U.S. v. Humphreys

• Decision Date: 21 January 1993
• Docket Number: No. 91-3812,91-3812
• Parties: -316, 93-1 USTC P 50,100 UNITED STATES of America, Appellee, v. Lloyd E. HUMPHREYS, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 254

982 F.2d 254

71 A.F.T.R.2d 93-316, 93-1 USTC P 50,100

UNITED STATES of America, Appellee, v. Lloyd E. HUMPHREYS, Appellant.

No. 91-3812.

United States Court of Appeals Eighth Circuit.

Submitted Oct. 14, 1992.

Decided Dec. 7, 1992.

Rehearing Denied Jan. 21, 1993.

Alvin E. Entin, Miami, FL, argued, for appellant.

Rodger E. Overholser, Asst. U.S. Atty., Cedar Rapids, IA, argued, for appellee.

Before FAGG and BOWMAN, Circuit Judges, and LARSON, ^* Senior District Judge.

LARSON, Senior District Judge.

Lloyd E. Humphreys appeals from his conviction by jury trial on four counts of income tax evasion and one count of filing a false income tax return. In addition, Humphreys appeals from the district court's ¹ denial of his motions for a new trial, to suppress evidence, and to sever and transfer his case to Texas. We affirm the judgment of the district court in all respects.

I.

Lloyd E. Humphreys is an attorney who practiced law in Cedar Rapids, Iowa. Humphreys was indicted on three counts of tax evasion (counts 1, 2, and 3) for the tax years 1983, 1984, and 1985. Humphreys failed to report numerous legal fees which he received in either trade or undeposited cash during those tax years. He also failed to report additional fees which were run through an unreported escrow account. Humphreys's defense to the charges was that he relied in good faith upon his accountant/tax preparer. However, testimony revealed that Humphreys failed to inform the accountant of the cash receipts and the currency receipt books which were kept, or of the existence of the escrow account.

A superseding indictment added two more counts of tax evasion (counts 4 and 5) for the tax years 1988 and 1989. Humphreys assisted in the formation of a corporation in 1981. In addition to several questionable practices which have no bearing on this matter, Humphreys received 25% of the stock issued by the corporation in exchange for legal advice. At various times Humphreys loaned the corporation money and guaranteed three SBA loans. All loans were paid in full, with interest. In 1988, Humphreys agreed to sell his stock in the corporation, and received a down payment of $10,000.00. Thereafter, throughout 1988 and 1989, Humphreys received monthly payments of principal plus interest. Humphreys did not report the downpayment or the principal payments and did not inform his accountant of the stock sale. While Humphreys did report the interest payments, under the false premise that he had a basis in the stock, he did not provide his accountant with any information regarding the claimed basis.

Humphreys filed a motion to suppress evidence seized from his law office under a search warrant. An evidentiary hearing was held and the motion was denied. Humphreys's motion to sever and transfer counts 4 and 5 was also denied. At the close of the evidence Humphreys moved for acquittal, based upon insufficiency of the evidence. The district court ruled that the evidence was insufficient to support a conviction of tax evasion under count 3 (26 U.S.C. § 7201), and replaced the count with the lesser included offense of misdemeanor filing of a false return (26 U.S.C. § 7207).

II.

A. Suppression of Evidence

Humphreys's motion to suppress evidence stems from a search of his law office, conducted pursuant to two search warrants authorized by a United States magistrate. Humphreys alleges that the district court erred in its denial of the motion because: 1) the affidavits in support of the search warrants failed to support a finding of probable cause and, more specifically, failed to allege anything more than a de minimis omission of income; 2) the reliability of certain informants was not established and, moreover, the affidavits contained material omissions and false and misleading statements; and 3) privileged attorney-client documents were seized in the search. We review the court's rulings on the motion to suppress under the clearly erroneous standard. United States v. Johnson, 925 F.2d 1115 (8th Cir.1991); United States v. McGlynn, 671 F.2d 1140 (8th Cir.1982).

The magistrate issuing the search warrants was required to find that there was probable cause that Humphreys was willfully attempting to evade the payment of taxes by understating his income. The applicable standard of probable cause has been set forth by the Supreme Court: "[I]t is clear that only the probability, and not a prima facie showing, of criminal activity is the standard of probable cause." Illinois v. Gates, 462 U.S. 213, 235, 103 S.Ct. 2317, 2330, 76 L.Ed.2d 527 (1983) (citation omitted). The Court further stated:

The task of the issuing magistrate is simply to make a practical, common sense decision whether, given all the circumstances set forth in the affidavit before him, including the "veracity" and "basis of knowledge" of persons supplying hearsay information, there is a fair probability that contraband or evidence of a crime will be found in a particular place. And the duty of a reviewing court is simply to insure that the magistrate had a "substantial basis ... for conclud[ing]" that probable cause existed.

Illinois v. Gates, 462 U.S. at 238, 103 S.Ct. at 2332 (quoting Jones v. United States, 362 U.S. 257, 271, 80 S.Ct. 725, 736, 4 L.Ed.2d 697 (1960)). Here, the affidavits clearly demonstrated that Humphreys was not reporting all cash income. The affidavits showed that cash receipts from clients were not being deposited to Humphreys's business account, that his tax preparer relied solely upon the deposit records, and that former employees were instructed by Humphreys to give him all cash, which he then placed in his desk or in a safe. Certainly the magistrate, and ultimately the district court, had a substantial basis for making the practical, common sense decision, based upon a totality of circumstances, that probable cause existed. See United States v. Peterson, 867 F.2d 1110, 1113 (8th Cir.1989).

Humphreys's assertion that the affidavits are deficient unless they state a specific, "substantial" amount of tax deficiency is simply unsupported. The essence of the inquiry was whether there was tax due and whether Humphreys willfully attempted to evade the tax. Where the affidavits made the clear connection between the existence of the unexplained funds and the allegations of underreporting (citing the applicable criminal statute), we hold that sufficient facts were set forth to establish the probability of criminal activity.

This court need not engage in a searching, lengthy review of the statements of the various informants and affiants. The magistrate below permitted an extensive hearing on the issues raised under Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667 (1978). ² The magistrate then penned a comprehensive and detailed Report and Recommendation, addressing each and every one of Humphreys's allegations of false and misleading statements, and omissions of fact, and concluding that Humphreys's allegations were insufficient to support a Franks challenge. Having carefully reviewed the magistrate's recommendations, we are satisfied that the district court's denial of Humphreys's motion was not clearly erroneous. None of Humphreys's allegations cast doubt upon the existence of probable cause. Humphreys fails to understand that, while he may believe that the informants lacked credibility, where the informants' information is at least partially corroborated, attacks upon credibility and reliability are not crucial to the finding of probable cause. See United States v. Flagg, 919 F.2d 499 (8th Cir.1990); United States v. Parker, 836 F.2d 1080 (8th Cir.1987).

Shortly after the commencement of the search of Humphreys's law office, IRS agents were informed of the presence and location of attorney-client privileged files pertaining to this case. Humphreys alleges that these very files were taken, pillaged, and ultimately used against him. The burden is clearly upon Humphreys to demonstrate that he was prejudiced by the alleged actions of the IRS. See United States v. Morrison, 449 U.S. 361, 365, 101 S.Ct. 665, 668, 66 L.Ed.2d 564 (1981); Weatherford v. Bursey, 429 U.S. 545, 97 S.Ct. 837, 51 L.Ed.2d 30 (1977). Humphreys is required to show which documents were privileged, cf. In re Grand Jury Proceedings, 791 F.2d 663, 666 (8th Cir.1986) (in which the burden rested upon individual subpoenaed by grand jury to establish that information sought fell within attorney-client privilege), and the illegality of the manner in which they were allegedly obtained. Here, Humphreys provided nothing more than speculation and contradictory statements. No files or documents were produced for the review of the district court, and no objection was made during the trial on the grounds that evidence introduced was illegally obtained. Even if the search was overbroad in its scope, no showing of its effect upon the prosecution has been made. Humphreys has not demonstrated that he was prejudiced.

B. Severance

Humphreys launches a two pronged argument in support of his contention that the district court erred in denying his motion for severance of counts 4 and 5 from counts 1, 2, and 3 under Rule 14 of the Federal Rules of Criminal Procedure. First, Humphreys urges that the documents, witnesses, and proof supporting counts 4 and 5 are totally different from those supporting 1, 2, and 3. Second, Humphreys argues that his right to a fair trial has been abridged because of the "spillover effect" of the evidence pertaining to the first three counts onto the latter two counts. Under the explicit language of Rule 14, Humphreys must demonstrate prejudice from the joinder of the counts. United States v. Adkins, 842 F.2d 210 (8th Cir.1988); United States v. Starr, 584 F.2d 235 (8th Cir.1978) (stating that the burden is a heavy one). Bearing in mind that joinder of all offenses against a defendant is a favored practice, we will not reverse the district court's refusal to grant severance absent a...