U.S. v. Veksler

• Decision Date: 21 July 1995
• Docket Number: 94-2079,Nos. 94-1982,s. 94-1982
• Citation: 62 F.3d 544
• Parties: UNITED STATES of America v. Igor VEKSLER, Appellant. UNITED STATES of America v. Richard McNAUGHTON, Appellant. . Submitted Pursuant to Third Circuit LAR 34.1(a)
• Court: U.S. Court of Appeals — Third Circuit

Page 544

62 F.3d 544

UNITED STATES of America v. Igor VEKSLER, Appellant.

UNITED STATES of America v. Richard McNAUGHTON, Appellant.

Nos. 94-1982, 94-2079.

United States Court of Appeals, Third Circuit.

Submitted Pursuant to Third Circuit LAR 34.1(a)

July 21, 1995.

Decided Aug. 9, 1995.

Joel I. Fishbein, Law Office of Jack Meyerson, Philadelphia, PA, for appellant Igor Veksler.

Robert E. Welsh, Jr., Philadelphia, PA, for appellant Richard McNaughton.

Loretta C. Argrett, Asst. Atty. Gen., Robert E. Lindsay, Alan Hechtkopf, Gregory V Before: SLOVITER, Chief Judge, SCIRICA and McKEE, Circuit Judges.

Davis, U.S. Dept. of Justice, Tax Div., Washington, DC, Robert E. Courtney, III, Mary E. Crawley (Michael R. Stiles, U.S. Atty., Philadelphia, PA, of counsel), for appellee.

OPINION OF THE COURT

SLOVITER, Chief Judge.

Richard McNaughton and Igor Veksler appeal from the judgments of conviction and sentences entered against them by the district court. For the reasons set forth below, we will affirm the district court's orders.

I. Facts and Procedural History

During 1991 and 1992, McNaughton and Veksler were involved in a scheme to evade federal and state taxes on sales of number two oil, a product that can be used as either home heating oil or diesel fuel. During this period, no taxes were imposed by the federal government or either New Jersey or Pennsylvania on the sale of number two oil for use as home heating oil. In contrast, the United States, New Jersey and Pennsylvania did tax the sale of number two oil when it was to be used as diesel fuel, and imposed that tax on the producer or importer who first sold the oil to a purchaser that did not hold a Registration for Tax-Free Transactions (IRS Form 637).

The tax evasion scheme in which McNaughton and Veksler participated involved the use of "daisy chains," a series of paper transactions through numerous companies, some of which were largely fictitious. In each "daisy chain," the change in characterization of number two oil from tax-free home heating oil to taxable diesel fuel was effected through the use of a "burn company," which would purchase number two oil as tax-free home heating oil and then sell it to another company as diesel fuel. The burn company, which typically held an IRS Form 637, would produce invoices to its purchaser reflecting that the diesel fuel taxes had been paid and that the taxes were included in the price. Although the burn company was liable for the payment of taxes on the oil, it paid no taxes and typically existed for a brief time and then disappeared. The participants in the scheme took commissions on the sales at the step in which each participated.

On September 19, 1993, the United States filed a superseding indictment charging eighteen different defendants with various offenses related to the "daisy chain" operation. Both McNaughton and Veksler were charged with one count of conspiracy. McNaughton was also charged with twenty-three counts of wire fraud, three counts of attempted tax evasion, and RICO conspiracy. ¹ In addition to the conspiracy count, Veksler was charged with six counts of wire fraud and one count of attempted tax evasion.

On May 23, 1994, after a twenty-day trial, the jury convicted McNaughton on all counts. Veksler was convicted of the conspiracy and wire fraud counts and acquitted on the tax evasion counts. McNaughton was sentenced to a prison term of forty months, five years of supervised release, and a special assessment of $1,400.00. Veksler was sentenced to a prison term of twenty-six months, followed by three years of supervised release. These appeals followed.

II. Discussion

A. Appeal No. 94-2079--McNaughton

McNaughton was the president of BELL/ASCO, a Pennsylvania corporation that was in the business of making purchases and sales of number two oil. Prior to April 1, 1992, BELL/ASCO allegedly played a dual role in the "daisy chain" scheme by both supplying number two oil to the chain and buying oil at the end of the chain. After April 1, 1992, BELL/ASCO served only as a supplier and a new company, ASCA/NOVA, purchased oil at the end of the chain. ASCA/NOVA, however, operated from the same office as BELL/ASCO.

1. Did the district court err in refusing to suppress

McNaughton's statement to Perry on December 1,

1992?

On November 24, 1992, the government executed a search warrant at Atlantic Heating and Oil, BELL/ASCO's parent corporation. During the course of the search, McNaughton was interviewed in his office by an FBI Agent and a Pennsylvania Revenue Enforcement Officer. Sometime during the interview, McNaughton left his office to speak with Mr. Thomas Smida, an attorney who had arrived to represent Atlantic in connection with the execution of the search warrant. After conferring with Smida, McNaughton informed the agents that Smida did not want him to make any more statements. Later, Smida was present when an agent elicited background information from McNaughton. Smida, however, halted the interview when an agent asked McNaughton about his tax returns. Smida was also present when McNaughton's briefcase was searched.

On November 30, 1992, FBI Agent Sid Perry called McNaughton and invited him to the FBI office in Philadelphia to review the evidence against him. On December 1, 1992, McNaughton went to the FBI office, where he was interviewed by Agent Perry. During the course of the interview, McNaughton admitted (1) that he was involved in "daisy chain" deals, (2) that the price of oil purchased through the "daisy chains" was too low for taxes to have been paid, (3) that ASCA/NOVA was established in order to avoid BELL/ASCO's appearance at both ends of the chains, and (4) that he had received commission payments for his participation in the "daisy chain" scheme. At no time during the interview did McNaughton state that he was represented by Mr. Smida or any other counsel.

McNaughton contends that because he was represented by Smida at the time of Agent Perry's questioning, the district court erred by refusing to suppress his statement. McNaughton argues that Perry violated Rule 4.2 of the Pennsylvania Rules of Professional Conduct by questioning him, ² and that suppression is the appropriate sanction.

Rule 4.2 of the Pennsylvania Rules of Professional Conduct provides, in relevant part, that:

In representing a client, a lawyer shall not communicate about the subject of the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized by law to do so.

Pa.R.P.C. 4.2. As the district court concluded, in order for McNaughton to prevail on his motion to suppress the court would have to find (1) that the Rule applied to Agent Perry, although he is not an attorney, (2) that McNaughton was represented by counsel when Perry interviewed him on December 1, 1992, or that McNaughton is otherwise entitled to protection under the Rule, and (3) that suppression of the statement is an appropriate remedy for a violation of the Rule.

The district court concluded that McNaughton was not represented by counsel at the time of the interview. There is adequate support in the record for this conclusion. During the execution of the search warrant at Atlantic, Smida represented himself as the "company" attorney, and never suggested that he represented McNaughton. App. at 722. McNaughton also referred to Smida as his employer's attorney, and never suggested that Smida represented him in a personal capacity. App. at 723. In addition, on November 25 or 26, 1992, Atlantic informed McNaughton that it would not represent him in connection with this matter and that he should retain personal counsel. App. at 722. Indeed, at the conclusion of the December 1, 1992, interview, McNaughton suggested to Perry that he might retain an attorney and asked for Perry's opinion of two possible candidates. App. at 725. Finally and most significantly, McNaughton testified at the suppression hearing that Smida was not representing him personally at the time of the December 1, 1992 interview. App. at 2869-70. In light of these facts, we cannot characterize the district court's conclusion that McNaughton was not represented at the time of the interview as clearly erroneous. Thus, McNaughton may not invoke the protections of Rule 4.2.

Nor does McNaughton have standing to invoke Rule 4.2 on Atlantic's behalf. See, e.g., Rakas v. Illinois, 439 U.S. 128, 133-34, 99 S.Ct. 421, 425-26, 58 L.Ed.2d 387 (1978); United States v. Fortna, 796 F.2d 724, 732-34 (5th Cir.) (defendant lacks standing to assert violation of a third-party's attorney-client privilege), cert. denied, 479 U.S. 950, 107 S.Ct. 437, 93 L.Ed.2d 386 (1986). Although Rule 4.2 applies to communication with persons having managerial responsibility on behalf of a represented organization, see Pa.R.P.C. 4.2 (Comment), we need not decide whether Perry's questioning of McNaughton violated Rule 4.2 as it applies to Atlantic, because McNaughton could not invoke any such violation as a basis for his suppression motion.

It follows that the district court did not err in denying McNaughton's motion to suppress his statements to Perry on December 1, 1992. ³

2. Did the district court err in denying McNaughton's motion

to suppress the wiretap information?

McNaughton contends that the district court erred by refusing to suppress the wiretap information in this case because the warrant for those wiretaps was granted on the basis of information obtained through the use of a pen register. While McNaughton acknowledges that the United States Supreme Court upheld the use of pen registers without a warrant in Smith v. Maryland, 442 U.S. 735, 99 S.Ct. 2577, 61 L.Ed.2d 220 (1979), he contends that the Smith decision was based upon the fact that pen registers were incapable of intercepting conversations. McNaughton argues that modern technological advances, which have permitted the development...