United States v. Elaine Martin
2015 U.S. App. LEXIS 13828
| 9th Cir. | 2015Background
- Elaine Martin owned MarCon, a construction company that installed highway guardrails and sold used materials; she hid proceeds from used-material sales (2002–2008) and failed to report several hundred thousand dollars to the IRS.
- Martin also obtained numerous federal and state contracts by misrepresenting her and MarCon’s eligibility for SBA and DBE programs reserved for disadvantaged businesses; MarCon performed the contracts successfully.
- The government charged Martin with subscribing false federal tax returns and multiple fraud-related offenses; jury convicted on tax and fraud counts.
- At trial the government introduced evidence of a 1996–1997 Idaho state tax audit and settlement in which Martin had claimed questionable farm deductions; the government argued this showed Martin’s knowledge and propensity to cheat on taxes.
- At sentencing the district court applied the Guidelines’ “government benefits” special rule and calculated loss as $3 million (profit), yielding an 18-level enhancement and an 84-month sentence; the court also entered a $3+ million forfeiture.
- The Ninth Circuit vacated Martin’s federal tax convictions and vacated the sentence (remanding for resentencing), but affirmed the fraud and obstruction convictions in a separate memorandum disposition.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of prior Idaho state tax audit under Fed. R. Evid. 404(b) | Gov: prior audit shows Martin’s knowledge of tax duties and intent; admissible to prove knowledge | Martin: audit was remote, unrelated (state farm-deduction issue), and impermissible propensity evidence | Admission of state-audit evidence was abuse of discretion and not harmless as to the federal tax convictions; convictions for subscribing false returns vacated |
| Prejudice balancing under Rule 403 | Gov: evidence probative for knowledge | Martin: undue prejudice outweighed probative value; government used it as propensity evidence in closing | Even if marginally relevant, evidence was unduly prejudicial; affected tax counts |
| Proper Guidelines rule for loss calculation from fraudulently obtained DBE/SBA contracts (which were performed) | Gov: apply "government benefits" special rule or "regulatory approval" rule to count full contract value as loss | Martin: contracts were performed; apply general fraud rule (procurement fraud under note 3(A)(v)(II)) and credit value of services rendered | Court: special rules (3(F)(ii),(v)) do not apply; procurement-fraud rule under general note 3(A) governs loss calculation; remand to determine actual or intended pecuniary loss (or use gain only if loss cannot be determined) |
| Whether sentence must be vacated when one conviction vacated | Martin: vacate whole sentence because tax convictions vacated | Gov: — | Court: vacated entire sentence and remanded for resentencing because tax convictions vacated; forfeiture remains per concession |
Key Cases Cited
- United States v. Bailey, 696 F.3d 794 (9th Cir. 2012) (articulated four-part 404(b) test and excluded prior SEC civil complaint)
- United States v. Mayans, 17 F.3d 1174 (9th Cir. 1994) (requirement of logical connection/similarity between prior act and knowledge at issue)
- United States v. Leahy, 464 F.3d 773 (7th Cir. 2006) (DBE contracts treated as government benefits under Guidelines)
- United States v. Maxwell, 579 F.3d 1282 (11th Cir. 2009) (DBE program loss treated under government-benefits rule)
- United States v. Giovenco, 773 F.3d 866 (7th Cir. 2014) (applied regulatory-approval rule to minority-certification fraud)
- United States v. Crandall, 525 F.3d 907 (9th Cir. 2008) (advocates realistic economic approach to fraud loss)
- United States v. Blitz, 151 F.3d 1002 (9th Cir. 1998) (credit for legitimate services rendered when calculating loss)
- Stinson v. United States, 508 U.S. 36 (1993) (Guidelines commentary is authoritative absent inconsistency)
- Gall v. United States, 552 U.S. 38 (2007) (district court must correctly calculate Guidelines range before imposing sentence)
- United States v. Bennett, 363 F.3d 947 (9th Cir. 2004) (vacating entire sentence when a conviction is vacated)
- United States v. Voorhies, 658 F.2d 710 (9th Cir. 1981) (IRS audit notice used to prove willfulness)
- United States v. Brooke, 4 F.3d 1480 (9th Cir. 1993) (prejudicial prior-bad-acts references can make error non-harmless)