United States v. DeFabritus

• Decision Date: 11 April 1985
• Docket Number: No. 85 Cr. 144 (DNE).,85 Cr. 144 (DNE).
• Citation: 605 F. Supp. 1538
• Parties: UNITED STATES of America, v. John DeFABRITUS, Defendant.
• Court: U.S. District Court — Southern District of New York

605 F. Supp. 1538

UNITED STATES of America, v. John DeFABRITUS, Defendant.

No. 85 Cr. 144 (DNE).

United States District Court, S.D. New York.

April 11, 1985.

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Rudolph W. Giuliani, U.S. Atty., S.D. N.Y., New York City (Raymond A. Levites, New York City, of counsel), for U.S.

Stillman, Friedman & Shaw, P.C., New York City (Charles A. Stillman and Peter A. Chavkin, New York City, of counsel), for defendant John DeFabritus.

OPINION AND ORDER

EDELSTEIN, District Judge:

In an Indictment filed February 26, 1985, defendant, John DeFabritus ("DeFabritus"), is charged with conspiracy to defraud the United States and with numerous substantive violations of the federal income tax laws. DeFabritus has moved to dismiss the indictment on a number of grounds and to compel the government to provide him with a bill of particulars.

The indictment contains ten counts. Count One charges DeFabritus with conspiring to defraud the United States and to commit violations of the Federal income tax laws, in violation of 18 U.S.C. § 371. In substance, this count alleges that DeFabritus, the senior vice-president of ARC Electrical Construction Company ("ARC") and William Callahan, formerly executive president and treasurer of ARC and now deceased, together with other employees and third party vendors of ARC, conspired to interfere with the proper operation of the Internal Revenue Service ("IRS") by depriving it of accurate information necessary to compute and assess the individual tax liability of DeFabritus and other key ARC executives for the years 1978 through 1980, and the corporate tax liability of ARC for the same time period.

The remaining nine counts charge DeFabritus with violations of the tax laws flowing from his participation in the alleged conspiracy. Counts Two through Four charge DeFabritus with evasion of his individual income taxes, amounting to approximately $149,039.00 for the years 1978 through 1980, in violation of 26 U.S.C. § 7201. Counts Five through Seven charge DeFabritus with falsely subscribing to his individual income tax returns for the same years, in violation of 26 U.S.C. § 7206(1). Counts Eight through Ten charge DeFabritus with aiding, abetting and assisting in the preparation and filing of falsified and intentionally misleading corporate tax returns for ARC for the calendar years 1978 through 1980, in violation of 26 U.S.C. § 7206(2).

I. Motion to Strike "Legally Unsupportable Allegations".

DeFabritus moves to strike allegations in the indictment that relate to his failure to declare as income the value of a house he now owns that was allegedly built for him by his employer, ARC.¹ DeFabritus contends that he purchased the home at its appraised value and that the money and services provided by ARC to build the house were interest free loans. In support of this contention, DeFabritus cites a loan agreement with ARC, which was executed on August 17, 1981, three years after construction of the house had begun and eight months after the issuance by the Town of East Hampton of the house's certificate of occupancy. Under the loan agreement DeFabritus acknowledged a debt to ARC in the amount of $265,000.00, the appraised value of the house, for construction of the house. The agreement also provided that in consideration of DeFabritus's continued service for ARC, ARC would allow DeFabritus additional time to repay the "loan." DeFabritus also cites a written agreement entered into October 15, 1981, in which DeFabritus acknowledged an indebtedness of $165,000.00 to ARC's Pension Trust. DeFabritus states that the "facts are essentially undisputed between the parties" and that as a matter of law the acts as alleged in the indictment are not unlawful.

The government, however, presents a somewhat different factual background than that of the defendant. The government contends that the house, furniture and garden constitute concealed compensation to DeFabritus for which there was no intention to "repay" prior to the commencement of the investigation by the IRS into the financial affairs of ARC and its senior employees in the summer of 1980. The government contends that the 1981 "loan" agreements between ARC and DeFabritus were drafted after and in response to the commencement of the criminal investigation, and that prior to the execution of these agreements there is no evidence of any intention by DeFabritus to repay ARC for the construction of the house. Moreover, the government contends that the house did not take three years to complete, but was substantially completed and in periodic use by the defendant during the summer of 1979.²

There is sufficient probable cause of criminal liability under the government's version of what the defendant characterizes as a loan. Therefore, the court cannot strike these allegations from the indictment; it is jury's role, not the court's, to determine if the facts, as they find them, support the charges in the indictment.

II. Dismissal of the Indictment based on erroneous admission of evidence to the Grand Jury.

DeFabritus moves to dismiss the indictment based on the admission of erroneous evidence to the Grand Jury, specifically, the evidence regarding the home discussed above. Aside from the more than $270,000.00 of income attributable to the house, the indictment further charges that DeFabritus failed to declare approximately $25,000.00 of taxable income which he obtained over a three year period. DeFabritus contends that because, as a matter of law, he had no tax liability with respect to the home, the "erroneous" introduction before the Grand Jury of this $270,000.00 worth of undeclared taxable income irremediably prejudiced the Grand Jury. This motion is denied.

A facially valid indictment cannot be attacked based on the sufficiency of the evidence presented to the Grand Jury in the absence of gross abuse or purposeful deception by the prosecutor. Costello v. United States, 350 U.S. 359, 363-64, 76 S.Ct. 406, 408-09, 100 L.Ed. 397 (1956); see United States v. Hogan, 712 F.2d 757 (2d Cir.1983) (dismissal of indictment because of prosecutorial misconduct). There has been no such showing in this case. In United States v. Bari, 750 F.2d 1169 (2d Cir.1984), the court stated that "the admission of evidence within the realm of colorable relevance is not misconduct calling for the extreme remedy of dismissal of the indictment even if the prejudicial effect of such evidence outweighs its probative value." Id. at 1177.³

The evidence regarding the home was clearly relevant and does not provide a basis to dismiss the indictment. Further, it is not clear that the admission of the evidence was "erroneous." The characterization of the admission of this evidence as "erroneous" is based on the motion to strike the allegations pertaining to the home transaction as "legally unsupportable." This motion is denied for the reasons stated above. There is sufficient "probable cause" to support the government's contentions regarding the house to uphold the indictment.

Finally, the defendant assumes that the indictment must be dismissed if the court agrees with his version of the home transaction. The court, however, cannot assume that if the Grand Jury had not heard the evidence regarding the house, it still would not have indicted DeFabritus for not declaring approximately $25,000.00 of taxable income over a three year period, which saved DeFabritus $9,800.00 in taxes that would have been due and owing.

III. Motion to dismiss based on improper venue.

DeFabritus moves to dismiss various counts of the indictment based on improper venue. The government does not oppose the motion with regard to Counts Five and Six. Therefore, Counts Five and Six of the indictment are dismissed without prejudice to seeking an indictment in the proper venue.

Defendant asserts that the Southern District of New York is the improper venue for all but two of the remaining counts of the indictment.⁴ Counts Two, Three and Four allege income tax evasion in violation of 26 U.S.C. § 7201. DeFabritus contends that on a charge of attempted evasion, venue lies where the tax return was prepared, signed or filed. Because the returns charged in Counts Two and Three were neither signed, prepared or filed in the Southern District, DeFabritus contends that venue in this district is improper. The act of attempted evasion, however, consists not only of the preparation and filing of the return, but the preparation of the underlying documents supporting the return. Venue is proper "wherever the attempt to evade taxes was begun, continued, or completed." United States v. Slutsky, 487 F.2d 832, 839 (2d Cir.1973), cert. denied, 416 U.S. 937, 94 S.Ct. 1937, 40 L.Ed.2d 287 (1974). The alleged acts regarding the false petty cash vouchers which are part of the attempted evasion alleged are therefore part of the attempt charged. Where the evasion charge is based on the making of false records, proper venue for an evasion charge includes the district in which the corporation maintaining those records has its principle place of business. Beaty v. United States, 213 F.2d 712 (4th Cir.1954), vacated mem., 348 U.S. 905, 75 S.Ct. 312, 99 L.Ed. 710 (1955) (vacated for re-examination in light of "net worth decisions" in Holland v. United States, 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150 (1954), Friedberg v. United States, 348 U.S. 142, 75 S.Ct. 138, 99 L.Ed. 188 (1954), Smith v. United States, 348 U.S. 147, 75 S.Ct. 194, 99 L.Ed. 192 (1954), and United States v. Calderon, 348 U.S. 160, 75 S.Ct. 186, 99 L.Ed. 202 (1954)). These acts concerning the petty cash vouchers, which are alleged to have occurred in this district, establish a sufficient basis for venue in this court for the charges of attempted evasion of income tax.

Defendant contends that under the provisions of 18 U.S.C. § 3237(b), he may elect to be tried in the district where he resides, in this case, the Eastern District...