United States v. Brown, 688-70.

• Decision Date: 14 July 1971
• Docket Number: No. 688-70.,688-70.
• Citation: 446 F.2d 1119
• Parties: UNITED STATES of America, Appellee, v. Harry Britt BROWN, Jr., also known as Harry B. Brown, Jr., Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

446 F.2d 1119 (1971)

UNITED STATES of America, Appellee, v. Harry Britt BROWN, Jr., also known as Harry B. Brown, Jr., Appellant.

No. 688-70.

United States Court of Appeals, Tenth Circuit.

July 14, 1971.

Richard B. Buhrman, Washington, D. C. (Johnnie M. Walters, Asst. Atty. Gen., Meyer Rothwacks, Crombie J. D. Garrett, John P. Burke, Washington, D. C., with him on the brief), for appellee.

Roger Sherwood, Wichita, Kan. (W. A. Kahrs, Wichita, Kan., with him on the brief), for appellant.

Before SETH, McWILLIAMS and DOYLE, Circuit Judges.

McWILLIAMS, Circuit Judge.

This is an income tax evasion case. Harry Britt Brown, Jr., hereinafter referred to as the defendant, was charged in a six-count indictment with attempting to evade income taxes for the calendar years of 1959, 1960 and 1961, and in connection therewith he was also charged with having willfully subscribed to false income tax returns for the same calendar years, all in violation of 26 U.S.C. §§ 7201 and 7206(1). Trial by jury resulted in guilty verdicts on each of the six counts. On appeal these several convictions were reversed on the ground that the trial court had erred in excluding transcripts of the sworn oral testimony of defendant's business superior taken by the Government in ex parte investigative proceedings. United States v. Brown, 411 F.2d 1134 (10th Cir.).

Retrial of the case was to the court, sitting without a jury, the defendant waiving trial by jury pursuant to Fed. R.Crim.P. 23(a), but requesting that in addition to general findings the trial court also find the facts specially as provided for by Rule 23(c). The second trial culminated, as did the first one, in a judgment of guilty on all six counts. The defendant now appeals for a second time his several convictions.

For general background information, see our earlier opinion in this matter. As indicated therein, the defendant was employed for the years here in question, and for many years prior thereto, in the advertising department of the Wichita Eagle, a newspaper. In an effort to gain advantage in its highly competitive struggle with a rival newspaper, the Eagle engaged in the practice of trading advertising space in its paper in exchange for merchandise and services of the advertiser. This practice of so-called "trade outs" was used to a limited degree prior to 1954, but from 1954 to 1961 was apparently used on a rather large scale. For example, in 1959, 1960 and 1961 the total value of the merchandise and services received by the defendant from those placing advertising in the Eagle was approximately $70,000, no part of which was reported by the defendant as income. Nor was said sum, or any part thereof, reported by the Eagle during the years in question as income, although sometime later it did file amended returns for the years in question which reflected a portion of such sum as income.

The defendant's basic position is that the merchandise and services thus received did not represent taxable income because he at all times had an agreement to reimburse the Eagle for any property received by him which was not used in the business of the Eagle. Indeed, this is the nub of the controversy: the existence or nonexistence of an agreement between the defendant and the Eagle that the defendant was obligated to reimburse the Eagle for the value of merchandise and services received by him in exchange for advertising space in the Eagle. The Government and the defendant both agree that the former as a part of its overall burden of proof had the burden of showing, prima facie, that there was no such agreement to reimburse. In this regard the Government concedes that if its evidence is legally insufficient to support the finding of the trial court that there was no such agreement, then the convictions must be reversed. However, the Government's position is that the evidence on this point is sufficient to support the trial court's finding.

Conversely, the defendant's position is that the evidence on this point is insufficient. According to counsel, the only "affirmative" testimony on this phase of the controversy comes from the defendant himself, who testified that he was at all times obligated by oral agreement to reimburse the Eagle for the value of the merchandise and services received by him in exchange for advertising space in the Eagle. Counsel emphasizes that the defendant's testimony as to the existence of such an agreement to reimburse was corroborated by the sworn statements of his business superior given an agent of the Internal Revenue Service and that this was the sum total of the evidence on this particular matter. On this state of the record, argues the defendant, his convictions must be reversed. We do not agree. In our view of the record the facts and circumstances are such as to support the determination by the trial court that the defendant was not by any agreement obligated to reimburse the Eagle for the value of merchandise and services thus received and that accordingly such value did represent taxable income to the defendant. In other words, the defendant's testimony on this point did not resolve the matter, and this is true even though the sworn testimony given the Internal Revenue Service by the defendant's superior tended at least in some degree to support his theory of the case. Rather, such testimony merely raised a disputed issue of fact that has now been resolved by the trier of the facts, namely, the trial court.

Some excerpts from the detailed findings of fact made by the trial court will hopefully point up the nature and flavor of the controversy. The trial court found, inter alia, as follows:

"3. To place the newspaper in a better competitive position with a rival newspaper, The Wichita Beacon, Clyde W. Speer, Executive Vice President and Treasurer of The Eagle, authorized his son, Jack Speer, Business Manager; Royce Sehnert, Credit Manager; and the defendant to trade advertising in The Eagle to local merchants, retailers and contractors in Wichita in exchange for merchandise, goods and services. This was known in the business as a trade out. This practice was known to and approved by the Board of Directors.

"4. The defendant, Jack Speer and Sehnert did not turn over to The Eagle all of the merchandise and goods or the value of the services rendered by the merchants, retailers and contractors, but instead converted them to their own personal use. The value of the property and services so received by the defendant, personally, and not turned over by him to The Eagle, amounted to $25,133.66 in 1959, $34,947.14 in 1960 and $8,183.32 in 1961. These amounts were made up in part of carpeting, drapes, furniture, Buddha statuary, sweepers, pillows and pads, and labor for a train table and playhouse from House of Carpet; and RCA TV, Amana Freezer and Westinghouse Refrigerator from Superior Appliance Company; TV sets, stereo sound equipment and installation and phonograph records from Stark Suburban Sound, all to furnish the defendant's personal residence. A water softener was installed at the defendant's personal residence by Culligan Soft Water Company; termite control service for defendant's personal residence was obtained from Interstate Exterminators; the personal residence was remodeled by McCluggage, Inc.; defendant's personal furniture was repaired and upholstered by Riddel Furniture; the furnace and air conditioning equipment at defendant's personal residence was serviced by J. H. Bowman Co.; and the grounds surrounding the personal residence were beautified by shrub planting, tree and hedge trimming by Reid Brothers Tree Surgery.

"The defendant received various automobiles from...