U.S. v. Slutsky, s. 332

• Decision Date: 18 April 1975
• Docket Number: D,Nos. 332,406,s. 332
• Parties: 75-1 USTC P 9430 UNITED STATES of America, Appellee, v. Ben J. SLUTSKY and Julius S. Slutsky d/b/a "The Nevele," Appellants. ockets 74-2004, 74-2041.
• Court: U.S. Court of Appeals — Second Circuit

Page 1222

514 F.2d 1222

75-1 USTC P 9430

UNITED STATES of America, Appellee, v. Ben J. SLUTSKY and Julius S. Slutsky d/b/a "The Nevele," Appellants.

Nos. 332, 406, Dockets 74-2004, 74-2041.

United States Court of Appeals, Second Circuit.

Argued Oct. 21, 1974.

Decided April 18, 1975.

Herald Price Fahringer, Buffalo, N. Y. (E. Stewart Jones, Troy, N. Y., of counsel), for appellants.

Lawrence S. Feld, Asst. U. S. Atty. (Paul J. Curran, U. S. Atty. for the Southern District of New York, Paul Vizcarrondo, Jr., Asst. U. S. Atty., of counsel), for appellee.

Dennis E. Curtis, New Haven, Conn. (Michael J. Churgin, Stephen Wizner, Michele Hermann, New Haven, Conn., of counsel), for Jerome Frank Legal Services Organization as amicus curiae.

Before MOORE, OAKES and GURFEIN, Circuit Judges.

MOORE, Circuit Judge:

In 1973 Ben and Julius Slutsky were tried before a jury in the United States District Court for the Southern District of New York and convicted of attempted income tax evasion ¹ (three counts each, covering the years 1965-67) and of filing false partnership tax returns. ² (Ben Slutsky, two counts; Julius Slutsky, one count). The district court imposed both prison sentences and fines on the defendants, the prison sentences on each count to run concurrently, but the fines to be cumulative. On appeal, this court affirmed the convictions on the evasion counts but reversed and vacated the false filing convictions and the sentences imposed thereon. United States v. Slutsky, 487 F.2d 832 (2d Cir. 1973), cert. denied, 416 U.S. 937, 94 S.Ct. 1937, 40 L.Ed.2d 287 (1974). The net result of this action was that each defendant had a remaining sentence of five years imprisonment and a $30,000 fine, the sentences imposed by the district judge for the evasion counts. 487 F.2d at 846 n. 18.

Thereafter, the Slutskys made two motions in the district court. The first was a motion for a new trial, or, in the alternative, for a hearing to determine the issues raised by the motion, brought pursuant to Fed.R.Crim.P. 33. The second was a motion under Fed.R.Crim.P. 35 for reduction of sentences. Judge MacMahon denied both motions in all respects, and the Slutskys filed this appeal.

I.

The motion for a new trial was based on newly discovered evidence, ³ but before discussing the nature of this evidence a brief background discussion is in order. ⁴

During the years in question, 1965-67, Ben and Julius Slutsky were the only partners in The Nevele Hotel, a resort complex located in the Catskills. After a routine IRS audit conducted in 1967 uncovered certain irregularities involving bank deposits which exceeded reported income, a full investigation was started, culminating in the nine-count indictment on which the Slutskys were ultimately convicted.

At trial, the government proved its case using the "bank deposits" method of proof. That is, the government showed the size of deposits in the bank accounts used by the Hotel and its owners, adjusted this figure to give the taxpayers credit for properly claimed deductions and identifiable non-income items, and showed that this adjusted figure exceeded reported income for the relevant years. The burden was then on the Slutskys to explain the discrepancy.

As summarized by the court in the Slutskys' previous appeal, ⁵ the government's investigation and the evidence at trial showed some $18,000,000 in total bank deposits over the period 1965-67. Some $5,700,000 was eliminated as non-income and the remaining $12,300,000 was charged as gross income for the purposes of the bank deposits analysis. Of this total, $2,800,000 consisted of specifically identified items, but most of the deposits, some $8,600,000, were in checks of less than $1,000 and were unidentified. Another $1,000,000 in deposits were cash and therefore also unidentified. 487 F.2d at 841. Allowing for deductions from the $12,300,000 total and subtracting the income actually reported, the amount which the government's proof showed was omitted from the Slutskys' tax returns was $1,200,000, for a total tax deficiency of approximately $750,000.

The evidence alleged to be newly discovered which formed the basis of the Slutskys' motion for a new trial was uncovered by the attorneys engaged to prepare a petition for a writ of certiorari to the Supreme Court. While conducting an independent examination of the facts relating to their clients' case, the lawyers came across financial statements of the Nevele Acres, another enterprise owned and operated by the Slutskys. The statement showed an obligation in excess of a million dollars due and owing from the Nevele Hotel to Nevele Acres. ⁶ According to the "Attorney's Affirmed Statement" in the motion papers, further inquiry showed that it was customary to effect large transfers of funds from Nevele Acres and two other cash-rich Slutsky enterprises to the Nevele Hotel in order to permit the Hotel to cash the payroll checks of its employees. The payroll checks were thereafter deposited into two of the Hotel's bank accounts and therefore would have been reflected in the total deposits figure used by the government in its bank deposits analysis. The appellants contend ⁷ that all the payroll checks were in face amounts of less than $1,000 and thus were unidentified items attributed by the government to income sources. However, the Slutskys argue, cash transferred to the Nevele Hotel from another partnership to meet payroll needs cannot be considered income to the Hotel, and therefore deposits of the cashed payroll checks actually represent non-income items. And since cashed payroll checks account for more than $1,500,000 in deposits over the relevant three-year period, ⁸ a sum which exceeds the $1,200,000 which the appellants were accused of not reporting, there is a potential explanation for the discrepancy between the size of the deposits and reported income. As a consequence, they argue that the district court erred in denying their motion for a new trial.

Motions for new trials based on newly discovered evidence "are not held in great favor," United States v. Catalano, 491 F.2d 268, 274 (2d Cir.), cert. denied, 419 U.S. 825, 95 S.Ct. 42, 42 L.Ed.2d 48 (1974). To succeed on such a motion a defendant must show, inter alia, (1) that the evidence was discovered after trial, (2) that it could not, with the exercise of due diligence, have been discovered sooner, (3) that it is so material that it would probably produce a different verdict. United States v. Costello,255 F.2d 876, 879 (2d Cir.), cert. denied, 357 U.S. 937, 78 S.Ct. 1385, 2 L.Ed.2d 1551 (1958), citing Berry v. State, 10 Ga. 511, 527 (1851). We believe that the district court was amply justified in concluding that the Slutskys had not fulfilled the first two requirements, and we need not decide whether, if true, the evidence would have mandated an acquittal. ⁹

There is no question that the appellants must have known of payroll check-cashing practices at the Hotel. As principals of both the transferor and transferee enterprises, they were actively involved in management and most assuredly would have been aware of large transfers of funds between the concerns. Indeed, the checks effecting the transfers were assertedly made payable to one or the other of the appellants. ¹⁰ Thus, assuming that cash transfers were made to the Hotel, ¹¹ this evidence can be considered to be newly discovered, if at all, only in the sense that the appellants were not, at the time of the trial, aware of the implications of the payroll practice. But even if it be assumed that the potential significance could for a time have escaped two experienced and successful businessmen on trial for tax evasion, ¹² an accountant even testified about the practice of keeping $15,000-$18,000 per week at the Hotel for cashing payroll checks. This testimony should have been sufficient to raise the appellants' awareness level and to bring home the importance of attributing these funds to non-income sources.

In short, although the new attorneys retained by the Slutskys may have uncovered evidence that seemed startling to them, there is no doubt that their clients knew, or at the very least with the exercise of due diligence should have known, of the existence of any such exculpatory evidence and its ramifications. It is far too late for seasoned businessmen with a thorough knowledge of their operations and access to all pertinent records to claim that they were unable to comprehend the nature of the case against them or to decide what evidence might be helpful to their cause. Had the appellants and their able trial counsel been inclined to present the evidence which is now claimed to be "newly discovered," they clearly had the tools to do so at the time of the trial. One can only speculate why they did not. Perhaps they did not care to subject the other Slutsky enterprises to audit.

The foregoing discussion suffices to demonstrate the failure of the appellants to meet the prerequisites for a new trial set out in Costello, supra. Nor was it necessary to hold a hearing before ruling on the motion. United States v. Johnson, 327 U.S. 106, 66 S.Ct. 464, 90 L.Ed. 562 (1946); United States v. Catalano, supra; see 8A Moore's Federal Practice P 33.03(3) (1974 Revision). The moving papers themselves disclosed the inadequacies of the defendants' case, and the opportunity to present live witnesses would clearly have been unavailing.

II.

The appellants' timely Rule 35 motion for reduction of sentence was filed on July 22, 1974, and denied by the district court without a hearing, in an endorsement dated July 24, 1974. Two days thereafter the appellants began serving their sentences.

A motion for reduction of sentence is "essentially a plea for leniency" and also "affords the judge an opportunity to reconsider the sentence in light of any new information about the defendant or the case . . . ." United States v. Ellenbogen, 390 F.2d 537, 543 (2d Cir.), cert. denied,393 U.S. 918, 89...