USA v. Kottwitz
| Decision Date | 19 August 2010 |
| Docket Number | No. 08-13740.,08-13740. |
| Citation | 614 F.3d 1241 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Theresa L. KOTTWITZ, Gerard Marchelletta, Jr., Gerard Marchelletta, Sr., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
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Robert P. Marcovitch, Atlanta, GA, Robert Gerald Bernhoft, The Law Office of Robert G. Bernhoft, S.C., Milwaukee, WI, Wilmer Parker, III, W. Bruce Maloy, Agne A. Krutules, James K. Jenkins, Maloy, Jenkins & Parker, Jerome J. Froelich, McKenney & Froelich, Atlanta, GA, for Defendants-Appellants.
Justin S. Anand, Lawrence R. Sommerfeld, U.S. Atty., Atlanta, GA, for U.S.
Appeals from the United States District Court for the Northern District of Georgia.
Before EDMONDSON and BIRCH, Circuit Judges, and HODGES, * District Judge.
Defendants Theresa L. Kottwitz [“Kottwitz”], Gerard Marchelletta, Sr. [“Senior”], and Gerard Marchelletta, Jr. [“Junior”] appeal their convictions and sentences for tax fraud-related charges. We find the evidence sufficient to support the jury's verdict regarding their conspiracy convictions and that the general good faith jury instruction that was provided by the district court fully encompassed Kottwitz and the Marchellettas' theory of defense on this charge. We find, however, that the district court erred in refusing to give Kottwitz's and the Marchellettas' requested special instruction to the jury on their good faith reliance on their accountant's advice. Because the evidence was sufficient for a properly instructed jury to convict on the charges of filing materially false personal income tax returns for 2000 as to Junior and Senior and for evading taxes as to Senior, we vacate and remand for retrial in light of the jury instruction error. Because the evidence was insufficient for a properly instructed jury to convict on the charge of aiding and assisting in the filing of a materially false corporate tax return for 2001, we reverse the convictions of Kottwitz, Junior, and Senior and remand with directions to enter a judgment of acquittal on this count.
Nastasi & Associates [“Nastasi”] is a carpentry union subcontractor in Garden City, New York which installs and finishes drywall. R20 at 438. It was formed by Frank Nastasi [“Frank”] and Senior in 1993, and was owned by Frank and Tom Nastasi, Hughey White, and Senior. In 2002, Nastasi's president was Frank's son, Anthony Nastasi [“Anthony”]. 1 Id. at 437, 439-42, 473. At Nastasi, Senior served as the Executive Vice President and was in charge of estimating. Id. at 442. Nastasi owned a majority interest in Circle Industries [“Circle”], a commercial drywall contracting business in Atlanta, Georgia formed by Junior in the early 1990s. 2 R17 at 95; R18 at 224; R20 at 370-71, 474. During the first few years after Circle began working in Atlanta, Circle was often short of cash, including what was necessary for payroll, and regularly obtained loans from Nastasi. Id. at 392, 430, 435, 521.
In 1998, Circle was awarded a construction project working on the Atlantis hotel and casino in Nassau, Bahamas. R18 at 224-25, 228. Because Bahamian employment law required that employees working in the Bahamas work for Bahamian companies, Circle organized Circle Industries, Ltd. as a Bahamian company to pay its employees. Id. at 239; R20 at 415.
About the same time, Senior decided that he wanted to retire from Nastasi and move to Atlanta to help Junior run Circle. On 31 December 1998, Senior and Frank entered into a stock swap agreement with the assistance of Nastasi's tax attorney, William Bernard, in which Senior exchanged his interest in Nastasi for the stock held by Nastasi in Circle, and Nastasi agreed to repay a $700,000 loan from Senior. 3 R20 at 444-45, 448-49, 478, 499-521; R27 at 1102-03; Govt. Exhs. 458-60. The stocks transfer was to have been completed prior to 1 January 2000. R26 at 289. At the time of the stock swap agreement, the Nastasi stock was owned 70 percent by Frank and 30 percent by Senior; the Circle stock was owned 80 percent by Nastasi. R20 at 448. Senior's 30 percent share of Nastasi stock was valued at $1,300,000; Nastasi's 80 percent share of Circle stock was valued at $1,050,000. Id. at 502-03; Exh. 473. As part of the consideration, Nastasi agreed to make an additional $250,000 payment to Circle. Id. at 503; Exhs. 456. 473, 473.1. The stock exchange was recorded in Nastasi's general ledger. R20 at 501. The $250,000 was wired from Nastasi to Circle on 11 February 1999, and was received and recorded in Circle's operating account where it was co-mingled with other monies in that account. Id. at 501-04; R24 at 198-207; R26 at 280-82. Schleger, who was performing accounting and auditing services for both Nastasi and Circle in 1999, considered the $250,000 transfer a loan and entered it on Nastasi's records as an “advance against cost to affiliate” [Circle] and on Circle's books as an advance from a shareholder [Nastasi]. R20 at 503-04, 505-07, 522-24; R24 at 199-200, 202-03; R26 at 280-82; Govt. Exh. 473.1. The $250,000 was spent from that account by the end of February 1999. R26 at 282-84. After the stock swap, Senior had no ownership interest in Nastasi and owned about a 75 percent interest in Circle; Junior served as President of Circle and owned about 25 percent. R18 at 153; R20 at 500; R26 at 288; Govt. Exhs. 5 at 2, 458-60. Senior devoted 75 percent of his time to Circle, while Junior devoted 100 percent of his time to Circle. Govt. Exh. 5 at 2. For tax year 2000, Circle had approximately $26 million in gross revenue, principally from large commercial projects such as dormitories, hospitals, hotels, nursing homes, and resorts. R18 at 224-25; R20 at 373; Govt. Exh. 5 at 1.
Senior's estimating expertise and the estimating software that he developed were “critical” to Nastasi's business, and he continued to work for Nastasi until he retired in 2000. R20 at 450. While working for Nastasi, Senior's W-2 statements were prepared by the Nastasi bookkeeping department and reviewed by their accountants. Id. at 518. Upon Senior's retirement, he entered into an agreement not to compete with Nastasi for construction work. The agreement also provided that Senior and Circle were employed as advisors and consultants to Nastasi, with payment to Circle, Senior or any company either or both of them owned. By separate agreement, Senior or his designee was guaranteed $1,300,000, to be paid in 213 weekly installments of $6,000 and one $4,000 installment as consulting payments, effective 1 January 2000. Id. at 450-51, 453-57, 508; R26 at 294; R27 at 1102-03; Govt. Exhs. 459, 460. Much of the consultation estimation work took place between the information technology departments of Nastasi and Circle working with Senior's estimating software, which both Nastasi and Circle used. R20 at 451, 458-59. On a weekly basis, Circle sent an invoice to Nastasi for Senior's consulting work, Nastasi paid Circle $6,000, and Circle deposited the $6,000 into its bank account. Id. at 459-62, R24 at 218; Exhs. 461-63, 465.1-.44, 466.1-.42, 467.1-.13. Nastasi recorded the payments as “consulting fees” and Circle recorded them as “other income.” R20 at 458-61, 509, 545, 555-60; R22 at 163; R24 at 215. No other checks or monies were posted to the “other income” account. R20 at 557. The payments were included on Nastasi & Associates' corporate income tax return, which were audited by the IRS, as consulting fees. Id. at 510, 530-31.
Kottwitz was employed as a bookkeeper/controller for Nastasi. Id. at 504. While at Nastasi, Kottwitz worked with Nastasi's outside accountant, Gary Schwartz [“Schwartz”], while he was working with the Stanley Schleger independent accounting firm 4 and after he had opened his own practice. Id. at 424-25, 497, 513, 521; R22 at 30-33, 36-38, 156. Schwartz performed work on the Nastasi tax returns at both the Nastasi and Schleger accounting offices. Id. at 35.
Kassandra Logan [“Logan”] began working for Circle in 1994 and, beginning in 1995, performed data entry for accounts payable and estimating. R20 at 370-72. She learned Circle's Emque accounting program from Kottwitz during a trip to New York and spoke to her on the telephone if she had any questions. Id. at 370, 374. Logan explained that, when an invoice for goods or services was received at Circle, it was opened by the receptionist and sent to an accounts payable clerk, who then matched it to a shipping or delivery ticket to insure that the materials had been received, and entered the job name and number and general ledger information onto the invoice. Id. at 375, 383, 422-23. Circle received between 50 and 100 invoices each day. Id. at 423; R26 at 312. The job name reflected the project and the job number was assigned by year and the historical order of the awarded job. Id. at 376-77. The standard job number consisted of five digits: the first two represented the year that the project began, and the last three were assigned consecutively in chronological job order. Id. The accounts payable clerk determined what job and general ledger number to assign to each invoice, entered the invoice data into the Emque program, and filed the invoice into an unpaid invoice file. R20 at 388-89, 423; R26 at 312-13. Circle accounts employees made about 2000 entries to the Emque program per month. Id. at 315. If journal entries or reclassifications were made on the Circle books, they were done under the instruction of Kottwitz or Schwartz. R20 at 408-09. About once a month, an accounts payable report of unpaid invoices was printed and given to Junior for the selection of invoices to be paid. Id. at 389-90, 423-24. Junior had signature authority for Circle; Logan and other accounts payable employees had a signature stamp that they frequently used. Id. at 395-96. Logan provided copies of the...
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