United States v. Meredith

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: M. SMITH
• Citation: United States v. Meredith, 685 F.3d 814, 110 A.F.T.R.2d 2012, 12 Cal. Daily Op. Serv. 7230, 2012 Daily Journal D.A.R. 8802 (9th Cir. 2012)
• Decision Date: 26 June 2012
• Docket Number: 05–50457,Nos. 05–50452,05–50473.,s. 05–50452
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Lynne MEREDITH, a/k/a Bonita Lynne Meredith, Lynne Meridith, Lynn Meridith and Lynn Meredith, Defendant–Appellant. United States of America, Plaintiff–Appellee, v. Teresa Manharth Giordano, Defendant–Appellant. United States of America, Plaintiff–Appellee, v. Gayle Bybee, Defendant–Appellant.

685 F.3d 814

110 A.F.T.R.2d 2012-5157

12 Cal. Daily Op. Serv. 7230

2012 Daily Journal D.A.R. 8802

UNITED STATES of America, Plaintiff–Appellee,

v.Lynne MEREDITH, a/k/a Bonita Lynne Meredith, Lynne Meridith, Lynn Meridith and Lynn Meredith, Defendant–Appellant.

United States of America, Plaintiff–Appellee,

v.Teresa Manharth Giordano, Defendant–Appellant.

United States of America, Plaintiff–Appellee,

v.Gayle Bybee, Defendant–Appellant.

Nos. 05–50452, 05–50457, 05–50473.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 9, 2012.

Filed June 26, 2012.

Gretchen Fusilier (argued), Carlsbad, CA, for defendant-appellant Teresa Manharth Giordano.

Joe Alfred Izen, Jr. (argued), Bellaire, TX, for defendant-appellant Lynne Meredith.

Marcia J. Brewer, Culver City, CA, for defendant-appellant Gayle Bybee.

André Birotte Jr., United States Attorney, Robert E. Dugdale, Assistant United States Attorney, Chief, Criminal Division, and Jean–Claude André (argued), Assistant United States Attorney, Los Angeles, CA, for the plaintiff-appellee.

Appeal from the United States District Court for the Central District of California, Dean D. Pregerson, District Judge, Presiding. D.C. Nos. CR–02–00372–DDP–01, CR–02–00372–DDP–4, CR–02–00372–DDP–02.

Before: ANDREW J. KLEINFELD and MILAN D. SMITH, JR., Circuit Judges, and ALGENON L. MARBLEY, District Judge.^*

OPINION

M. SMITH, Circuit Judge:

Defendant–Appellants Lynne Meredith, Teresa Manharth Giordano, and Gayle Bybee appeal their jury convictions for conspiracy to defraud the United States, mail fraud, false representation of a Social Security number, passport fraud, and failure to file income tax returns. Their convictions arose from their participation in businesses that helped customers evade federal and state income taxes.

Defendants–Appellants contend that their convictions violate the First Amendment. We agree that mere advocacy of tax evasion—and nothing more—cannot support convictions for conspiracy or fraud. However, the defendants did far more than advocate. They developed a vast enterprise that helped clients hide their income from federal and state tax authorities. Accordingly, we reject their claims that their convictions violated the First Amendment. We also reject Giordano's claim that the indictment erroneously included misdemeanor crimes among the eighty-one objects of the felony conspiracy count, and her challenge to the district court's jury instruction on the crime of failure to file income taxes. However, we vacate Giordano's restitution order and remand for recalculation because the district court failed to consider evidence that Giordano presented at sentencing.

Defendants–Appellants' other claims of error are addressed in a memorandum disposition filed contemporaneously with this opinion.

FACTUAL AND PROCEDURAL BACKGROUND

Beginning in 1994, Meredith owned and operated various businesses, including We the People (WTP), Free the People, Sovereignty Pure Trusts, and Liberty International. These organizations sold books and held seminars that instructed people how to avoid paying any personal income taxes. Giordano worked for WTP, and other Meredith-created businesses, as a paralegal, drafting correspondence to the IRS and the California Franchise Tax Board on behalf of clients. Bybee served as International Marketing Director for Liberty International and trust salesperson for Liberty International and Sovereignty Pure Trusts.

Meredith wrote two books, “How to Cook a Vulture” and “Vultures in Eagle's Clothing,” which explained how people could stop paying income taxes. The books instructed customers to falsely report to the IRS that they did not owe income taxes. Meredith and Bybee also organized seminars in which Meredith instructed customers how to evade paying income taxes.

At the heart of the defendants' operations was a financial instrument known as a “pure trust,” which they claimed was exempt from taxes. The defendants sold these trusts to customers who learned about Meredith's theories at seminars and in her books. WTP opened bank accounts for customers using a nine-digit “trust identification number,” which was not the customers' social security numbers or an employer identification number issued by the IRS for the purported trust.

Meredith, Giordano, Bybee, and co-defendants Betty Erickson, Gregory Karl, Nora Moore, Toni Smith, and Willie Watts were indicted on April 11, 2002. Count 1 charged them with conspiring to defraud the United States by impeding, impairing, obstructing, and defeating the lawful functions of the IRS in the ascertainment, computation, assessment, and collection of federal taxes, in violation of 18 U.S.C. § 371. Counts 2–12 charged them with mail fraud, in violation of 18 U.S.C. § 1341, and alleged that they sold “bogus trusts, bank accounts, and books misrepresenting that fraudulent income tax returns could legitimately be filed ... as true and accurate income tax returns.” Counts 13 and 14 charged Meredith with false representation of a Social Security number, in violation of 42 U.S.C. § 408(a)(7)(B). Count 15 charged Meredith with passport fraud, in violation of 18 U.S.C. § 1542. Counts 16–35 charged the defendants with misdemeanor failure to file income tax returns, in violation of 26 U.S.C. § 7203.

Smith pleaded guilty before trial. The remaining seven co-defendants went to trial on February 10, 2004. Defendants moved for judgments of acquittal at the close of the government's case, and the court deferred the ruling. The court granted the government's motion to dismiss counts 6, 7, 9, 10, and 11 on April 8, 2004, and it dismissed counts 2, 3, 4, and 5 against Bybee. On May 3, 2004, the jury found Meredith guilty on counts 1, 2, 3, 5, 8, and 13–20, Bybee guilty on counts 1, 21, 22, and 23, and Giordano guilty on counts 1, 2, 3, 5, 8, 24, and 25. The jury also found Karl, Watts, Erickson, and Moore guilty on various counts. Erickson and Moore did not appeal. We affirmed Karl and Watts's convictions in an unpublished decision on January 11, 2008. United States v. Karl, 264 Fed.Appx. 550 (9th Cir.2008).

On June 6, 2005, the district court sentenced Meredith to 121 months' imprisonment, Bybee to 60 months' imprisonment, and Giordano to 40 months' imprisonment. Bybee, Giordano, and Meredith filed timely notices of appeal, in June 2005.

JURISDICTION AND STANDARDS OF REVIEW

We have jurisdiction under 28 U.S.C. § 1291.

“We review de novo whether the district court's instructions adequately presented the defendant's theory of the case, but we review the instruction's precise formulation for an abuse of discretion.” United States v. Stinson, 647 F.3d 1196, 1215 (9th Cir.2011) (internal quotation marks and citation omitted).

Sentencing decisions are reviewed for abuse of discretion. See United States v. Carty, 520 F.3d 984, 993 (9th Cir.2008) (en banc).

DISCUSSION

I. Sufficiency of the evidence

Defendants–Appellants challenge the sufficiency of the evidence underlying their convictions for mail fraud, conspiracy, false representation of a Social Security number, and passport fraud.

To evaluate the sufficiency of the evidence on appeal, we conduct a two-part inquiry. First, we “must consider the evidence presented at trial in the light most favorable to the prosecution.” United States v. Nevils, 598 F.3d 1158, 1164 (9th Cir.2010) (en banc) (citation omitted). Second, we “must determine whether this evidence, so viewed, is adequate to allow any rational trier of fact [to find] the essential elements of the crime beyond a reasonable doubt.” Id. (internal quotation marks and citation omitted).

A. Mail fraud and conspiracy

Defendants–Appellants contend that insufficient evidence supports their conspiracy and mail fraud convictions because their conduct was protected by the First Amendment.

To evaluate this argument, we first outline the level of First Amendment protection the Constitution provides to anti-tax activities. Next, we examine the evidence supporting each of the mail fraud and conspiracy charges, and determine whether the First Amendment protects those acts.

1. First Amendment and anti-tax activities

The First Amendment prohibits any law “abridging the freedom of speech [.]” U.S. Const. amend. I. However, the Supreme Court has carved out some limited categories of “unprotected” speech, including “obscenity, defamation, fraud, incitement, and speech integral to criminal conduct.” United States v. Stevens, ––– U.S. ––––, 130 S.Ct. 1577, 1584, 176 L.Ed.2d 435 (2010) (citations omitted).

At issue here is the First Amendment exception that allows the government to regulate speech that is integral to criminal conduct. This exception first arose in Giboney v. Empire Storage & Ice Co., 336 U.S. 490, 69 S.Ct. 684, 93 L.Ed. 834 (1949), in which a state court prevented unions from picketing to force a distributor to enter an agreement that violated state anti-trade restraint law. Id. at 491–92, 69 S.Ct. 684. The Supreme Court upheld this ruling, rejecting the contention that “the constitutional freedom for speech and press extends its immunity to speech or writing used as an integral part of conduct in violation of a valid criminal statute.” Id. at 498, 69 S.Ct. 684.

In United States v. Freeman, 761 F.2d 549 (9th Cir.1985), we applied this exception to a tax evasion case. The defendant was convicted of fourteen counts of aiding and abetting, and counseling violations of the tax laws. Id. at 551. The jury was not instructed on a First Amendment defense, and therefore we reversed the convictions on the twelve counseling counts. Id. at 551–52. However, we affirmed the convictions on the counts for assisting in the filing of false returns. We held that “[i]n those instances, where speech becomes an integral part of the crime, a First Amendment defense is foreclosed even if the prosecution rests on words alone.” Id. at 552.¹

Meredith relies primarily on United States v. Dahlstrom, 713 F.2d 1423 (9th Cir.1983), which involved defen...