U.S. v. Gambone

• Decision Date: 12 September 2000
• Docket Number: No. CRIM. 00-176-ALL.,CRIM. 00-176-ALL.
• Parties: UNITED STATES of America, v. John GAMBONE, Sr., Anthony Gambone, William Murdock, Sandra Lee Gambone, John Gambone, Jr., and Robert Carl Meixner.
• Court: U.S. District Court — Eastern District of Pennsylvania

125 F.Supp.2d 128

UNITED STATES of America, v. John GAMBONE, Sr., Anthony Gambone, William Murdock, Sandra Lee Gambone, John Gambone, Jr., and Robert Carl Meixner.

No. CRIM. 00-176-ALL.

United States District Court, E.D. Pennsylvania.

September 12, 2000.

COPYRIGHT MATERIAL OMITTED

Donald J. Goldberg, Philadelphia, PA, J. Shane Creamer, Dilworth Paxson LLP, Philadelphia, PA, for John A. Gambone, Sr.

Thomas A. Bergstrom, Malvern, PA, for Anthony Gambone.

John Rogers Carroll, Carroll & Carroll, Philadelphia, PA, for William Murdock.

James C. Schwartzman, James C. Schwartzman & Associates, Philadelphia, PA, for Sandra Lee Gambone.

Thomas Colas Carroll, Philadelphia, PA, for John Gambone, Jr.

Mary E. Kohart, Drinker Biddle & Reath LLP, Philadelphia, PA, for Robert Carl Meixner.

MEMORANDUM

PADOVA, District Judge.

Before the Court are Defendants' Motion to Dismiss Count One of the Indictment, filed on June 26, 2000, and Defendants' Motion to Compel Election or Dismiss Count One of the Indictment as Duplicitous, filed on July 25, 2000. Defendant Sandra Lee Gambone also moves, separately, for dismissal of Count One, or, in the alternative, to compel election or order a separate trial.¹ The Government filed a response on July 25, 2000. Oral argument was held before the Court on August 23, 2000. The matter is fully briefed and ripe for decision. For the reasons that follow, the Court will deny Defendants' Motions to Dismiss Count One of the Indictment. The Court will also deny Defendants' alternative request to compel election.

I. BACKGROUND

On April 6, 2000, the Government filed a multi-count indictment against Defendants John Gambone, Sr., Anthony Gambone, William Murdock, Sandra Lee Gambone, John Gambone, Jr., and Robert Carl Meixner. Count One charges a conspiracy to defraud the United States in violation of 18 U.S.C. § 371. Counts Two through Sixty-seven charge violations of 26 U.S.C. § 7206 (fraud and false statements) of the Internal Revenue Code. Defendants seek to have Count One of the Indictment dismissed.

II. STANDARD

In considering a motion to dismiss an indictment or a portion of an indictment, the court accepts as true the well-pleaded factual allegations set forth in the indictment. See United States v. Besmajian, 910 F.2d 1153, 1154 (3d Cir.1990). If the facts do not constitute a violation of federal law, the charges should be dismissed. See United States v. Stewart, Crim.Act. No. 96-583, 1997 WL 688815, *1, 1997 U.S. Dist.LEXIS 16947, at *2 (E.D.Pa. Oct. 23, 1997) (citing United States v. Polychron, 841 F.2d 833, 834 (8th Cir.), cert. denied, 488 U.S. 851, 109 S.Ct. 135, 102 L.Ed.2d 107 (1988)).

III. DISCUSSION

Defendants first move to dismiss Count One of the Indictment because it fails properly to allege a conspiracy to defraud the United States pursuant to the defraud clause of section 371. Defendants also move to dismiss Count One on the grounds it is duplicitous. In the alternative, Defendants ask the Court to compel the Government to choose from among the alleged conspiracies in Count One. The Court will consider these arguments in turn.

A. The Defraud Clause

Section 371 of Title 18 of the United States Code provides:

If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.

18 U.S.C. § 371 (1994).

The Court of Appeals for the Third Circuit has explained that section 371 describes two types of conspiracies: (1) a conspiracy to commit a substantive offense under a separate criminal statute (the "offense" clause); and (2) a conspiracy to defraud the United States (the "defraud" clause) without reference to another criminal statute. United States v. Alston, 77 F.3d 713, 718 (3d Cir.1996). Count One alleges a conspiracy falling under the defraud clause.

A conspiracy to defraud the United States by frustrating the lawful information-gathering function of the Internal Revenue Service ("IRS") is commonly referred to as a "Klein conspiracy," named after the landmark decision of the United States Court of Appeals for the Second Circuit in United States v. Klein, 247 F.2d 908 (2d Cir.1957). In Klein, the defendants participated in a scheme to import and sell Canadian whiskey in the United States in such a way as to minimize the amount of federal income tax that would be owed. In addition to the filing of false income tax returns, the Government provided substantial evidence of additional acts of concealment and circumstantial evidence to establish an agreement, including the creation of shell corporations and use of overseas accounts. Id. at 909.

In order for Count One of the Indictment to stand, it must properly allege a Klein conspiracy. A Klein conspiracy consists of three elements: (1) existence of an agreement to accomplish an illegal or unlawful objective against the United States; (2) commission of an overt act by conspirators in furtherance of conspiracy; and (3) intent by the defendant to agree to the conspiracy and to defraud the United States. See United States v. Adkinson, 158 F.3d 1147, 1153 (11th Cir.1998); United States v. Furkin, 119 F.3d 1276, 1278 (7th Cir.1997); United States v. Tedder, 801 F.2d 1437, 1446 (4th Cir.1986).

In Count One, the Government alleges that the six Defendants "knowingly and willingfully conspired, and agreed, together and with others known and unknown to the grand jury, to defraud the United States by impeding, impairing, obstructing, and defeating the lawful governmental functions of the IRS in the ascertainment, computation, assessment, and collection of revenue ..." (Indictment ¶ 13). More specifically, the Government alleges that the conspirators engaged in a three-part scheme that included:

(1) skimming cash from their businesses and not reporting it on their personal tax returns; (2) paying and not reporting employee income from overtime wages, wages given in the form of fraudulent expense reimbursement, and wages paid off-payroll, thereby aiding and assisting employees in the filing of false tax returns; and (3) not reporting payments to subcontractors, thereby aiding and assisting some subcontractors in the failure to report the income.

(Indictment at 5-6).

Applying the three-part test, the Court concludes that the Government has properly alleged a Klein conspiracy in Count One. The Government has alleged that there was an agreement to achieve an unlawful objective, specifically, to defraud the United States government.² The Government has also alleged a series of overt acts performed by Defendants in furtherance of the conspiracy. (Indictment at 11). And, the Government has, with sufficient clarity, alleged intent by Defendants to agree to the conspiracy and to defraud the United States. See United States v. Ervasti, 201 F.3d 1029, 1037-38 (8th Cir. 2000) (upholding as sufficient Klein conspiracy indictment where the Government alleged that the defendants "did unlawfully, willfully and knowingly combine, conspire, confederate and agree ... to impede and impair the due administration of the Internal Revenue Code [sic] of the United States in the ascertainment, computation, assessment and collection of taxes ...")

Defendants contend that the Government has failed to satisfy this third, intent prong of Klein. Defendants note that the Government's indictment alleges that Defendants sought to avoid the requirements of the Fair Labor Standards Act ("FLSA"). Defendants argue that this is an admission by the Government that the purpose of the conspiracy was to avoid the FLSA, and not to defraud the IRS.

If Defendants' assertion were correct, then Count One would be fatally flawed. A Klein conspiracy requires that an agreed upon objective of the conspiracy be to "thwart the IRS's [sic] efforts to determine and collect income taxes." United States v. Vogt, 910 F.2d 1184, 1203 (4th Cir.1990). This objective, or tax purpose, must be the object of a Klein conspiracy, and not merely a foreseeable consequence of some other conspiratorial scheme. See Dennis v. United States, 384 U.S. 855, 861, 86 S.Ct. 1840, 16 L.Ed.2d 973 (1966). If the avoidance of the tax is merely a collateral effect of the scheme, then it is not sufficient to establish a Klein conspiracy. See United States v. Vogt, 910 F.2d 1184, 1202 (4th Cir.1990). Nevertheless, schemes with multiple objectives are acceptable, even if the primary objective is concealment of another crime. See Ingram v. United States, 360 U.S. 672, 680-81, 79 S.Ct. 1314, 3 L.Ed.2d 1503 (1959).

Looking at the allegations in Count One, however, Defendants' assertion that the Government has failed to meet the intent prong of Klein cannot be correct. Here the Government explicitly has alleged a conspiracy aimed at defeating the lawful governmental functions of the IRS. Nothing on the face of the indictment, including a statement of a second, concurrent objective, negates the alleged tax motive. No case law prohibits the Government from proving multiple objectives in the conspiracy.

To bolster its contention that Count One fails to allege a Klein conspiracy, Defendants also argue that a Klein conspiracy must be complex and contain deceptions. Defendants' memorandum contains several pages of analysis of the conspiracy in Klein, and explains why the case at bar is not nearly as complex. The Court disagrees, however, that a scheme need be complex in order to constitute a Klein conspiracy.³ While many conspiracies are by their nature complex, a Klein conspiracy does not require a particular level of complexity. Reviewing courts have upheld Klein conspiracy convictions on fact patterns far less complex than in the original Klein case. See, e.g., United States v. Furkin, 119 F.3d 1276 (7th Cir. 1997) (upholding conspiracy...