U.S. v. Penrod

• Decision Date: 29 November 1979
• Docket Number: No. 78-5125,78-5125
• Citation: 609 F.2d 1092
• Parties: 79-2 USTC P 9728 UNITED STATES of America, Appellee, v. James E. PENROD, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1092

609 F.2d 1092

79-2 USTC P 9728

UNITED STATES of America, Appellee, v. James E. PENROD, Appellant.

No. 78-5125.

United States Court of Appeals, Fourth Circuit.

Argued July 13, 1979.

Decided Nov. 29, 1979.

Thomas P. Mains, Jr., Alexandria, Va., for appellant.

Leonie Brinkema, Asst. U. S. Atty., Alexandria, Va. (William B. Cummings, U. S. Atty., Alexandria, Va., on brief), for appellee.

Before RUSSELL, Circuit Judge, FIELD, Senior Circuit Judge, and WIDENER, Circuit Judge.

WIDENER, Circuit Judge:

The defendant, James E. Penrod, was convicted by a jury on two counts of knowingly filing a false tax return in violation of 26 U.S.C. § 7206(1). ¹ Prior to trial, the defendant moved to suppress certain evidence of personal and business financial records that the government had obtained from him pursuant to a grand jury subpoena. The district court denied the defendant's motion, and the defendant cites that ruling as error on appeal. The defendant also challenges one aspect of the trial court's instructions to the jury. We affirm.

In late 1969 or early 1970, the defendant began a small graphic arts business named Techni-Graphic Services. This business was an unincorporated sole proprietorship that the defendant operated out of his home. Prior to forming the business, the defendant had been employed for many years by Keuffel and Esser (K & E), a graphics firm.

During 1973 and 1974, the defendant became involved in a kickback scheme in the graphics industry. A government employee Robert A. Jordan, developed a scheme whereby he embezzled unexpended funds left in his department's budget. He requested that K & E send him an invoice for work not done or ordered. Tyrus Meacham, the general manager of K & E, in turn requested the defendant to invoice K & E for work not done, or to overbill for work done. K & E would then pay the defendant for the invoiced work.

The defendant, to cover his transaction with K & E, set up a similar arrangement with several subcontractors who did work for him. The subcontractors invoiced the defendant, he says in the amount for which he had invoiced K & E, for work that was not performed. The defendant then paid the subcontractors by check, and instructed them to return to him the cash after deducting an amount sufficient to cover their increased taxes from the additional income. The defendant then deducted enough to cover his increased taxes, if any, on the arrangement, and transferred the cash to Meacham, who in turn paid Jordan. The defendant also was involved directly in a similar scheme with another government employee, Carl E. Anderson. The defendant did not profit financially from his participation in the kickback schemes.

The defendant for tax purposes handled the transactions as if they were ordinary orders for work actually to be performed. When he was paid for his invoice, he recognized that amount as gross income. The defendant reported those payments he made to the subcontractors as a deduction on form 1099 for the cost of goods sold. The defendant did not reflect in any way on his books or tax returns the cash he received back from the subcontractors and passed on to Meacham and Anderson.

During 1976, the Justice Department instituted a joint tax and fraud investigation of the graphics industry. The investigation was a joint one in which the United States Attorneys in the Eastern District of Virginia and the District of Columbia participated. ² On March 12, 1976, a grand jury sitting in the District of Columbia in connection with the investigation issued a subpoena directing the defendant to produce

(a)ll documents pertaining to any transaction with Keuffel and Esser for the periods 1973 and 1975, including, but not limited to invoices, requests for services, delivery receipts, other documentations relating to work or services performed for Keuffel and Esser, and all commercial bank records for the above time period.

The defendant obeyed the subpoena and apparently cooperated with the government. He delivered the requested documents to Assistant United States Attorney Richard E. Stuckey on March 30, 1976. As a result of that investigation Meacham, Jordan, and Anderson were indicted by another grand jury and pled guilty to charges of defrauding the government. ³ The Justice Department did not prosecute the defendant in connection with the fraud aspects of the kickback schemes. ⁴

Subsequently, the checks and invoices, rather than being returned to the defendant after the completion of the fraud investigation, were turned over to agents of the Internal Revenue Service, which used them as a basis for bringing this tax fraud case against the defendant. An I.R.S. agent later presented the documents to a grand jury sitting in the United States District Court for the Eastern District of Virginia. So far as we can tell from the record, the government attorneys failed to obtain a court order authorizing the transfer of the documents to either the I.R.S. or the federal grand jury sitting in Virginia. Nor does it appear that the District of Columbia court was ever informed of the transfer of the documents to the I.R.S.

On December 6, 1977, the grand jury sitting in Virginia returned an indictment against the defendant, charging him with two counts of tax fraud. The indictment alleged that he knowingly understated his income for the years 1973 and 1974. Prior to trial, the government voluntarily dismissed the indictment, and on February 7, 1978, an indictment was returned in open court alleging that the defendant had overstated his deductions claimed for the cost of goods sold on his returns for the same years. This latter was the indictment on which the defendant was tried.

Prior to trial, the defendant moved to suppress the documents that he had presented to the District of Columbia grand jury. The defendant argued unsuccessfully that use of the documents violated his Fourth and Fifth Amendment rights, and that the government had violated Federal Rule of Criminal Procedure 6(e) in turning over the documents to the I.R.S. and the Virginia grand jury without obtaining court approval.

After the evidence was in, the court, over the objection of the defendant, instructed the jury that an income tax return reporting cost of goods sold as the defendant had done was an untrue return.

The jury convicted the defendant on two counts of subscribing to false tax returns, from which conviction this appeal followed.

The defendant challenges the ruling of the district court denying his motion to suppress the documents that the government had obtained by his compliance with the subpoena issued by the grand jury sitting in the District of Columbia. These documents can be divided into two major categories. One group contains the cancelled checks that the defendant had given to the subcontractors as payment for unperformed work. The other group contains the invoices that the subcontractors had given to the defendant, representing the unperformed work and the charges for that work. The record does not indicate that anyone other than the defendant had access to these invoices after he received them from the various subcontractors.

Although we assume without deciding that the defendant could have declined to deliver the invoices in response to the District of Columbia grand jury subpoena, ⁵ we hold that he waived any Fifth Amendment right he may have possessed. The defendant voluntarily delivered the documents to the grand jury, and the record contains no indication that the defendant raised an objection to the subpoena at that time. We note that the defendant was represented by counsel at the time he complied with the subpoena.

That a witness before a grand jury is entitled to invoke the privilege against self-incrimination is beyond dispute. Counselman v. Hitchcock, 142 U.S. 547, 12 S.Ct. 195, 35 L.Ed. 1110 (1892). Also beyond dispute is that a person must invoke such a right, and the failure to do so forecloses him from invoking the privilege. The information he furnishes may be later introduced as evidence against him in a criminal proceeding. See United States v. Mandujano, 425 U.S. 564, 574-75, 96 S.Ct. 1768, 48 L.Ed.2d 212 (1976); Garner v. United States, 424 U.S. 141, 96 S.Ct. 1178, 47 L.Ed.2d 370 (1931). Cases from other jurisdictions have held that if a person voluntarily chooses to testify before a grand jury, his testimony is admissible at the trial of the case against him. United States v. Capaldo, 402 F.2d 821, 823-824 (2d Cir. 1968), cert. denied, 394 U.S. 989, 89 S.Ct. 1476, 22 L.Ed.2d 764 (1969); United States v. Alaimo, 297 F.2d 604, 607 (3rd Cir. 1961), cert. denied, 369 U.S. 817, 82 S.Ct. 829, 7 L.Ed.2d 784 (1962). We can discern no difference between oral testimony given to a grand jury and documents presented to a grand jury pursuant to a subpoena. If the defendant had claimed the Fifth Amendment privilege before the District of Columbia grand jury, he certainly would have placed that fact before us, which he has not done. Thus, we assume he did not claim the privilege and hold that by failing to invoke the privilege against self-incrimination at the time he delivered the documents to the grand jury, the defendant waived any such privilege he may have possessed not to comply with the subpoena. ⁶

The defendant's contention that the government violated Federal Rule of Criminal Procedure 6(e), and thus the documents should have been suppressed, is also without merit. Rule 6(e) reads in pertinent part:

Disclosure of matters occurring before the grand jury other than its deliberations and the vote of any juror may be made to the attorneys for the government for use in the performance of their duties. Otherwise a(n) . . . attorney . . . may disclose matters . . . only when so directed by the court preliminarily to or in connection with a judicial proceeding. ⁷

This rule confirms the long-established policy of maintaining the secrecy of grand jury proceedings....