U.S. v. Lynch
| Decision Date | 26 November 2001 |
| Docket Number | CRIMINAL NO. 3-00-CR-212-M. |
| Parties | UNITED STATES of America, v. Stephen T. LYNCH. |
| Court | U.S. District Court — Northern District of Texas |
David Lee Jarvis, U.S. Attorney's Office, Fort Worth, TX, for plaintiff.
Michael Paul Gibson, Burleson Pate & Gibson, Dallas, TX, for defendant.
Before the Court are Defendant Stephen T. Lynch's Motion for Severance Pursuant to Rule 14, Fed. R. Cr. P., and Defendant's Motion for Severance Pursuant to Rule 8(a), Fed. R. Cr. P. The Court finds the joinder of Count 36, filing of a false tax return, cannot, within the confines of either Fed. R. Cr. P. 8(a) or Fed. R. Cr. P. 14, be properly joined with the other forty-seven counts in the Indictment. To the extent the Defendant seeks to sever count 36, the Motions are thus GRANTED. Defendant's Motions are DENIED in all other respects.
The Defendant continued to have title ownership to the Park Creek Manor Apartments from May 11, 1990 to July 1996, when Beal Bank foreclosed on the original loan it had purchased from the Department of Housing and Urban Development ("HUD") and took possession and title to Park Creek Manor. The Defendant's alleged handling of affairs at Park Creek Manor, alleged embezzling of government HUD funds, and alleged fraudulent concealment of these funds, form the basis for most of the forty-eight count Fourth Superseding Indictment ("Indictment").
The Defendant alleges counts 36, 47, and 48 were improperly joined in the Indictment. According to the Defendant, count 36—the filing of a false tax return in violation of 26 U.S.C. § 7206(1), and counts 47 and 48—criminal forfeiture under 18 U.S.C. § 982(b)(1), have nothing to do with the Defendant's legal or fiduciary obligations under the Deed of Trust for Park Creek Manor. The Defendant alleges counts 36, 47, and 48 deal with the use of proceeds from a private lawsuit brought by Southwestern Real Estate Services ("Southwestern"), the Defendant's corporation, against the City of Dallas for its alleged failure to provide urban rehabilitation funds, as contracted, to Park Creek Manor. HUD was not a party or an intervenor in the action. Southwestern recovered a settlement of $500,000.00 from the suit.1 Contending that counts 36, 47, and 48 relate only to this independent lawsuit, the Defendant moves to sever all three counts pursuant to Fed. R. Cr. P. 8(a), and count 36 pursuant to Fed. R. Cr. P. 14. The Government opposes the Motions and disagrees with the Defendant's characterization of the counts. It argues the Defendant's fraudulent scheme and artifice to defraud the government interweave throughout counts 36, 47, and 48, and counts 47 and 48 in particular.
The three counts, as stated in the Indictment, allege:
(Count 36) A false entry on the Defendant's 1995
individual 1040 tax return involving a portion
of the $500,000.00 settlement
(Count 47) Upon conviction of counts 37-42 of the
Indictment (money laundering charges)
the Defendant shall forfeit to the United
States any property traceable to such
property, including but not limited to
$54,791.54 in United States currency
(Count 48) Upon conviction of counts 43-46 (money
laundering charges), the Defendant shall
forfeit to the United States any property
traceable to such property, including, but
not limited to
• $46,000.00 in United States currency
• The real property and improvements
located at 15625 Preston Road
# 1033, Dallas, Texas, further described
as Unit No. 1033, Building J,
of Preston Del Norte Villas, a Condominium
regime in the City of Dallas,
Dallas County, Texas, according to
the declaration thereof....
• The real property and improvements
located at 174 Scenic Drive, Mabank,
Texas, and further described as part
of the T.S. Mitchell survey ....
Federal Rule of Criminal Procedure 8(a) provides that the Government may charge two or more offenses in the same indictment if the offenses are of the same or similar character or are based on the same act or transaction connected together or constituting parts of a common scheme or plan.2 In contrast, Federal Rule of Criminal Procedure 14 gives the Court authority to order an election or separate trial of counts, grant a severance of defendants, or provide whatever relief justice requires to guard against prejudicial joinder of offenses or defendants.3
Though the Defendant claims counts 47 and 48 (criminal forfeiture) deal solely with the use of proceeds from a private lawsuit brought by the Defendant's corporation against the City of Dallas, this is not entirely true.4 Counts 47 and 48 are forfeiture counts which relate to particular money laundering charges previously alleged in the Indictment. Forfeiture count 47 specifically references money laundering counts 37-42 of the Indictment, counts related to the unlawful concealment and diversion of proceeds related to Park Creek Manor. Likewise, forfeiture count 48 specifically references money laundering counts 43-46 of the Indictment, counts related to the unlawful concealment and diversion of proceeds related to Park Creek Manor. Both concern allegations that the Defendant laundered certain rent receipts from Park Creek Manor.
Counts 47 and 48 relate to the alleged unlawful retention, diversion, and concealment of these rent receipts. The joinder of these two counts is thus proper. They are clearly similar in character and connected to the same act or transaction within the common scheme of alleged fraud and embezzlement on HUD through Park Creek Manor funds. The same or similar evidence will be used to prove the money laundering counts and their nexus to the property described in the criminal forfeiture counts.5
The joinder of count 36, filing a false tax return under 26 U.S.C. § 7206(1), is suspect.6 Essentially, the Government argues that after the Defendant took advantage of his fraudulent conduct to use Park Creek Manor rent receipts to pay his attorneys' fees for the private lawsuit against the City of Dallas, he then failed to report over $200,000.00 of these settlement proceeds as personal income on his individual income tax return for 1995.
While the Government is correct that this count is linked to the Defendant's alleged general disposition to fraudulently conceal property that should be divulged, count 36's relationship to the fraudulent counts in the rest of the Indictment is tenuous. Further, it may lead to jury confusion.7 The Government attempts to simplify count 36:
The evidence relating to Count 36 is not complex but rather straight forward. It is undisputed that the defendant received $400,000 of the cash settlement following a settlement of a lawsuit with the City of Dallas. The $400,000 was deposited into a corporate account (Southwestern Real Estate Services). The defendant's accountants preparing the corporate tax return for Southwestern will testify that about $170,000 of this $400,000 was disclosed to the accountants but only after the accountants specifically asked the defendant about this $170,000. When the defendant responded to his accountants['] questions about the $170,000, he acknowledged that the $170,000 was from a lawsuit settlement. However, when the defendant disclosed to his accountants the source of this $170,000, he conveniently chose not to disclose to his own accountants that he received an additional $230,000 from the same law suit settlement. The defendant then used $190,352 of this undisclosed $230,000 to pay off the mortgages on his personal residence. When the defendant used $190,000 of Southwestern funds to pay off the mortgage on his personal residence, those funds clearly became personal income to the defendant. Under these facts, the tax prosecution is not complex and will not be too confusing for the jury to follow.
Gov't's Resp. at 7-8. The attempt fails to dispose of likely jury confusion. Further, as evidenced by the allegations related to count 36 in the Indictment, the relationship between the Defendant's alleged fraudulent embezzlement scheme against HUD is not closely connected to the alleged filing of a false tax return, as required by Rule 8:
23. It was further part of the scheme and artifice to defraud that during the 1994-95 time period, the defendant unlawfully and fraudulently diverted Park Creek project funds to pay attorneys['] fees in connection with a lawsuit. On November 28, 1990, Park Creek Manor, Ltd. (on behalf of Park Creek) filed a lawsuit against the City of Dallas. In late April of 1995, Southwest[] (the owner of Park Creek) received $500,000 as settlement proceeds from this lawsuit. In May of 1995, the defendant diverted and used at least $190,000 of these Southwestern corporate funds as personal income.
24. It was further part of the scheme and artifice to defraud that the defendant used diverted Park Creek project funds to finance this lawsuit and then never reimbursed Park Creek for these legal expenses. In effect, the defendant used Park Creek funds unlawfully and fraudulently diverted from HUD as "seed money" to finance the above-referenced law suit. This law suit ultimately resulted in a $500,000 cash settlement. After payment of $100,000 in attorneys['] fees, the balance of $400,000 went into the defendant's pockets.
25. It was further part of the scheme and artifice to defraud that the defendant sought to maximize his financial benefit from his fraudulent conduct by failing to report his receipt of at least $190,000 in...
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U.S. v. Butler, 04-10364.
...have identified improperly joined charges. See, e.g., United States v. Diaz-Munoz, 632 F.2d 1330 (5th Cir.1980); United States v. Lynch, 198 F.Supp.2d 827 (N.D.Tex.2001); United States v. Braig, 702 F.Supp. 547 (E.D.Pa.1989). None of these cases, however, are particularly instructive. The c......
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United States v. Butler, No. 04-10364 (Fed. 5th Cir. 10/24/2005), 04-10364.
...have identified improperly joined charges. See, e.g., United States v. Diaz-Munoz, 632 F.2d 1330 (5th Cir. 1980); United States v. Lynch, 198 F. Supp. 2d 827 (N.D. Tex. 2001); United States v. Braig, 702 F. Supp. 547 (E.D. Pa. 1989). None of these cases, however, particularly instructive. T......