U.S. v. Fleming, 92-5172

• Decision Date: 23 March 1994
• Docket Number: No. 92-5172,92-5172
• Citation: 19 F.3d 1325
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. William Hugh FLEMING, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1325

19 F.3d 1325

UNITED STATES of America, Plaintiff-Appellee, v. William Hugh FLEMING, Defendant-Appellant.

No. 92-5172.

United States Court of Appeals Tenth Circuit.

March 23, 1994.

Keith Ward, of Tilly & Ward, Tulsa, OK, for defendant-appellant.

Neal B. Kirkpatrick, Asst. U.S. Atty. (F.L. Dunn, III, U.S. Atty., with him on the brief), Tulsa, OK, for plaintiff-appellee.

Before SEYMOUR, Chief Judge, MCWILLIAMS, and EBEL, Circuit Judges.

SEYMOUR, Chief Judge.

William Fleming appeals his convictions on two counts of conspiracy to violate the transfer tax provisions of the National Firearms Act (NFA), I.R.C. Secs. 5811, 5812, and one count of making false statements on required forms in order to avoid paying applicable transfer taxes, I.R.C. Sec. 5861(l). The district court sentenced him to a term of forty-six months imprisonment and a $25,000 fine. Mr. Fleming contends, inter alia, that the district court should have granted him a judgment of acquittal; that the conspiracy counts are multiplicitous; that the government failed to comply with disclosure obligations pursuant to Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963); that he was prejudiced by improper rebuttal evidence; and that the trial court erred in its instructions to the jury. We affirm.

I.

Sections 5811(a) and (b) of the NFA impose a tax of $200.00, payable by the transferor upon the transfer of any firearm. No firearm may be transferred under the Act until the transferor has filed an application for the transfer with the Bureau of Alcohol, Tobacco and Firearms (BATF), the application has been approved, and the tax has been paid. See I.R.C. Sec. 5812. The NFA transfer tax is implemented by federal regulations. See 27 CFR Secs. 179 et. seq. (1993). Those regulations provide an exemption from the tax for certain government entities.

A firearm may be transferred without payment of the transfer tax to or from any State, possession of the United States, any political subdivision thereof, or any official police organization of such a government entity engaged in criminal investigations.

Id. Sec. 179.90(a). The section further provides that a tax-exempt transfer must be made on a special application, the BATF Form 5. The transferor must check a box on this form describing the applicable category of tax-exempt sale and then sign the form. By signing the form, the transferor states that he has examined the application and found it to be true, correct and complete. Section 5861 of the NFA makes it unlawful for any person knowingly "to make, or cause the making of, a false entry on any application" required by the Act. I.R.C. Sec. 5861(l).

Mr. Fleming was convicted on counts two, three, and eight of an eight count indictment. Count two of the indictment alleges that Mr. Fleming and others conspired to use a fictitious or "straw" transfer of machineguns to and from the Seminole, Oklahoma Police Department (SPD) in order to take advantage of the transfer tax exemption. George Gibbons, a gun collector, wanted to sell six machineguns, and Mr. Fleming agreed to find a buyer for them. Mr. Fleming later contacted Mr. Gibbons and told him that the SPD would take the guns. Mr. Fleming then sent Mr. Gibbons a completed Form 5 reflecting the tax-free transfer of the weapons. Mr. Gibbons signed it and sent in the forms. After the forms were approved, Mr. Gibbons shipped the guns to the SPD. The guns were received by then-Chief of the SPD, Hunter Mixon. Mr. Mixon delivered the guns to Stephen Scribner, a reserve police officer for the City of Drumright, Oklahoma, and former licensed firearms dealer. Later, Mr. Fleming located a purchaser for the firearms. The SPD applied to transfer the firearms to this purchaser. After the applications were approved, the firearms were delivered to Mr. Fleming, who delivered them to the ultimate buyers.

Counts three and eight of the indictment involve the "straw" transfer of two Heckler and Koch MP5 SD machineguns and two silencers through the Creek County District Attorney's Office. Count three involved a conspiracy by Mr. Fleming and others to submit false and fraudulent BATF Form 5s in an attempt to avoid paying the transfer taxes. On paper, the firearms were transferred first to the Office of the District Attorney for Creek County, Oklahoma, and then to Mr. Scribner and Clayton Badger, an attorney in Drumright, Oklahoma. In reality, the firearms were delivered directly from Mr. Fleming to Mr. Badger and Mr. Scribner. No firearms were ever received or delivered by the Creek County District Attorney's Office. Count eight involved the fraudulent execution of the Form 5s by Mr. Fleming. Mr. Badger and Mr. Scribner testified that they had agreed to buy the weapons from Mr. Fleming, and that the three men discussed ways to "paper" the firearms. Mr. Fleming prepared applications to transfer the firearms from himself to the Creek County District Attorney's Office, and Creek County Assistant District Attorney Don Nelson signed them. Mr. Fleming sent the applications to the BATF, which approved them. Mr. Fleming delivered the firearms directly to Mr. Badger and Mr. Scribner, and then prepared another set of Form 5s for the transfer of the weapons from the Creek County District Attorney's Office to Mr. Badger and Mr. Scribner.

II.

Mr. Fleming first asserts that the trial court erred in not granting him judgment of acquittal for three reasons: the evidence against him was insufficient as a matter of law; his prosecution was barred by the government's failure to comply with the Administrative Procedure Act (APA); and the rule of lenity should have been applied. We review a district court's order denying a motion for a verdict of acquittal under the same standard that court applied when considering the motion. United States v. White, 673 F.2d 299, 301 (10th Cir.1982). All of the evidence must be reviewed in the light most favorable to the government, "recogniz[ing] the right of the jury to determine credibility and to find the facts." Id. The court may enter a judgment of acquittal only if the evidence that the defendant committed the crimes alleged is so meager that "no reasonable jury could find guilt beyond a reasonable doubt." Id.

Mr. Fleming argues that the evidence of his guilt was insufficient as a matter of law. He contends that all of the statements that he made on the BATF forms were literally true because the broad definition of transfer in the NFA encompasses "transfers" such as the ones to both the SPD and the Creek County District Attorney's Office. This definition states:

The term "transfer" and the various derivatives of such word, shall include selling, assigning, pledging, leasing, loaning, giving away, or otherwise disposing of.

I.R.C. Sec. 5845(j). He further argues that even if these firearms were transferred to the government entities to avoid paying the transfer tax, neither the NFA nor any other provision of law makes such avoidance unlawful.

To support his argument, Mr. Fleming cites a passage in Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935), that states:

It is earnestly contended on behalf of the taxpayer that since every element required by the foregoing subdivision (B) is to be found in what was done, a statutory reorganization was effected; and that the motive of the taxpayer thereby to escape payment of a tax will not alter the result or make unlawful what the statute allows. It is quite true that if a reorganization in reality was effected within the meaning of subdivision (B), the ulterior purpose mentioned will be disregarded.

Id. at 468-69, 55 S.Ct. at 267. Mr. Fleming's reliance on this case is misplaced because the Court also stated: "But the question for determination is whether what was done, apart from the tax motive was the thing which the statute intended." Id. at 469, 55 S.Ct. at 267. In answering this question, the Court focused on substance over form and found that even though the whole transaction followed the literal requirements of the statute, it was nothing more than a sham. Id. at 470, 55 S.Ct. at 268. "[T]he transaction upon its face lies outside the plain intent of the statute. To hold otherwise would be to exalt artifice above reality and to deprive the statutory provision in question of all serious purpose." Id.

After Gregory, courts have disallowed sham transactions in a variety of contexts. See, Bohrer v. Commissioner, 945 F.2d 344 347 (10th Cir.1991) (citing cases). We have clearly recognized that the substance of a tax transaction controls over the labels attached to it:

Only a transaction that has "economic substance which is compelled or encouraged by business or regulatory realities, is imbued with tax-independent consideration, and is not shaped solely by tax-avoidance features that have meaningless labels attached" will be recognized for tax purposes.

Jackson v. Commissioner, 966 F.2d 598, 600 (10th Cir.1992) (quoting Frank Lyon Co. v. United States, 435 U.S. 561, 583-84, 98 S.Ct. 1291, 1303, 55 L.Ed.2d 550 (1978)).

In the instant case, we look to the substance and not merely the form of the transfers. From the testimony given, a reasonable jury could decide that the alleged transfers to government agencies were sham transactions. In counts two and three, the jury was instructed that to find Mr. Fleming guilty, it had to find that he conspired to commit an offense "by means of false statements and improper registration to transfer ... 'firearms' ... without paying the transfer tax." Aplt.App., vol. I, exh. 3. In count 8, the jury was instructed that the elements of the offense were "the making or causing the making of false entries on BATF form 5s, applications and records required to be kept." Id. The jury was also given the definition of transfer set out in the NFA. The government framed its closing argument in terms of the transfer to the Seminole Police Department as being a "charade, an absolute and...