United States v. Handy

Decision Date22 March 1972
Docket NumberNo. 71-1924.,71-1924.
PartiesUNITED STATES of America, Plaintiff-Appellee, v. C. Jon HANDY, Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

Richard G. Sherman (argued), Beverly Hills, Cal., for defendant-appellant.

Richard Rosenfield, Asst. U. S. Atty. (argued), Robert L. Meyer, U. S. Atty., Los Angeles, Cal., for plaintiff-appellee.

Before CHAMBERS, Chief Judge, and WEICK* and CARTER, Circuit Judges.

As Amended on Denial of Rehearing and Rehearing En Banc March 22, 1972.

WEICK, Circuit Judge:

In Counts 1 and 2 of a 5-count indictment returned by the Grand Jury, Handy, as manager of Palm Springs Panorama, Inc. ("P.S.P."), was charged with filing false and fraudulent income tax returns and wilfully attempting to evade income taxes owed by said corporation for the calendar years 1964 and 1965, in the respective amounts of approximately $350,020 and $241,030, in violation of 26 U.S.C. § 7201. In Counts 3 and 4 Handy was charged with wilfully aiding, assisting, counseling and procuring the preparation and presentation of fraudulent income tax returns for P. S.P. for said calendar years, in violation of 26 U.S.C. § 7206(2). In Count 5 he was charged with wilfully attempting to evade taxes of about $6,000 in behalf of himself and his wife, in violation of 26 U.S.C. § 7201. In a separate one-count indictment he was charged with submitting to an Internal Revenue Agent a false document purporting to be a Management Fee Agreement, in violation of 18 U.S.C. § 1001.

At the conclusion of a 15-day trial, Handy was found guilty by a jury on Counts 1, 2, 3 and 4 of the indictment, and acquitted on count 5. He was found guilty also on the separate indictment charging him with submitting a false document to an Internal Revenue Agent. He was sentenced under the provisions of 18 U.S.C. § 4208(c) to five years' imprisonment on each of the counts on which he was found guilty, the sentences to run concurrently. He was released on a $10,000-bail bond pending appeal.

The charges on which Handy was convicted stemmed from alleged phony deductions taken in the income tax returns of P.S.P. in the amount of $709,963, labeled "Management Services and Consultant fee" in the year 1964, and $900,000 in the year 1965 for forfeited deposit on an alleged purchase of land.

There was substantial evidence that the sum of $709,963 was not paid by P. S.P. to Handy in the year 1964, or at any other time; that the alleged written contract providing for payment of said sum was spurious; and further, that the forfeited deposit which was deducted was fictitious. The alleged fictitious loss was not entered on the corporate books until after the return had been filed.

The profits of P.S.P. for ten months in 1964 amounted to $762,000. It had made provision for federal taxes amounting to $374,000. The deduction of $709,963, if valid, would have wiped out most of the profits for that year and would have eliminated most of the income tax.

Handy had entered into a written agreement with Messrs. Kagan, Manchel and Silverman (the owners of all of the shares of stock of P.S.P.) on December 14, 1964, to purchase their shares of stock for $4,000,000. He negotiated a corporate loan for P.S.P. from Transamerica Financial Corporation, the proceeds of which were used to pay for said stock.

There was evidence that the shareholders who sold their shares to Handy refused to allow him any compensation for so-called management and consulting services. In the written contract for the purchase of said shares Handy waived any claim for such services against either P.S.P. or said shareholders.

In appellant's brief it is stated:

"During the trial witnesses for the prosecution testified that the management fee agreement and forfeited deposit documents were false whereas witnesses for the defense testified that they were true."

In our judgment, the overwhelming evidence supports the Government's contentions with respect to these two deductions. Appellant's briefs are addressed to other issues which we will consider.

I The Insanity Defense

The principal defense of Handy was that he was insane at the time the alleged criminal acts were committed. This, of course, is not the usual defense in income tax evasion cases.

There was substantial evidence that during the period of time in question Handy was able to and did engage in extensive negotiations in important and complex business transactions. At one time he operated an income tax service in Las Vegas, Nevada. He held himself out as being as expert in income tax matters, particularly in the area of tax deductions. He set up an elaborate scheme to avoid taxes in the present case. To people with whom he dealt he did not appear to be insane.

Handy relies on the testimony of four psychiatrists and one psychologist to substantiate his claim of insanity. One of the psychiatrists who testified for the defense was court-appointed. They examined Handy in 1970, about five years after the critical dates of 1964 and 1965.1 They testified in substance that Handy had paranoid schizophrenia; that he lacked capacity to appreciate the wrongfulness of his conduct; that he was not in control of his actions; and that he could not have criminal intent to defraud the Government.

Dr. Wilkens, who testified for Handy, admitted that where a person is acting rationally in his business areas, that fact would suggest that his disorder was minimized at that time. To the same effect was some of the testimony of Dr. Suarez. Also, Handy was able to advise one of the psychiatrists who examined him as to the Ninth Circuit's rule in insanity cases.

Dr. Deering, a court-appointed psychiatrist who testified for the Government, was of the opinion that in 1964-1966 Handy did not lack substantial capacity to appreciate the wrongfulness of his conduct, or to conform his conduct to the requirements of the law, and that he was legally sane. He admitted that Handy had neurosis and that his case was difficult to diagnose.

In addition, the testimony of three lay persons was put in evidence by stipulation.

Handy contends that the evidence supporting his claim of insanity is overwhelming and that the District Court erred in denying his motion for judgment of acquittal. We disagree.

Handy's evidence was sufficient to overcome the presumption of sanity, and the burden of proof was then cast upon the Government to prove sanity beyond a reasonable doubt. Hartford v. United States, 362 F.2d 63 (9th Cir. 1966). The evidence must be considered in the light most favorable to the Government.

United States v. Nelson, 419 F.2d 1237 (9th Cir.1969); Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L. Ed. 680 (1942); Wendt v. United States, 394 F.2d 627 (9th Cir.1968).

While the testimony of lay witnesses, standing alone, cannot rebut the testimony of Handy's psychiatrists and psychologist, Buatte v. United States, 330 F.2d 342 (9th Cir.1964), it is important evidence to be taken into account with other evidence in the case, particularly the testimony of the Government psychiatrist, Dr. Deering, which conflicted with the testimony of defendant's experts.

The fact that the defense had more experts to testify than the plaintiff had, is not of controlling importance. The weight of the evidence is not determined by the number of witnesses who testify for either side, but by the quality of their testimony. The credibility of experts is to be determined by the jury, not by the court.

In our opinion there was substantial evidence to support the jury's verdict and we will not disturb it.

We find no violation of the accused's Fifth and Sixth Amendment rights in the order of the District Court appointing two psychiatrists to examine him.2 The order provided:

"If defendant does not comply with this order he shall be precluded at trial from presenting testimony upon the issue of his alleged mental capacity by any expert by whom he has been interviewed."

This order was materially different from the order which was questioned in Wade v. United States, 426 F.2d 64, 74 (9th Cir.1970).

It would indeed be anomalous if defendant were permitted to offer psychiatric testimony to support his defense of insanity, and by refusing to submit to an examination by a court-appointed psychiatrist preclude the Government from offering testimony to the contrary. The examination ordered by the Court was authorized by statute. 18 U.S.C. § 4244. The statute contains protective features barring the use of any statement made by an accused person on the issue of guilt. Indeed the Court may even have inherent power to make such an order.

The order entered here did not compel "communications" or "testimony" on the issue of guilt of the defendant. It may be likened to compelling blood tests, handwriting exemplars, "fingerprinting, photographing or measurements, to write or speak for identification, to appear in court, to stand, to assume a stance, to walk, or to make a particular gesture."2a Schmerber v. California, 384 U.S. 757, 86 S.Ct. 1826, 16 L.Ed.2d 908 (1966). See also Gilbert v. California, 388 U.S. 263, 87 S.Ct. 1951, 18 L.Ed.2d 1178 (1967).

Other Circuits have upheld such an order. United States v. Baird, 414 F.2d 700 (2d Cir.1969); United States v. Bohle, 445 F.2d 54 (7th Cir.1971); United States v. Albright, 388 F.2d 719 (4th Cir.1968); Pope v. United States, 372 F.2d 710 (8th Cir.1967).

II The Allen Charge3

The case was submitted to the jury on Friday morning, September 25, 1970. The jury deliberated all day Friday, until 6:00 p.m., and was excused until the following Monday at 9:30 a.m. It deliberated all day Monday, until 5:15 p.m., when it reported to the Court that it was unable to reach a verdict.

The Court conferred with counsel for the Government and for the defendant. The Court stated what transpired at this conference, in denying the motion for a new trial:

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