had the requisite knowledge of falsity under all of the remaining counts; and that the District Court erred in admitting certain documentary and testimonial evidence. We are confident that none of these arguments requires reversal of the judgment below.

FACTUAL AND PROCEDURAL HISTORY

By the time of Fawaz's challenged tax returns, he had acquired several gas stations In April of 1988, Fawaz was indicted on eleven counts of filing false tax returns and evading excise tax on diesel fuel. During his trial, the Government successfully moved to dismiss Counts 3 and 10.

which he held as sole proprietorships. He had also incorporated Froggy's Fill-Up, Inc., which owned several more gas stations. By the end of 1982, through the sole proprietorships and Froggy's, Fawaz owned or controlled eight filling stations. Several family members worked for him in running the stations, and he employed Donald McNeff as his accountant for all these operations.

The remaining counts fall into two distinct groups. Counts 1, 2, and 4 charge Fawaz under Sec. 7206(1) with filing false tax returns. Count 1 alleges that Fawaz understated his gas purchases at the privately held gas stations on his 1981 individual tax return, Form 1040, Schedule C-1, line 2a. Count 2 alleges a similar understatement in 1982, Form 1040, Schedule C-1, line 2. And Count 4 alleges that in 1981 he filed a false corporate return for Froggy's, again underreporting gas purchases, Form 1120, Schedule A, line 2. The Government claims that the total sum underreported exceeds $11,000,000.

Counts 5 through 9 and 11 charge Fawaz, under Sec. 7201, with evading the excise tax on diesel fuel owed by the privately held gas stations. Each count relates to a quarterly return between the quarter ending March 31, 1982 to the quarter ending September 30, 1983. The Government claims that the total tax due and owing is $31,347.56.

MATERIALITY OF UNDERREPORTED PURCHASES

Fawaz appeals from the District Court's denial of his oral motion for a judgment of acquittal on Counts 1, 2, and 4. Tr. 340-47. The motion was made pursuant to Fed.R.Crim.P. 29(a), which provides that a district court may enter a judgment of acquittal "if the evidence is insufficient to sustain a conviction" on the challenged counts. Fawaz's motion was founded on the claim that the Government had failed to show that the understatements were "material" in the sense required by Sec. 7206(1).

Standard of Review. In determining our standard of review, we note that Fawaz renewed his motion at the close of the trial, thus preserving it for review on the conventional standard of review. That standard is, for all practical purposes, identical with the standard imposed on the trial court. United States v. Nelson, 419 F.2d 1237, 1241 (9th Cir.1969). A motion for a judgment of acquittal must be granted if "there is no evidence upon which a reasonable mind might fairly conclude guilt beyond a reasonable doubt." Curley v. United States, 160 F.2d 229, 232-33 (D.C.Cir.), cert. denied, 331 U.S. 837, 67 S.Ct. 1511, 91 L.Ed. 1850, and cert. denied sub nom. Smith v. United States, 331 U.S. 837, 67 S.Ct. 1512, 91 L.Ed. 1850 (1947); see United States v. Gaines, 353 F.2d 276 (6th Cir.1965); Wright & Miller, 2 Federal Practice and Procedure Sec. 467 at 658-59 (2d ed. 1982). This standard has been approved by the Supreme Court as "the prevailing criterion for judging motions for acquittal in federal criminal trials." Jackson v. Virginia, 443 U.S. 307, 318-19 n. 11, 99 S.Ct. 2781, 2788-89 n. 11, 61 L.Ed.2d 560 (1979).

In applying this standard to a motion challenging the materiality of a false statement, we note that the materiality of a perjured statement on a tax return is a question of law, and is for the judge, not the jury, to decide. Though this rule has not been announced before today in this Circuit, it is the prevailing rule elsewhere. United States v. Rogers, 853 F.2d 249, 251 (4th Cir.), cert. denied, --- U.S. ----, 109 S.Ct. 375, 102 L.Ed.2d 364 (1988); United States v. Flake, 746 F.2d 535, 537-38 (9th Cir.1984), cert. denied, 469 U.S. 1225, 105 S.Ct. 1220, 84 L.Ed.2d 360 1985); United States v. Greenberg, 735 F.2d 29, 31 (2d Cir.1984); United States v. Whyte, 699 F.2d 375, 379 (7th Cir.1983); United States v. Gaines, 690 F.2d 849, 858 (11th Cir.1982); United States v. Strand, 617 F.2d 571, 574 (10th Cir.), cert. denied, 449 U.S. 841, 101 S.Ct. 120, 66 L.Ed.2d 48 (1980); [a]lthough the materiality of a statement rests upon a factual evidentiary showing, the ultimate finding of materiality turns on an interpretation of substantive law. Since it is the court's responsibility to interpret the substantive law, we believe [it is proper to treat] the issue of materiality as a legal question.

                United States v. Taylor, 574 F.2d 232, 235 (5th Cir.), cert. denied, 439 U.S. 893, 99 S.Ct. 251, 58 L.Ed.2d 239 (1978);  United States v. Romanow, 509 F.2d 26, 28-29 (1st Cir.1975).  A ruling apparently to the contrary, United States v. Null, 415 F.2d 1178, 1181 (4th Cir.1969), has since been rejected by the Fourth Circuit.  Rogers, 853 F.2d at 251.    And the rule is not only widespread:  we believe it is also sound.  It is supported by a prior case holding under analogous circumstances that materiality under 18 U.S.C. Sec. 1001 is a question of law
                

United States v. Abadi, 706 F.2d 178, 180 (6th Cir.), cert. denied, 464 U.S. 821, 104 S.Ct. 86, 78 L.Ed.2d 95 (1983); accord Kungys v. United States, 485 U.S. 759, 108 S.Ct. 1537, 1547, 99 L.Ed.2d 839 (1988).

Here, the factual predicate of materiality is not in dispute: rather, the parties' disagreement focuses on the application of the law to the evidence before the court. We conclude that the trial court's determination that materiality had been established disposed of a legal question: if, given that holding, the evidence on questions for the jury was such that reasonable jurors could find the defendant guilty beyond a reasonable doubt, a Rule 29(a) motion for a judgment of acquittal would properly be denied. As with any question of law, we give the trial judge's determination that materiality had been established de novo review.

Disputed issues. Fawaz argued that the Government was required to prove materiality by introducing evidence that each understatement of purchases obscured some other false entry on the income-tax return on which it appeared. He claimed that the Government had failed to introduce any evidence to that effect, arguing that the testimony of his former accountant, Ronald McNeff, to the effect that the understatements were likely to have resulted in other incorrect entries, did not satisfy the Government's burden. In response, the Government argued that it had established materiality by showing that the false statements made it more difficult for the IRS to verify the returns on which they appeared. The District Court denied the motion, explicitly holding that materiality had been established. Tr. 347.

One question clearly presented by this record is whether the understatements are material to the income-tax returns on which they appear. Fawaz asserts that that is the only question properly before this Court, and urges us to regard a second argument made by the Government--that the understatements are material because they tended to make Fawaz's evasion of the excise tax on diesel fuel more difficult for the IRS to uncover--as an impermissible amendation of or variance from the indictment. We reject Fawaz's argument on this point. The Government specifically argued in its trial brief that materiality consisted in the fact that the understatements of gasoline purchases were material to the excise tax evasion scheme. The issue was thus before the trial judge, and his ruling is so terse that we cannot ascertain whether he relied on only one or on both of the asserted grounds of materiality. We regard them as alternative grounds of materiality: because we hold, as a matter of law, that the Government has established materiality on both theories, we reject Fawaz's appeal from the denial of his motion for a judgment of acquittal on grounds of materiality.

Finally, we note that some confusion has arisen in this case from the fact that, despite holding that materiality had been established at the time of Fawaz's Rule 29 motion, the District Court later...