U.S. v. Root

• Decision Date: 10 June 2008
• Docket Number: Criminal Action No. 07-149.
• Citation: 560 F.Supp.2d 402
• Parties: UNITED STATES, v. Thomas L. ROOT.
• Court: U.S. District Court — Eastern District of Pennsylvania

560 F.Supp.2d 402

UNITED STATES, v. Thomas L. ROOT.

Criminal Action No. 07-149.

United States District Court, E.D. Pennsylvania.

June 10, 2008.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Bradley Davis Barbin, Karl H. Schneider, Columbus, OH, Thomas P. Hogan, Jr., Lamb McEriane PC, West Chester, PA, for Defendant.

MEMORANDUM AND ORDER

SCHILLER, District Judge.

Defendant Thomas Root moves this Court for a judgment of acquittal or, alternatively, for a new trial following convictions for conspiracy to defraud the United States and for tax evasion. For the following reasons, the Court denies his motions.

I. BACKGROUND

A. Factual background

Because the Court is tasked with reviewing the jury's verdict, the following facts are viewed in a light most favorable to the Government. See, e.g., United States v. Frorup, 963 F.2d 41, 42 (3d Cir. 1992).

1. Defendant's Reading Broadcasting, Inc.-related income

In the mid-1990s Defendant, a former attorney, began working as a special projects director at Reading Broadcasting, Inc. ("RBI"), an independent television station based in Reading, Pennsylvania that operated channel 51. (Mar. 17, 2008 Tr. at 23, 28; Mar. 18, 2008 Tr. at 27-28, 31.) In this capacity, Defendant was the administrative assistant to Micheal Parker, president of RBI; Defendant would review contracts and address compliance with Federal Communications Commission and Equal Employment Opportunity Commission regulations. (Mar. 18, 2008 Tr. at 31-32.) Although Defendant lived in Norwalk, Ohio, he would occasionally commute to Reading in connection with his job. (Mar. 17, 2008 Tr. at 27, 94; Mar. 18, 2008 Tr. at 46-47, 135-36.) Defendant was a salaried employee, and had an arrangement with RBI whereby he would be reimbursed for job-related expenses, including expenses related to travel, cell phone use and legal research. (Mar. 18, 2008 Tr. at 40-41.)

Parker left RBI in May 2001, and was replaced by Frank McCracken. (Id. at 35.) Defendant continued his employment at RBI as a special projects director, and worked as McCracken's right-hand man — Defendant prepared filings, gave advice on contracts, addressed FCC compliance issues, prepared shareholder newsletters and RBI annual reports, drafted memos for McCracken, and dealt with Bill Maslo, RBFs accountant, RBI's vendors and RBI's customers. (Mar. 17, 2008 Tr. at 23-24, 27, 31-32, 35-36, 69, 92-93, 128-29, 185; Mar. 18, 2008 Tr. at 40; see, e.g., Gov't Ex. 18 (E-mail from Root to McCracken attaching Memo) & 36 (E-mail from Root to Maslo).) Defendant would occasionally attend shareholder meetings and give presentations to the Board of Directors on McCracken's behalf. (Mar. 17, 2008 Tr. at 129.) He was also responsible for preparing the Form 1099s that were issued by RBI for the years 2002, 2003 and 2004.¹ (Id. at 26-27.)

In summer 2001, Master Media Enterprises, Inc. ("Master Media") became RBI's sales representative, in which capacity it sold RBI air time. (Id. at 39, 130.) In August 2001, McCracken sent a memo to Barbara Williamson, RBI's bookkeeper, directing her to pay commissions on Master Media's sales of RBI air time as follows: ten percent to Frank McCracken, two percent to Brenda Peiffer, two percent to Defendant, and one percent to herself. (Id. at 22-23, 39; Gov't Ex. 20 (8/16/2001 Commission Memo).) These payments were essentially a salary increase for Defendant and Williamson, since neither of them were involved in sales. (Mar. 17, 2008 Tr. at 40-41, 94-95, 129.) The commissions were initially paid through payroll, along with each recipient's salary, and taxes were withheld from those commissions as reflected on each recipient's W-2 forms. (Id. at 43-44, 82.)

On October 8, 2001, Defendant wrote a memo to McCracken, requesting that his commissions be paid to an Ohio limited liability company ("LLC"), KGR New Perspectives, LLC ("New Perspectives"). (Gov't Ex. 21 (Root Commission Payments Memo).) Shortly thereafter, on November 19, 2001, McCracken directed Williamson to pay his own commissions to Framco, LLC, ("Framco") and Defendant's commissions to New Perspectives, LLC. (Mar. 17, 2008 Tr. at 48; Gov't Ex. 23 (11/19/2001 Payment of Commissions Memo).) Defendant created both of these companies. (Mar. 17, 2008 Tr. at 53; Mar. 18, 2008 Tr. at 181, 225-26; Gov't Ex. I-7 (Framco Setup) at INT/MYC 000014-16.) As a result of this change in payment, the commissions were no longer reflected in Defendant and McCracken's W-2 forms. (Mar. 17, 2008 Tr. at 50-51, 203.)

In January 2002, Williamson asked McCracken and Defendant whether she should issue Form 1099s to New Perspectives and Framco, to account for the taxes owed by those entities. (Id, at 51.) McCracken and Defendant, who was on speaker phone during the conversation, both responded that they did not know whether Form 1099s were necessary and that they would look into the matter and report back to her. (Id.) When Williamson inquired a second time, McCracken told her that she did not need to issue Form 1099s to New Perspectives and Framco; Williamson could not recall whether Defendant was on the phone during this second conversation. (Id. at 51, 74.) Accordingly, Williamson did not issue Form 1099s to those entities and as a result, RBI did not notify the IRS of these payments. (Id. at 52.)

In early 2003, shareholders raised concerns about the amount of money that RBI was expending on commissions. (Id. at 116-17, 187-90.) Several RBI directors and shareholders testified that they were unaware of the commission payments themselves and the fact that payments were being made to New Perspectives and Framco. (Id. at 98, 121-22, 131-35, 153; Mar. 18, 2008 Tr. at 145-46.) One shareholder testified that when he asked McCracken about the commissions after a 2003 board meeting, McCracken responded that he, Williamson, Defendant and Peiffer were receiving commissions; McCracken did not mention Framco or New Perspectives. (Mar. 19, 2008 Tr. at 173-76.) Another shareholder testified that he wrote a letter to McCracken inquiring about the increase in commissions and received a response from McCracken that made no mention of the commission payments at all, nor of Framco and New Perspectives; the response instead characterized the increased commission-related expenditures as reflective of "aggressive sales efforts." (Mar. 17, 2008 Tr. at 116-19; Gov't Ex. 114 (2/12/2003 Massey Letter to McCracken) & 116 (3/3/2003 McCracken Letter to Massey).)

McCracken resigned as President of RBI in June 2004. (Mar. 17, 2008 Tr. at 140-43.) Parker returned to RBI at that time and immediately began an internal investigation, which revealed that McCracken, Defendant, Williamson and Peiffer had been receiving commissions and that McCracken and Defendant had their commissions paid to Framco and New Perspectives. (Id at 140-43, 200-03; Mar. 18, 2008 Tr. at 96-97, 121; Gov't Ex. 53 (Parker Letter to Directors Attaching Root Memo.).) Parker concluded that McCracken did not have the authority to grant himself commissions without approval of the Board, but that McCracken had the authority to grant payments to RBI employees. (Mar. 18, 2008 Tr. at 96-97.) Consequently, Parker terminated all of the commission payments and granted salary increases to Williamson, Peiffer, and Defendant. (Mar. 17, 2008 Tr. at 78-79, 147; Mar. 18, 2008 Tr. at 96-97, 143-44.) In connection with this investigation, Parker asked Defendant to prepare a memo explaining how the commission payments came about. (Mar. 18, 2008 Tr. at 99-100.) Defendant's memo did not disclose that commissions were being paid to New Perspectives and Framco. (Id. at 108; Gov't Ex. 52 (Memo.; from Root to Parker on Commissions).)

The total commissions payments made to New Perspectives from late 2001 through mid-2004 was $94,077.34. (Mar. 19, 2008 Tr. at 78; Gov't Ex. 65 (Vendor Payment Journal for New Perspectives) & JS-2 (Summary of Payments to New Perspectives).) The payments made to Framco between 2001 and 2004 totaled $509,210.43. (Mar. 19, 2008 Tr. at 76; Gov't Ex. JS-1 (Summary of Payments to Framco).) The New Perspectives payments were deposited into a personal account for Kathy Root, Defendant's wife, and into a New Perspectives company account on which Kathy Root was the sole signatory. (Mar. 19, 2008 Tr. at 79-85, 224.) Kathy Root testified that she used the payments for daily living expenses. (Id. at 246-47.) Framco payments were deposited into a variety of business and personal accounts maintained by McCracken. (Id. at 80.)

2. The Commission Agreement between RBI and New Perspectives

In late November 2001, Defendant and his wife, Kathy Root, applied for a loan for purposes of refinancing the mortgage on their home. (Mar. 17, 2008 Tr. at 155-58, 165; Gov't Ex. CB-1 (Root Loan Application).) In addition to listing Defendant's salary as income on their loan application, the Roots listed $3,000.00 of monthly income attributable to Kathy Root. (Mar. 17, 2008 Tr. at 165; Gov't Ex. CB-1.) In order for the bank to approve their loan, the Roots were required to produce verification of the income they listed on their application. (Mar. 17, 2008 Tr. at 161.) On December 1, 2001, McCracken signed a "Commission Agreement" between RBI and New Perspectives, which Kathy Root signed on behalf of New Perspectives. (Gov't Ex. 24 (Commission Agreement).) The Roots subsequently sent a copy of the Commission Agreement and copies of checks from RBI made out to New Perspectives to the bank to document the monthly $3,000.00 they declared on their loan application. (Mar. 17, 2008 at 165-71; Mar. 19, 2008 Tr. at 227; Gov't Ex. CB-5 (12/18/01 Faxed Commissions Agreement) & CB-6 (Checks to New Perspectives).)

The Commission Agreement purported to pay New Perspectives a two percent commission on monthly revenues that RBI collected from Master Media in exchange for "sales services to TV 51 in acquiring a programming agreement with Master Media Enterprises, Inc." and related services. (G...