U.S. v. Williams

• Decision Date: 17 February 1988
• Docket Number: No. 87-5290,87-5290
• Citation: 837 F.2d 1009
• Parties: -632, 88-1 USTC P 9265, 24 Fed. R. Evid. Serv. 1108 UNITED STATES of America, Plaintiff-Appellee, v. James L. WILLIAMS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1009

837 F.2d 1009

61 A.F.T.R.2d 88-632, 88-1 USTC P 9265,

24 Fed. R. Evid. Serv. 1108

UNITED STATES of America, Plaintiff-Appellee, v. James L. WILLIAMS, Defendant-Appellant.

No. 87-5290.

United States Court of Appeals Eleventh Circuit.

Feb. 17, 1988.

Michael J. Rosen, Miami, Fla., for defendant-appellant.

Leon B. Kellner, U.S. Atty., Miami, Fla., Michael Paup, Chief, Appellate Section, Tax Div., U.S. Dept. of Justice, Michael C. Durney, Tax Div., Dept. of Justice, Robert E. Lindsay, Gail Brodfuehrer, Washington, D.C., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before RONEY, Chief Judge, KRAVITCH, Circuit Judge, and HENDERSON, Senior Circuit Judge.

KRAVITCH, Circuit Judge:

I. BACKGROUND

James Williams was convicted of income tax evasion in violation of 26 U.S.C. Sec. 7201 and of signing a false tax return in violation of 26 U.S.C. Sec. 7206(1). At trial, the government proceeded against Williams under what is commonly referred to as the "net worth" method of proof. In a net worth case, the government attempts to prove tax evasion through circumstantial evidence, by showing an increase in the defendant's net worth from a starting point to a finishing point, and by demonstrating that unreported taxable income was responsible for the increase. See generally Holland v. United States, 348 U.S. 121, 124-29, 75 S.Ct. 127, 129-32, 99 L.Ed. 150 (1954). In particular, the government must demonstrate that the "likely source" of the accretion in net worth was taxable income, not nontaxable sources such as gifts, loans, and inheritances. Id. at 137-38, 75 S.Ct. at 136.

In this case, the government sought to prove that the likely source of Williams' unreported income was the cash generated in bingo operations run by Williams through two corporations. Williams and his employees conducted bingo games that were sponsored by several different charities. Under the agreements between Williams and the charities, each sponsoring charity would receive $150 per bingo session regardless of the number of people who participated in any particular game. After each session, the sponsoring charity would receive a yellow sheet of carbon paper entitled "Income and Expense Report," stating the gross receipts, expenses paid, and net proceeds. Every yellow sheet introduced by the government at trial listed $150 as the net proceeds for the session, even though the gross proceeds fluctuated.

According to the government, the money obtained from these bingo games, less the $150 turned over to the charities after each game, funded an increase in Williams' net worth from 1979 to 1982. The government used December 31, 1978 as a starting point because Williams was adjudicated bankrupt on April 9, 1979, and the government was able to use the bankruptcy records to determine Williams' assets and liabilities at the beginning of 1979. To show that Williams enjoyed an increase in net worth by 1982, the government demonstrated that Williams or his bookkeeper, Marian Sandridge, deposited cash in a bank account of the Center Construction Company, another corporation controlled by Williams. This account was coded "492" by Williams and Sandridge.

The government also attributed to Williams two mortgages receivable, a condominium in California held in the name of Williams' wife, two joint bank accounts held by Williams and his wife, and a boat. The government attributed the condominium to Williams rather than his wife because Williams' wife was a homemaker who, the government argued, had no source of income sufficient to allow the purchase of a condominium. The check for the down payment on the condominium was drawn from the joint bank account, and mortgage payments were made either by checks from the "492" account or by cashier's checks purchased with cash in amounts too large to be attributable to Williams' wife. The government attributed the boat to Williams rather than to his businesses because the boat was kept at Williams' house, and the government could discern no reason why Williams' business operations would need a boat.

Williams defended on the theory that observable increases in his wealth derived from nontaxable sources such as large loans from Williams' father and large cash gifts to Williams' wife from her parents. Williams also argued that he had a lifetime habit of borrowing and repaying substantial sums of money from acquaintances, and that he had borrowed money during the period covered by the indictment. Williams contended that the cash deposits to the "492" account reflected the funds that Williams had borrowed from relatives and friends and had, in turn, lent to his businesses.

II. EVIDENTIARY RULINGS

A.

On appeal, Williams challenges several evidentiary rulings. Williams first argues that the trial court should not have admitted into evidence the carbon "Income and Expense Reports," or yellow sheets, that reflected each bingo session's gross proceeds, expenses, and net proceeds of $150 paid to the sponsoring charity. The government introduced the yellow sheets under the "business records" exception to the hearsay rule, Fed.R.Evid. 803(6). ¹ The government sought to introduce the yellow sheets not as business records of Williams' operations, but as records of the Paralyzed Veterans' Association (PVA), one of the sponsoring charities. The prosecutor attempted to lay a foundation for the yellow sheets through the testimony of Lawrence Seymour, an administrative assistant for the PVA. Seymour's testimony suggested, however, that he did not make out the originals to the yellow sheets and that he had no personal knowledge of the accuracy of the yellow sheets. Williams' attorney objected to the introduction of the yellow sheets for lack of the foundation required by Rule 803(6). The court overruled the objection, holding that the yellow sheets were in "substantial compliance" with Rule 803(6).

On appeal, the government largely concedes that the yellow sheets were not admissible under Rule 803(6). The government contends, however, that we should nonetheless affirm because the reports were admissible as admissions by a party-opponent, either by Williams himself under Fed.R.Evid. 801(d)(2)(A), ² or by Williams' agents, under Fed.R.Evid. 801(d)(2)(D). ³ Williams replies that the government should not now be permitted to advance a theory of admissibility that it never relied on, and that the district court never ruled on, at trial. Williams further argues that the yellow sheets are not admissible under Rule 801(d)(2) for lack of a foundation.

Under some circumstances, when a trial court incorrectly admits evidence over the well-founded objection of a defendant, the court of appeals should not affirm the conviction even though the evidence was admissible on another theory not pressed below. ⁴ In Shepard v. United States, 290 U.S. 96, 54 S.Ct. 22, 78 L.Ed. 196 (1933), the Supreme Court reversed the murder conviction of an army major based largely on his wife's statement, made prior to her death, that "Dr. Shepard has poisoned me." The Supreme Court held that this statement was not admissible under the "dying declarations" exception to the hearsay rule because Mrs. Shepard had not made the statement in the shadow of imminent death. ⁵ Id. at 100-01, 54 S.Ct. at 24. The government alternatively argued to the Supreme Court that the statement was admissible to show Mrs. Shepard's state of mind; the statement could rebut the testimony of Dr. Shepard's defense witnesses that Mrs. Shepard had been of suicidal bent. The Supreme Court refused to consider a theory advanced for the first time on appeal:

Here the course of the trial put the defendant off his guard. The testimony was received by the trial judge and offered by the government with the plain understanding that it was to be used for an illegitimate purpose, gravely prejudicial. A trial becomes unfair if testimony thus accepted may be used in an appellate court although admitted for a different purpose, unavowed and unsuspected. Such at all events is the result when the purpose in reserve is so obscure and artificial that it would be unlikely to occur to the minds of uninstructed jurors, and even if it did, would be swallowed up and lost in the one that was disclosed.

Id. at 103, 54 S.Ct. at 25 (citation omitted); see also United States v. Check, 582 F.2d 668, 681-84 (2d Cir.1978) (introduction of prior consistent statements not admissible under any exception to rule against hearsay required reversal even though government argued on appeal that statements were admissible as nonhearsay verbal acts).

The Shepard decision, however, does not necessarily prohibit the courts of appeals from affirming the admission of evidence on grounds not advanced below under all circumstances. As the above-quoted Shepard excerpt indicates, the basic unfairness in that case derived from the government's attempt to justify the admission of Mrs. Shepard's statement on a theory wholly unrelated to the ground advanced at trial.

The Second and Third Circuits have held that the Shepard rationale does not apply when the evidentiary grounds relied on by the government at trial and on appeal serve the same purpose. In United States v. Rosenstein, 474 F.2d 705 (2d Cir.1973), the government introduced documents at trial under the business records exception to the hearsay rule. The Second Circuit concluded that the documents were not properly admitted under that exception because the government had introduced no testimony by anyone familiar with the business practice to the effect that the records were made as part of that practice. Id. at 710. Nonetheless, the Second Circuit held that the documents could have been admitted as admissions of the defendant. Shepard did not require reversal, for both justifications for the admission of the documents served the same purpose, namely the establishment of the truth of the matter asserted. Id. at 711....