U.S. v. Rea

• Decision Date: 13 March 1992
• Docket Number: 187 and 191,Nos. 184,D,s. 184
• Parties: -918, 92-1 USTC P 50,191, 35 Fed. R. Evid. Serv. 351 UNITED STATES of America, Appellee, v. William REA, Getty Terminals Corp., and John Pabone, Defendants-Appellants, Getty Terminals Corp., William Rea, John Pabone, and John Quock, Defendants. ockets 91-1177, 91-1182 and 91-1251.
• Court: U.S. Court of Appeals — Second Circuit

Page 1206

958 F.2d 1206

69 A.F.T.R.2d 92-918, 92-1 USTC P 50,191,

35 Fed. R. Evid. Serv. 351

UNITED STATES of America, Appellee, v. William REA, Getty Terminals Corp., and John Pabone Defendants-Appellants Getty Terminals Corp., William Rea, John Pabone, and John Quock, Defendants.

Nos. 184, 187 and 191, Dockets 91-1177, 91-1182 and 91-1251.

United States Court of Appeals, Second Circuit.

Argued Oct. 16, 1991.

Decided March 13, 1992.

Brett Dignam, U.S. Dept. of Justice, Tax Div., Washington, D.C. (Shirley D. Peterson, Asst. Atty. Gen., Andrew J. Maloney, U.S. Atty., E.D.N.Y., Brooklyn, N.Y., Robert E. Lindsay, Alan Hechtkopf, U.S. Dept. of Justice, Tax Div., Washington, D.C., on the brief), for appellee.

Elkan Abramowitz, New York City (Eric Bernstein, Morvillo, Abramowitz, Grand, Iason & Silberberg, on the brief), for defendant-appellant William Rea.

Mark F. Pomerantz, New York City (Stephen W. Nicolello, Rogers & Wells, New York, on the brief), for defendant-appellant Getty Terminals Corp.

Steven K. Frankel, New York City (Frankel Pariser Rudder & Tritz, on the brief), for defendant-appellant John Pabone.

Before KEARSE, PRATT, and McLAUGHLIN, Circuit Judges.

KEARSE, Circuit Judge:

Defendants William Rea, Getty Terminals Corp. ("Getty"), and John Pabone appeal from judgments entered in the United States District Court for the Eastern District of New York, following a jury trial before Leonard D. Wexler, Judge, convicting each on one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371 (1988) (count 1), and three counts of tax evasion, in violation of 26 U.S.C. § 7201 (1988) (counts 2-4). Getty was sentenced principally to pay fines totaling $400,000. Rea was sentenced principally to (1) a three-year term of imprisonment on count 1, of which he was to serve two months in prison and the remainder on probation; and (2) three concurrent three-year terms of probation on counts 2-4, to be served concurrently with the sentence imposed on count 1. Pabone was sentenced principally to (1) a four-year prison term on count 1, and (2) three five-year terms of probation on counts 2-4, to be served concurrently with each other but consecutively to the sentence imposed on count 1. Rea and Pabone were also ordered to satisfy such tax liabilities as might be determined by the Probation Department. On appeal, defendants contend principally that the trial court erred in various evidentiary rulings and that the trial evidence was insufficient to support their convictions. For the reasons below, we affirm the judgments of conviction.

I. BACKGROUND

At all pertinent times, Getty was a producer of gasoline, and Rea was the head of its supply and distribution department. Pabone was the president and owner of J & J Petroleum Co., Inc. ("J & J"), a gasoline wholesaler. The conduct at issue, which took place in 1985 unless otherwise indicated, occurred in the context of the federal system of imposing excise taxes on sales of gasoline. With certain exceptions, a producer of gasoline, upon the sale of gasoline to a nonproducer, is required to pay the federal excise tax. In practice, this tax is charged to and collected from the purchaser. A producer of gasoline that sells gasoline to another producer is not required to pay the government such a tax. See 26 C.F.R. § 48.4083-1(a) ("In general. Gasoline may be sold tax free by a producer or importer of gasoline to other producers of gasoline...."). A wholesale distributor is considered a producer within the meaning of § 48.4083-1(a) if it has obtained an Internal Revenue Service ("IRS") Certificate of Registry (Form 637) ("637 License"); see 26 C.F.R. § 48.4082-1(d)(2) (distributor is considered a producer only with respect to gasoline it sells on or after the date on which it is issued a 637 License).

The government's case at trial was presented through documentary evidence

                and the testimony of a variety of witnesses, including Charles Sarowitz, who had served as J & J's accountant and negotiated purchases of gasoline for J & J, and persons who during the pertinent period had worked as clerical employees of Getty in connection with the invoicing of gasoline sales.   Taken in the light most favorable to the government, the evidence painted the following general picture
                

A. The Tax Evasion Scheme

In May 1985, J & J was seeking a new supplier of gasoline. Sarowitz, who performed business functions for J & J on instructions from Pabone, saw Rea's name on a list of wholesalers he had been given, and he telephoned Rea to set up a meeting. Shortly thereafter, in late May or early June, Sarowitz and Pabone met with Rea at Getty's offices (the "May/June meeting"). Sarowitz told Rea that J & J wanted to purchase gasoline from Getty. He also informed Rea that J & J did not hold a 637 License. At some point during this meeting, which lasted some 30-40 minutes, Getty senior vice president Alvin Smith stopped in to introduce himself; he expressed the view that Sarowitz and Pabone were probably "a bunch of bootleggers," i.e., persons who sell gasoline without paying the required excise taxes. Sarowitz and Pabone denied that they were bootleggers. At this meeting, Rea agreed that Getty would become a supplier of gasoline to J & J.

Shortly thereafter, on June 4, Sarowitz and Pabone met with John Quock, president and owner of Tun Yung Fuel Oil Corp. ("Tun Yung"). Tun Yung held a valid 637 License. At that meeting, Quock agreed to allow J & J to use Tun Yung's 637 License in order to avoid paying the nine-cent-per-gallon federal excise tax that Getty would ordinarily charge on J & J's purchases. It was agreed at that meeting that these federal taxes would not be paid. In return for allowing J & J to use Tun Yung's 637 License, Quock was to receive half of the tax money J & J saved; he was to receive his payment not in cash but in gasoline drawn from J & J's accounts at Getty's terminals. Pabone later told a J & J salesman that J & J was in a position to sell gasoline at very competitive prices because it was using Tun Yung's 637 License to buy gasoline from Getty tax-free.

On June 7, J & J began to make purchases from Getty, buying barges of gasoline. J & J paid Getty for the gasoline by means of a wire transfer in accordance with instructions Sarowitz received from Rea. On its invoices for the barges of gasoline, Getty listed Tun Yung as the purchaser. Sarowitz testified that he did not place the order for the June 7 barge purchase, and he was not sure who had done so. There was no testimony as to who instructed Rea that Tun Yung should be invoiced on this first sale to J & J.

Getty's billing procedure called for Rea to prepare for each sale a bulk transaction sheet called a "BT," which typically included the name of the purchaser, the quantity, type, and price of the gasoline being purchased, the method of payment, and an indication of whether federal excise tax was to be charged. The information shown on the BTs was then transferred to "deal sheets" prepared by Rea or employees working under him in the supply and distribution department. Copies of each deal sheet would then be sent to other Getty departments, e.g., the tax, inventory, and billing departments. Using the deal sheets given them, employees in the billing department would charge tax only on those sales for which the BT, prepared by Rea, had indicated that taxes should be charged.

On the J & J sales, Rea's BTs indicated that Tun Yung should be invoiced and that no tax should be charged. Accordingly, Getty neither billed nor paid federal excise taxes on any of the barge sales to J & J.

On July 3, Sarowitz again met with Rea, this time to discuss the possibility of J & J's purchasing gasoline not by the barge, but directly from Getty's various terminal facilities (called "in-place" sales). Sarowitz and Rea agreed that thereafter, Sarowitz or Pabone would order in-place gasoline, that payments for the gasoline would be wired to Getty by J & J, and that though the in-place gasoline was being sold to J &amp The agreed in-place sales to J & J began shortly after the July 3 meeting, but the initial transactions were invoiced to J & J, not Tun Yung. Upon discovering this, Sarowitz immediately telephoned Rea and reminded him that the in-place sales to J & J were to be invoiced to Tun Yung. Rea promised to "take care [of] it." Getty also made out invoices to Westwind, another company owned by Quock, but one that did not have a 637 License. Sarowitz again contacted Rea, who again promised to take care of having the invoices made out to Tun Yung. Thereafter, the invoices on the in-place sales to J & J showed Tun Yung as the purchaser. As to the earlier invoices to J & J or Westwind, despite the fact that neither entity held a 637 License, federal excise taxes were not charged because none of the BTs prepared by Rea indicated that taxes should be charged. Getty did not pay excise taxes on these sales.

                J, and J & J was receiving the gasoline, these sales would be invoiced to Tun Yung.   Pabone eventually executed a personal guarantee of payment on sales invoiced to Tun Yung.   Further, though the Getty invoices were to list Tun Yung as the purchaser, Sarowitz instructed Rea that any orders from Quock with respect to the J & J gasoline were not to be followed.   In addition, though the invoices were to show Tun Yung's name and address, Sarowitz instructed Rea to mail the invoices directly to J & J.   As discussed in greater detail in Part II.A. below, Sarowitz testified, over objection, that Rea "had to" have known he was being asked to show Tun Yung as the purchaser on the invoices so that the nine-cent-per-gallon federal excise tax could go unpaid
                

The purchases by J & J with the Getty invoices listing Tun Yung as purchaser continued until the fall. During hurricane "Gloria" in September 1985, J & J "overpulled"--i.e., overdrew--its inventory account at Getty by some $1,680,000 worth of gasoline. The...