U.S.A. v. Kontny

• Decision Date: 04 January 2001
• Docket Number: 00-3006,Nos. 00-3004,s. 00-3004
• Citation: 238 F.3d 815
• Parties: (7th Cir. 2001) United States of America, Plaintiff-Appellee, v. Kenneth P. Kontny and Joann L. Kontny, Defendants-Appellants
• Court: U.S. Court of Appeals — Seventh Circuit

Page 815

238 F.3d 815 (7th Cir. 2001)

United States of America, Plaintiff-Appellee, v. Kenneth P. Kontny and Joann L. Kontny, Defendants-Appellants.

Nos. 00-3004, 00-3006

In the United States Court of Appeals For the Seventh Circuit

Argued December 5, 2000

Decided January 4, 2001

Appeals from the United States District Court for the Western District of Wisconsin. No. 00-CR-4--John C. Shabaz, Chief Judge.

Before Posner, Easterbrook, and Evans, Circuit Judges.

Posner, Circuit Judge.

The Kontnys were convicted of fraudulent nonpayment of federal payroll taxes and sentenced to prison. Their appeal complains about the denial of their motion to suppress documents and statements that they gave to an Internal Revenue Agent and about a sentencing increase that they received by virtue of the "sophisticated" character of their fraud.

The Fair Labor Standards Act requires employers to pay their hourly employees time and a half for overtime (that is, hours worked above 40 hours a week), but, of course, the overtime wage is taxable income to the employee. To defeat both the overtime and tax laws, the Kontnys, who own an equipment-supply business that employs 25 to 30 workers, concocted the following scheme. They would pay the workers normal wages rather than time and a half for overtime work but not report the overtime wages to the government as taxable income, thus making it easy (or easier) for the workers to avoid detection if they did not report this income on their tax returns. The employees benefited from this scheme by obtaining a greater after-tax income and the Kontnys by not paying either overtime wages at the rate of 1.5 times regular wages or payroll taxes on the overtime wages.

The scheme continued for at least a decade until the Kontnys became embroiled in a bitter labor dispute with their workers. One of them decided to tattle to the government. He visited an office of the IRS and was interviewed by Special Agent Babbitt, a criminal investigator. The matter was turned over to Revenue Agent Furnas to investigate. Revenue agents, unlike special agents, conduct civil rather than criminal investigations. Furnas interviewed a number of employees of the Kontnys' company and concluded that despite their disgruntlement over the labor dispute, they might well be telling the truth. In that event the Kontnys had committed a fraud; and tax fraud is criminal, though more often handled on a civil than on a criminal basis.

Furnas requested an interview with the Kontnys. They agreed. At the interview he explained that he was investigating allegations that they had failed to withhold payroll taxes from overtime payments to their employees. Before Mr. Kontny arrived for the interview, Mrs. Kontny asked Furnas whether she needed to have a lawyer present for the interrogation. He replied that this was "a civil exam" and it was up to her to decide whether she needed to have a lawyer present. But he added that if he discovered fraud he would refer the matter for a criminal investigation. He asked her for various business records, which she gave him, and she made some statements that were later used against her at trial, for example that she realized that payroll taxes have to be withheld from overtime wages. In a follow-up phone call from Furnas a few days later she mentioned that she had shredded some checks that Furnas had inquired about. At the mention of the shredded checks his suspicions crystallized and he decided that he now had firm indications that the Kontnys had committed tax fraud and he turned the case over to the criminal investigatory arm of the IRS and had no further contact with the Kontnys.

As an original matter it is extremely difficult to see what possible basis there could be for a motion to suppress in this case. Confessions or other admissions obtained in the course of an interrogation are deemed involuntary and therefore inadmissible only if they are procured by threats or promises. Bram v. United States, 168 U.S. 532, 542-43 (1897); Johnson v. Trigg, 28 F.3d 639, 641-42 (7th Cir. 1994); United States v. Glover, 104 F.3d 1570, 1579 (10th Cir. 1997); United States v. Guerrero, 847 F.2d 1363, 1366 (9th Cir. 1988). The Miranda rule is not in play here since the interrogation of the Kontnys by agent Furnas was not custodial. Beckwith v. United States, 425 U.S. 341 (1976); compare Mathis v. United States, 391 U.S. 1 (1968). But the fact that the Kontnys were not in custody has a broader significance. Virtually all cases involving coerced confessions involve the questioning of a suspect who is in police custody, an inherently intimidating situation in which people find it difficult to stand up for their rights or even to think straight. The situation is different when a person who does not even know that he is a criminal suspect (that is a premise of the Kontnys' appeal) is being interviewed in his home, and by a civil rather than a criminal investigator to boot. Furnas was unarmed, un-uniformed, unaccompanied. The Kontnys were at no disadvantage in dealing with him. They were under no pressure to answer his questions. Any answers they gave were voluntary.

Trickery, deceit, even impersonation do not render a confession inadmissible, certainly in noncustodial situations and usually in custodial ones as well, unless government agents make threats or promises. Frazier v. Cupp, 394 U.S. 731, 739 (1969); Holland v. McGinnis, 963 F.2d 1044, 1051 (7th Cir. 1992); United States v. Rutledge, 900 F.2d 1127, 1131 (7th Cir. 1990) ("far from making the police a fiduciary of the suspect, the law permits the police to pressure and cajole, conceal material facts, and actively mislead"); United States v. Byram, 145 F.3d 405, 408 (1st Cir. 1998) ("trickery is not automatically coercion. Indeed, the police commonly engage in such ruses as suggesting to a suspect that a confederate has just confessed or that police have or will secure physical evidence against the suspect. While the line between ruse and coercion is sometimes blurred, confessions procured by deceits have been held voluntary in a number of situations"). And these were custodial cases. Nothing is more common in the noncustodial setting of police investigations than for an undercover police officer to extract a damaging admission from a criminal suspect simply by pretending to be another criminal. The admission is usable in evidence against the suspect even though he would never have spilled the beans to the officer had he known the officer's status. Planting informers is not an unconstitutional method of collecting evidence for use in criminal trials. Illinois v. Perkins, 496 U.S. 292, 298-99 (1990); Hoffa v. United States, 385 U.S. 293, 303-04 (1966). There is no right to require secrecy of the people whom one confides in.

So even if Furnas was pretending to be conducting a civil investigation but was really, as the appeal argues, conducting a criminal one, this would not, under the rules that govern the admissibility of incriminating statements (written or oral) made to government officers even by a suspect who is in custody, make the statements inadmissible. The circumstances did not remotely prevent the Kontnys from making a rational decision about whether to play ball with Furnas. United States v. Lawal, 231 F.3d 1045, 1048 (7th Cir. 2000) ("a confession is voluntary if the totality of the circumstances demonstrates that it was the product of rational intellect and not the result of physical abuse, psychological intimidation, or deceptive interrogation tactics calculated to overcome the defendant's free will"); United States v. Westbrook, 125 F.3d 996, 1006 (7th Cir. 1997) ("nothing in this record leads us to believe the agents misled him or exploited Mr. Westbrook's anxiety to the point that he was unable to make a rational decision about whether to confess"); Sprosty v. Buchler, 79 F.3d 635, 647 (7th Cir. 1996) ("the police did not magnify or exploit Sprosty's fears, anxieties and uncertainties to the point where he was unable to make a rational decision about whether to confess"); United States v. Doucette, 979 F.2d 1042, 1045 (5th Cir. 1992) ("a confession is voluntary if, under the 'totality of the circumstances,' the statement is the product of the accused's 'free and rational choice'"); United States v. Velasquez, 885 F.2d 1076, 1089 (3d Cir. 1989) ("although the deception [by the police] may have been a partial cause of Velasquez's statements, we do not think that her will was overcome or her capacity for self- control vitiated"); United States v. Guerrero, supra, 847 F.2d at 1365 ("an inculpatory statement is voluntary only when it is the product of a rational intellect and a free will"). We might have a more difficult case had Furnas gone further and promised the Kontnys they would not be prosecuted if they played ball with him, for that conceivably is the kind of false promise that might induce a rational person to rely. United States v. Baldwin, 60 F.3d 363, 365 (7th Cir. 1995), vacated and remanded on other grounds, 517 U.S. 1231 (1996); United States v. Rutledge, supra, 900 F.2d at 1130. Furnas did not do that. On the contrary, he as much as warned the Kontnys that any evidence they provided of fraud would lead to a criminal investigation. As we have said, he didn't have to go further and give them Miranda warnings.

It is true that the Internal Revenue Service by regulation requires that a civil investigation cease when the investigator develops firm indications of fraud, Internal Revenue Manual sec.sec. 4565.21(1), 9311.83(1), which the Kontnys argue happened before the fatal interview and the check-shredding phone conversation. But the federal exclusionary rule, which forbids the use of evidence obtained in violation of the Fourth or Fifth Amendments, does not extend to violations of statutes and regulations. The Supreme Court so held in United States v. Caceres, 440 U.S. 741, 755 (1979), with specific reference to a regulation...