United States v. Bernard

• Decision Date: 16 April 1961
• Docket Number: No. 12868.,12868.
• Citation: 287 F.2d 715
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Leonard M. BERNARD, Charles E. Bernard and James B. Jackson, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

287 F.2d 715 (1961)

UNITED STATES of America, Plaintiff-Appellee, v. Leonard M. BERNARD, Charles E. Bernard and James B. Jackson, Defendants-Appellants.

No. 12868.

United States Court of Appeals Seventh Circuit.

January 26, 1961.

Rehearing Denied April 16, 1961.

Maurice J. Walsh, Chicago, Ill., for appellant.

Robert Tieken, U. S. Atty., Charles R. Purcell, Jr., Asst. U. S. Atty., Chicago, Ill. (John Peter Lulinski, Mitchell S. Rieger, Asst. U. S. Attys., Chicago, Ill., of counsel), for appellee.

Before HASTINGS, Chief Judge, DUFFY, Circuit Judge, and MERCER, District Judge.

MERCER, District Judge.

The defendants, Leonard M. Bernard, Charles E. Bernard and James B. Jackson, were charged by indictment with having wilfully attempted to evade and defeat a part of the corporation income tax due and payable to the United States of America for the taxable year 1948 by Bernard Bros., Inc., a corporation, by the filing of a false and fraudulent income tax return on behalf of that corporation.¹ The return was alleged to have been false and fraudulent, as defendants well knew, in that the corporate income therein reported was understated in the amount of approximately $78,000.00 and that the tax due to the United States was therein understated by approximately $30,000.00. After a trial before a jury, a judgment of conviction was entered by the court upon the jury's verdict finding all defendants guilty as charged in the indictment. Defendants appeal from that judgment.

During 1948, Bernard Bros., Inc., was a franchised dealer in new DeSoto and Plymouth automobiles at Evanston, Illinois. Defendants in the respective order in which they are above named, were the president, vice-president and treasurer of that corporation. For the taxable year 1948 an income tax return was filed on behalf of the corporation reporting taxable income of $298,833.64, and a total tax due of $113,556.78. That return was signed by defendants, Leonard M. Bernard and James B. Jackson, in their respective capacities as president and treasurer of the corporation.

The judgment must be reversed as to the defendant, Charles E. Bernard. The government concedes in its brief "that the evidence of Charles Bernard's guilt lacks the overwhelming persuasiveness of the case against Leonard Bernard and Jackson." We are convinced upon a review of the record that the evidence against this defendant lacks overwhelming persuasiveness to such extent that there is no evidence of his guilt of the crime charged.

Viewed in the light most favorable to the government, the evidence shows only that Charles Bernard was the vice-president of the corporation in 1948 and that he participated to some extent in the conduct of the corporate business in that year. The evidence fails to show that he had any knowledge of the books and records of the corporation, or that he participated in the preparation of the corporate tax return for 1948 or had any knowledge as to the filing or content of that return. His motion for acquittal made at the close of the government's case should have been granted.

The remaining defendants, Leonard M. Bernard and James B. Jackson, who are hereinafter referred to as defendants, except as the context otherwise requires, assert a number of alleged procedural errors as a basis for reversal of the judgment. In order that these alleged errors may be placed in focus, the following summary of background facts and of the procedural chronology of the trial is set forth in advance of discussion of the particular errors alleged.

The theory of the government's case was that defendants, as officers and agents of Bernard Bros., adopted a policy of selling a substantial part of the corporation's new 1948 automobiles to used car dealers for a cash bonus over and above the manufacturer's list price; that, upon the sale of such cars for a cash bonus, the list price only was entered in the corporation's sales records; and that bonus payments received for such cars were not included in the corporation's gross sales as reported in the 1948 corporation tax return. To sustain its burden of proof upon that theory, the government undertook to prove the receipt by defendants and other agents of the corporation of cash bonus payments upon the sale of 103 specific new cars sold in 1948, and the omission from the corporation tax return of the specific items of income reflected in the receipt of such bonus payments.

As the keystone of its specific-omitted-item proof, the government introduced into evidence the corporate records of Bernard Bros., and the key book of those records was the sales journal, which contained entries reflecting a sales price and a factory installed identification serial number for each new car sold by the corporation in 1948.

The foundation for introduction of the Bernard Bros. records was laid by the testimony of Robert H. Sharp, an internal revenue agent. Sharp testified that he had received the Bernard Bros. books, including the sales journal, from the defendant Jackson, in 1950. In July, 1950, Sharp and a second agent made a complete transcript of new car sales for the year 1948 as shown by the entries in those books and records. From comparison of that transcript with the Bernard Bros. sales journal, Sharp was able to testify that the sales journal was the same book from which he had made the transcript of new car sales in July, 1950. Sharp further testified that the net taxable income figure of $298,833.64, reported on the Bernard Bros. income tax return for 1948, was derived from the books which he had examined, and that the closing journal entries of all profit and loss accounts shown upon the corporation's books agreed, precisely, with corresponding items reported on the return. He testified that he could identify the books, including the Bernard Bros. sales journal, as records kept by Bernard Bros., because they had been supplied to him at his request by the defendant, Jackson, and had been identified to him as the Bernard Bros. books by both Jackson and Leonard Bernard. Sharp also testified that Leonard Bernard had stated to him in 1950 that all gross income of Bernard Bros. for 1948 was reflected in the books supplied to Sharp by Jackson and in the corporation tax return filed on behalf of the corporation for 1948.

The testimony of Sharp and the Bernard Bros. books constituted the first leg of the government's specific-omitted-item proof. The second leg of proof was approached through the testimony of witnesses and certain records of used car dealers which tended to show that each of the 103 new cars had actually been sold to a used car dealer, either directly or indirectly, and that defendants and agents of Bernard Bros. had received a greater price for each of those cars than that shown by the corporation's books.

The 103 sales fell into two categories, direct and indirect. Adley Lorbeer, Anthony Volante and officers of Stoltz Motors, Inc., which is hereinafter referred to as Stoltz, testified with respect to a number of transactions in the first category. For example, Volante testified that he had purchased new Plymouths from Bernard Bros. in 1948 and that he had dealt with the sales manager George Smith in these transactions. He identified 7 invoices which he had obtained from Bernard Bros. with the delivery of new Plymouths purchased in 1948 from that corporation. Each of those documents identified, by factory serial number, one of the new automobiles shown by the Bernard Bros. sales journal as having been sold in 1948. He further testified that he had paid exactly $400.00 more than the invoice price for each of the automobiles purchased.

The other direct sale testimony was similar, consisting of the testimony of witnesses and the identification of invoices, checks or business records tending to show the purchase in 1948 by a used car dealer witness of specific new automobiles which could be identified with entries in the Bernard Bros. sales journal. In some instances the government sought to prove the bonus price paid for specific cars by oral testimony. In others, the evidence of amount of bonus payments was reflected upon the car dealer's records.

The second category of transactions, indirect sales, encompassed a majority of the specific transactions to which the government's evidence related. In indirect transactions, new cars were channeled to used car dealers through third parties who were commonly known to the trade as "bird-dogs".

"Bird-dogs", Edward Gallagher, Lawrence Fisher, Anthony Antonucci, Raymond Stoltz and Joseph D. Kaziny, were key government witnesses relative to indirect sales.

The testimony of Gallagher is representative of the "bird-dog" evidence adduced by the government. Gallagher testified that he had purchased a number of new cars in 1948 from agents of Bernard Bros. for Nichols Motor Sales, a used car dealer, which is hereinafter referred to as Nichols. He could not recall the dates and auto serial numbers involved in any transaction, but stated that, in each instance, he paid cash for the car purchased and received a Bernard Bros. invoice for each car purchased. He further testified that the car and invoice were delivered by him to Nichols.

Gordon Nichols and other Nichols' employees were then called by the government to lay the foundation for the introduction of records kept by Nichols relative to the purchase of cars in 1948. Those records, and the testimony relative thereto, tended to prove that Nichols had purchased 35 new cars from Gallagher in 1948 which were shown by the sales journal of Bernard Bros. as having been sold by that corporation.

The evidence of other "bird-dog" transactions followed the same sequence — the testimony of the "bird-dog", followed by introduction of the records of the used car dealer for whom he had purchased new cars.

Although the testimony as to each particular transaction differed, the transactions as to which evidence was adduced were all similar in...