*1 Dist., May 1984.] Fourth Div. One. No. 11314. [Crim. PEOPLE, Plaintiff and Respondent,
THE SMITH, Defendant and Appellant. ARNHOLT
C.
Counsel Sheridan,
Simon & Sheridan, Simon, Thomas R. & A. Horvitz Douglas Greines, Martin, Horvitz, Greines, Horvitz & & Ellis J. Stein Levy, Richland, Alan G. Martin and Kent L. for Defendant and Richland Appellant. *22 General,
George Deukmejian and John de John Attorneys K. Van Kamp, General, Quon Bloom, W. Lillian L. and Carney, M. Jay Deputy Attorneys for Plaintiff and Respondent.
1127 Opinion (defendant) his conviction
DRUMMOND, appeals C. ArnholtSmith J.* fraud the 1979, year of tax for in trial1 of two counts 118-day after May 2; Code, 19406, 1 and (counts respective 1971 & 19405 Rev. Tax. §§ 4; & (counts 3 and Rev. Tax. counts tax 1973 ly), year two of fraud of theft 1973 Code, 19406, one count 19405 and respectively) §§ will not 5; (count Code, 487, 1). opinion This already lengthy Pen. subd. § twice; are presented facts the relevant protracted the facts by stating them. involving below in connection with the arguments First, is con- the law of discriminatory prosecution the defense regarding Second, of sidered with standard particular proof. attention to proper we consider what of theft be when beneficial owner of a type may for assets corporation obtains from the payment exchange corporation which are Finally, never delivered to the we address state corporation. tax crimes.
I Discriminatory Prosecution ever barred conviction No has finding discriminatory prosecution of discriminatory pros- claims of although a California criminal proceeding,2 * Chairperson Council. Assigned Judicial 15,000 Remarkably, pages. these to almost transcript 1 The of the trial amounts alone De only prosecution’s case-in-chief. proceedings presentation marathon involved This trial has led over detail. complex explored business world was elaborate fendant’s made, every argument regret reaching appellate We pages briefing
200
on each side.
necessary.
simply
but it
is not
66,
338,
Cal.Rptr.
Superior
(Hartway) (1977)
347-354
2 People
[138
v.
Court
19 Cal.3d
725,
1315];
Cal.Rptr.
(1975)
730-733
Cal.App.3d
G.
53
[126
562 P.2d
In re Elizabeth
907],
640,
cert. den.
818];
Cal.Rptr.
(1976)
People
Sperl
Cal.App.3d
v.
54
656-657 [126
9,
(1976)
Cal.App.3d
95];
62
97,
People
Serrata
v.
429
832
L.Ed.2d
97 S.Ct.
[50
U.S.
214,
144,
952];
(1977) Cal.App.3d
72
People v. Garner
Cal.Rptr.
24-25
84 A.L.R.3d
[133
829,
(1977)
843
838];
Cal.App.3d
75
Lyons Municipal
v.
Cal.Rptr.
Court
216-218 [139
635,
449];
(1978)
Cal.App.3d
666-670 [143
77
Cal.Rptr.
People v. Battin
845 [142
183];
171,
731,
S.Ct.
248],
99
cert.
ecution have led to of grants to discovery motions the defense. The support success that has defense, been achieved by this other than ob raising taining discovery, (1977) has post-Murgia, occurred in v. Serna 71 People 426], 229 Cal.App.3d (1980) v. 103 Cal.Rptr. People [139 Hertz Serna, 770 Cal.App.3d 233). In Cal.Rptr. the convictions defend ants for a criminal violation of the Education Code for to wilfully refusing send their children to public schools were reversed because the trial court failed to grant requested discovery as to how many other violators there Hertz, were in the (71 school 233-235). district at In Cal.App.3d pp. Penal Code section 995 motion was granted, because part, magistrate at the preliminary had denied a hearing opportunity develop evidence discriminatory enforcement cross-examination of police of (103 ficer witnesses 775-777). at More Cal.App.3d pp. to that important as to that ruling defendant and the involved in others to be appears Hertz the holding 995 motions were granted because the con properly magistrate ducted an extension in camera review documents determine whether they were from privileged discovery under Evidence Code section 1040 without creating (103 reviewable record of the in camera proceedings 777-780). Cal.App.3d pp. case, court,
In our the trial 15 pursuant Murgia, Cal.3d Bortin, interpreted by (then supra, 64 873 the most recent Cal.App.3d gov- case), erning heard arguments and evidence motion to pretrial dismiss the prosecution on the basis of discriminatory over the course enforcement of 10 days between 1 and March March 1977. Defendant does not contend he was denied an opportunity conduct sufficient but discovery, he does with disagree the court’s of no finding discriminatory prosecution and contends the finding followed from of the imposition burden of wrong proof.
Burden of Proof ”
“It is presumed that official
has
duty
(Evid.
been regularly performed.
Code,4
664.) This rebuttable
§
affects the burden
presumption
proof
288-289;
Criminal Proceedings,
2(a),
Annot.,
95
pp.
A.L.R.3d
also
§
see
What Con-
Discriminatory
stitutes Such
Prosecution or Enforcement
as to
of Laws
Provide Valid De-
738;
fense
Federal
2(a),
Annot.,
Criminal Proceedings, 45
Fed.
p.
A.L.R.
Com-
§
ment Note—Preconviction
for Raising
Procedure
Contention That
Enforcement
Penal
Statute or Law Unconstitutionally
404.)
Discriminatory, 4 A.L.R.Sd
286;
3 Murgia, supra,
(1977)
15
Municipal
Cal.3d
v.
Court
This is defense employed assessing presumption (Mur defendant. to burden of inatory prosecution impose proof Cal,3d 348; 305; 338, 286, Sperl, 15 19 Cal.3d gia, supra, Hartway, supra, 748; 739, 657; Street, 640, 54 89 Cal.App.3d supra, supra, Cal.App.3d G., 725, 733; 75 Lyons, supra, re 53 see In supra, Cal.App.3d Elizabeth Battin, 635, 829, 666.) 844; People 77 supra, Cal.App.3d Cal.App.3d 256, 211], (1967) 254 at Cal.Rptr. appears 265 Gray Cal.App.2d page been the of section 664 on estab to have first case to the impact observe and it been cited as discriminatory defense of has lishing prosecution 15 (Murgia, the burden of on the Cal.3d supra, defendant. imposing proof 348; 305; 54 Sperl, supra, at 19 Cal.3d at p. Hartway, supra, p. Street, 657; 844; at at su p. Lyons, supra, p. 75 Cal.App.3d Cal.App.3d 748.) pra, Cal.App.3d 89 at p. (254 Gray the cases
Interestingly, Cal.App.2d none of which followed 256) light claim of section evaluating discriminatory prosecution have elaborated on what is the standard of this is because Perhaps proof. the defense should be raised on a motion to dismiss pretrial (Murgia, supra, 286, 4; 338, 348; 293-294, Sperl, 15 Cal.3d fh. 19 Cal.3d Hartway, supra, 656-657; Hertz, 770, cf. supra, Cal.App.3d supra, Cal.App.3d 774), and the trial on the law to be applied. court need instruct itself (Battin, burden has been one. “heavy” supra, characterized Milano, 668; 156.) We assume Cal.App.3d Cal.App.3d a dif this characterization is the defense has been only because employed 256, 265-266). (see ficult one Gray, supra, establish Cal.App.2d 265 to Gray, supra, 254 established Cal.App.2d pages but the the standard is not the one of “clear and proof high convincing,” no lesser one of of the evidence.” We have proof “by preponderance there and for given hesitation that the reasons analysis for reaffirming and the Gray higher other reasons. The General Attorney argues wrong 664. is in order to behind section applicable standard effectuate policy has been “established It is true the official regularity presumption the determination other than to facilitate some implement public policy (§ 605). Sim is applied” of the action in which the particular presumption officials from it is true is to ilarly, governmental relieve policy served into The At question. whenever it is called having justify their conduct General very high proof seems to assume unless a standard torney are not it will officials imposed, easy be too show governmental merit, their without jobs particularly This contention is doing properly. when the policy served by section 664 is weighed against constitutional concern for equal protection which has rise to the given defense of discrim- inatory (See prosecution. Gray, supra, 266.) 254 Cal.App.2d “
Section 115 explains: ‘Burden of proof’ means the of a obligation party to establish by evidence a of belief requisite degree a fact in the concerning *25 mind of the trier of fact or the court. The burden of proof may require party raise reasonable doubt the existence or concerning nonexistence of a fact or that he establish the existence or nonexistence of a fact by a evidence, of preponderance the by clear and convincing proof, by proof beyond a reasonable doubt.
“Except law, as otherwise provided by the burden of requires proof proof by a preponderance of the evidence.”
The Attorney General contends all, section does not apply because section 664 creates a rebuttable the presumption burden affecting of Our proof. however, if understanding, there is a preponderance evidence demonstrating the nonexistence of official the regularity, presump tion of section 664 is rebutted. The Assembly Committee comment on sec tion 606 case, “In explains: the ordinary the whom it is in party against voked will have the burden of the nonexistence the proving presumed fact by a preponderance of the evidence. Certain the presumptions affecting burden of proof bemay overcome clear only by and convincing proof.” The presumption created by section 662 is an of a example presumption which is rebutted only by a clear and while section convincing showing, 664 is not (Gray, 256, 266, 12). Cal.App.2d fn. this
Accepting standard of for the defense of proof discriminatory prosecution, the next is whether question the trial court the imposed wrong burden. Apparently pursuant to an agreement court and the among par ties, the trial court ruled at the orally conclusion of the mo many pretrial tions on the understanding would be memorialized rulings later. Thus, the 16, 1977, court ruled on March orally the motion to denying dismiss for discriminatory while the prosecution, written followed on ruling May 1978.
The written ruling states “The burden pertinently: the defendant bears such making cases, claim is not made clear but the court holds it must be a relatively substantial showing, clear and perhaps showing by convincing evidence.” The oral was not as ruling identifying specific “Now, standard of proof. The court stated: I’m not what just sure standard dismiss, there is on proof this motion the defendants to but it seems or a showing showing me . . we’re about a substantial talking relatively . finder fact.” of comfort a substantial amount produces which 16, 1977, of March in the court’s minutes Defendant relies the recital and convincing no clear “finding that the motion was due to court denied a conflict between report- invidious There is evidence of prosecution.” tran- reporter’s we in favor of the er’s and clerk’s which resolve transcripts (See Cal.Rptr. (1983) v. Cal.3d People Smith script. 1098, 1103-1104 1152]; Ritchie People Cal.App.3d 659 P.2d did refer 462].) shows the trial court transcript Cal.Rptr. reporter’s of the oral ruling, in the course convincing to a burden clear evidence burden on a to show plaintiff but it was in the context that this was the “several,” “civil,” to be The court suggested intended fraud. presumably not identical. While burden the burden on defendant here was analogous, *26 identified, the are it was indications clearly the trial court is not imposed by erroneously high. Error in Burden Imposing Proof
Effect of of justifies Not trial court error reversal of a conviction. every VI, 13, California Constitution states: “No shall judgment article section aside, cause, new in on of misdirec be set or trial the granted, any ground evidence, or rejection tion of the or of of jury, the admission improper as to matter any any any error as to matter of or for error any pleading, cause, unless, the of of the entire including after an examination procedure, evidence, has the the of complained the court shall be of that error opinion resulted in a of miscarriage justice.” (1982) 31 v. Cal.3d Taylor
As
reiterated in
recently
People
at
“The traditional test
645 P.2d
page
Cal.Rptr.
115]:
a result more
of
error is
it is
that
‘reasonably probable
harmless
whether
in the absence of
favorable to the
would have been reached
appealing party
....)...
Some
(People
error.’
v. Watson
46 Cal.2d
are
a fair
that their violation
constitutional
deemed so basic to
trial
rights
However,
all constitutional er
automatic reversal.
not
requires
[Citations.]
reversal
se.
rors
to a
of due
necessitate
per
violation
amounting
process
involved,
is
the test to
Where federal constitutional error
[Citations.]
v.
that laid down
Court
Supreme
Chapman
is
applied
by
California
federal consti
that
a
(1967) 386 U.S.
.
‘before
Chapman
...
requires
harmless,
be able to declare
tutional error can be
the court must
held
’ (Chapman, supra,
doubt.
belief that it was
a reasonable
beyond
harmless
.)”
No case whether imposing California has addressed discriminatory prosecution of on a defendant establish proof seeking claim is a federal constitutional error. The error involved here is not like Sema, supra, There, that 229. the trial court Cal.App.3d improperly limited discovery intended to support discriminatory defense. prosecution situation, In that the remedy be a remand to additional might permit discov- (See ery. People Coyer (1983) 843-845 Cal.App.3d 376].) Cal.Rptr.
Neither party argues burden of imposition wrong proof a federal constitutional error. It bemay complete nonrecognition defense this would be a federal constitutional does error because it emanate from the equal clause of the protection federal Constitution (e.g., Murgia, 286, 290). 15 Cal.3d But to the defense by measure stan wrong dard is not the same sort error. Gray, supra, 254 Cal.App.2d 266, does page suggest are better equal protection concerns uti served lizing the burden of of a evidence. proof preponderance But the reasoning above shows the burden Gray chosen derives from proof section as the relative of the disability well gather evidence (ib “buried consciences files of the law enforcement agencies”
id.).
Federal courts
the same burden of
imposed
proof
have
defendants
to show
attempting
discriminatory enforcement prohibited by the
federal
(7th
clause. For
equal
United States v. Falk
example,
projection
1973)
Cir.
(one
Causality defense, must show “except
As one element of the (Murgia, supra, 15 for” the discrimination there be no prosecution would 286, 290, be to California 298). unique This appears Cal.3d element 753, (1973) Cal.3d 766-767 People v. 9 proof 5 The burden of related errors in Serrato People 65, 289], in Fosselman grounds v. Cal.Rptr. disapproved 512 P.2d other [109 1144], 855, People 572, 583, v. (1983) Cal.Rptr. P.2d 33 Cal.3d footnote 1 659 [189 112], sufficiently dif 492, are (1981) Cal.Rptr. Cal.App.3d [174 119 497-500 Takencareof the error they of whether be in our determination ferent need not further examined involved our case is reversible. cases, defense evidence to find a appellate 6 Innumerous other courts have reviewed discriminatory See 2 above. prosecution was not made out. footnote 1134 those
among states this recognizing (Annot., 280, defense 95 A.L.R.3d 287). Despite linguistic we similarity, do not think the causal connection intended by Murgia is the “but for” test discussed law.7 negligence Johnson (E.g., v. Union 234, Furniture (1939) Co. 31 237-238 Cal.App.2d 917]; P.2d Godwin 475, LaTurco 272 Cal.App.2d 305].) is, Cal.Rptr. That there must be somewhat more of a connection to establish the defense than that a is prosecutor biased. The bias improperly must be operating the instant as an factor in prosecution order important support hand, On finding causality. the other the defendant need not establish that the only reason for the is an prosecution one. improper Typ- ically, there will also be evidence of the defendant’s which wrongdoing, will prosecution argue (cf. its basis for pursuing proceedings Hart- way, supra, 338, 19 Cal.3d 351). short, In bias must be prosecutorial an cause of important one, but not the proceedings, only order to make out the causal required connection (Murgia, Cal.3d at supra, 298, 6). fin. p.
Improper Selectivity
Murgia, supra, 15 Cal.3d to make the out” appears “singling of a defendant an element of the defense of discriminatory It prosecution. is not every exercise of prosecutorial selectivity which violates the equal clauses, however, protection but only that founded on an selectivity invid 296-297, ious basis 299-300). Thus, (pp. the fact not violator every of the same law is itself prosecuted by establish, but only suggests, does im Serrata, proper selectivity. 338, 349-351; (Hartway, supra, 19 Cal.3d su 9, 24-25; Garner, pra, Cal.App.3d 214, 217-218; supra, Cal.App.3d Lyons, Battin, supra, 829, 844-845; 75 Cal.App.3d supra, Cal.App.3d 635, 667; Co., Ala Carte Catering supra, 10.) 98 Cal.App.3d Supp. Serrata, Milano, at Cal.App.3d pages supra, 89 Cal.App.3d page illustrate the defense dramatically is not es tablished aby showing statute has not been enforced penal against any one correct, else. This result is obviously or the first violator of a law could always claim discriminatory enforcement.
On hand, the other if the basis of prosecutorial selection is improper, should not matter in establishing discriminatory that other vio- prosecution lators of the same law are also This prosecuted. drawn implication may *29 from 286, 291, 2, Murgia, supra, 15 Cal.3d at footnote where the defend- ants were offenses, with charged of minor variety some as common as reckless driving malicious mischief. While one court stated point at 7 Hartway, 338, 351, supra, 19 implications Cal.3d does contain unfortunate to the con trary, only but in the context of holding. an alternative 290), free constitutionally “the issue here is whether the is (p. prosecution they to select these them because are only only defendants and prosecute class,” not to have been an argu- members a certain there does appear ment in that were being case that no other reckless drivers prosecuted. in defense be as it can be said an factor may important established so long one, the selection of the is the invidious regardless defendant prosecution of whether other from are also There- violators other classes prosecuted. fore, the fact of statistical of a alone will prosecution rarely uniqueness (See Griffin, establish it it. discriminatory may suggest prosecution, though 300, 307-308.) Cal.3d supra,
Invidious Basis
At the heart of the defense of is a discriminatory prosecution reason, reason, that the showing main or at least an for the important pros 286, ecution is an “invidious” one. 15 Cal.3d offered a Murgia, supra, variety definitions and and illustrations to this term. synonyms clarify “Unjustifiable” 300). was one to be an synonym “Arbitrary” (p. appears 302). other one One definition “no rational (p. is bears relationship law legitimate 302). enforcement interests” Illustrations of an unjusti (p. fiably arbitrary standard for in were race Murgia prosecution given 290, 294-296) 290, 300, 8). (pp. fn. also held the religion (pp. Murgia exercise of a worker’s union right associate with others was an 290, 302). invidious basis to select him for prosecution (pp. did
Murgia 302) not “the circumscribe entire of clas- attempt (p. range sifications that be in this Sex is another may ‘arbitrary’ context.” invidious Gamer, 338, basis (Hartway, 348). supra, supra, Cal.3d 72 Cal.App.3d 214, 217, at elaborated somewhat on fed- page Murgia that recognizing eral cases have held the of free exercise and other First Amendment speech Perakis, is also an rights invidious basis for a criminal prosecution. 730, 734, at in dictum that even the Cal.App.3d page suggests perhaps
class of be v. Alexis neighborhood bars might protected. Halford 486], 1030 to 1032 contains a Cal.App.3d pages Cal.Rptr. detailed examination of when characterized as invidious has been legislation or a violation of equal protection.
It is not to recite here the entire of classifications which appropriate range (See have been found to be from enforcement of the laws. protected unequal Annots., 302-308; 95 A.L.R.3d 45 A.L.R. Fed. pp. § § not, course, 746-750.) A criminal should initiated pp. prosecution because to a or is active belongs political party particular Bortin, (15 302), This is Cal.3d party.8 implicit Murgia, supra, activity qualified noting political party engages 8 This should be which in criminal 286, 303, 14). (Murgia, supra, prosecution immunized from 15 Cal.3d fn. *30 supra, Battin, (64 873, Cal.App.3d 875-876), (77 supra, Cal.App.3d Hertz, 667-668) and supra, (103 776). A defendant’s Cal.App.3d so- cial prominence, however, should not insulate him from in- prosecutorial (United terest States v. Ojala (8th 1976) Cir. 944-945). F.2d Indeed, prosecutions which involve prominent individuals have arguably biggest deterrent impact others who similar violations of contemplate law.
It must be remembered the purpose this recognizing defense discriminatory prosecution is to ensure that laws fair on their penal faces are not transformed their enforcers into unconstitutionally discriminatory laws (Murgia, supra, Cal.3d 294-297). An approach evaluating a defense is to rewrite the law it is if and to ask it now applied denies equal protection to its subjects. Courts have been able to statutes recognize which violate equal protection principles, and when enforcement of a penal terms, statute rewrites its a court will not hesitate to determine whether the enforcement has an invidious basis.
Improper Intent
Murgia also requires there be a “deliberate” character to the dis crimination before the defense is (15 286, 290, established 297-298, Cal.3d 300). are (id., Synonyms “purposeful” 300). “intentional” at p. opinion repeatedly indicates it is the deliberate out on an invidious singling basis is which If impermissible. it is this helpful, to be emphasis appears made Murgia in order to ensure the defense of enforce discriminatory ment succeeds only when the has the prosecutor proscribed “specific,” rath er than “general,” (See, v. Daniels intent. e.g., People 14 Cal.3d 860-862 Cal.Rptr. 1232].) 537 P.2d It would not be enough show, for example, that more women than men were arrested for being (see G., Hartway, supra, 19 Cal.3d prostitution 338; re In supra, Elizabeth Street, 725; 53 Cal.App.3d 739). When the conse Cal.App.3d of law quences enforcement produce treatment of pattern unequal sim classes, situated ilarly the defense of discriminatory enforcement is not es tablished. The requisite intent that the desired those conse prosecutor quences. The defense is established only when it an appears factor important in the prosecutor’s selection of the defendant is the wants to prosecutor punish in a membership class or exercise of protected protected rights.
Evidence Discriminatory Prosecution
In of the light above discussion the elements of the defense of discriminatory prosecution, is difficult to review the evidence produced *31 how at the motion to dismiss based on this defense and the trial imagine conclusion, court could have come to a different even applying proper the district took attorney standard Defendant was able to establish proof. a interest in his even an unusual amount of personal prosecution, perhaps interest for the The district initiated the attorney unusual case that was. of defendant the Franchise Tax Board on investigation calling personally he learned article that the federal Justice De- day through newspaper (IRS) had declined to an Internal Revenue Service recom- partment pursue tax fraud. The defendant be for IRS criminally prosecuted mendation of defendant had been initiated some three earlier and investigation years continued, had in a assessment defendant as well resulting jeopardy against as the recommendation for criminal prosecution. call,
About two weeks after the there was a phone meeting among high officials of the Franchise in Tax Board and the district office attorney’s which he personally participated. attorney The district promised prose- cute if violations were uncovered and staff for inves- promised support later, tigation. Almost a in year defendant received a sentence a federal court matter which the attorney district felt was “manifestly unjust,” which reaffirmed his interest defendant. He personally prosecuting ap- before the as a Other evidence peared jury witness. need indicting grand not be recited which attorney indicates district was interested personally defendant having prosecuted.
The fatal flaw in defendant’s is there is no evidence presentation virtually the district attorney’s interest had an He he was argues invidious basis. prosecutorial based on his in the while target membership Republican Party, the district attorney a Democrat. The evidence this only supporting contention is that years some four before call to the making phone Board, Franchise Tax one of the in his major issues successful campaign become district he attorney was would break defendant’s stranglehold San Diego politics. Defendant was a financial backer of his in that opponent campaign, he also contributed to the Defendant although attorney. district was a apparently prominent fund-raiser. this is Republican Juxtaposed evidence an for the district recommended investigator attorney investigation office, of defendant in the same the district took which the year attorney district declined. There is no other evidence the district attorney showing had a attorney dislike for defendant because he was a There is Republican. evidence, no for the district attorney disproportionate example, prosecuted (cf. number of to members of other Republicans parties compared political Battin, fact, 667). In there was evidence the Cal.App.3d district with and two other attorney persons a luncheon attended office, after fund-raiser for the district taking attorney, defendant attended a him hard to detect in and defendant for some advice. It is legal consulted or defendant general particular. this conduct antipathy Republicans that the Defendant it is to sustain this defense *32 argues alternatively enough the defendant. is founded on the bad for prosecution feelings prosecutor’s Battin, 668, Indeed, to indicate appears Cal.App.3d page bad faith or vin- clause a shield from equal prosecutorial is protection 1976) 541 (See (1st Cir. F.2d dictiveness. also United States v. Bourque 290, 293.) it is the
There are two contention. One is that to this responses criminal defendant a against prosecu due clause which process protects Superior tor’s involvement in a v. improper prosecution (People personal (Greer) (1977) 561 P.2d Cal.Rptr. Court 19 Cal.3d 266-268 [137 360, 374, 1164]; (1983) 34 fn. 6 Court Cal.3d Twiggs Superior con- 1165]). The other is that we cannot Cal.Rptr. P.2d clude it found this was the is the trial court would have reasonably probable basis for the if it had standard proper proof. prosecution applied defendant the district of the Preceding investigation attorney’s instigation recommended his criminal was an IRS for tax fraud which investigation assessment,'the bank, of his United States prosecution, jeopardy collapse bank failure and National Bank of San a federal of the investigation Diego, If had never been aware of attorney all the attendant the district publicity. occurrences, would have curiosity his certainly these prior Moreover, article which been aroused them. it appears newspaper for tax fraud had been his call the federal prompted implied prosecution this was of the case. Whether declined for reasons other than the merits not, court would we it the trial reasonably accurate cannot say probable if had concluded had an invidious basis applied have the prosecution discriminatory prose- standard of to defendant’s evidence proper proof cution. The error was harmless.
II
Theft 487, subdivision Defendant’s theft conviction under Penal Code section check 17, 1973, he received a whereby is based on a transaction July $8,930,867 in for exchange from State Sovereign Capital (Sovereign) would receive San unfulfilled were that Sovereign promises. promises million, note $4.12 worth promissory Padres’ certificates Diego surplus $60,867. amount of $4.75 on the note worth million and interest on these or otherwise never received benefit Sovereign any by payment were sold for Instead, the San Padres Diego obligations. February million, $12 with approximately various creditors proceeds going defendant and his other but As Sovereign. not to stated corporations, defendant’s brief: “While Smith was not opening formally complete Mr. Padres, owner of the it is him as One more accurate view such. probably of his advanced to Emil Bavasi and Mr. Smith’s corporations (Buzzy) Shannon, Carol Smith the funds which their owner- daughter, represented interest. These ship advances were not Mr. Smith was responsible repaid; for all additional Mrs. Shannon and Mr. Bavasi to have financing; appear Mr. Smith as the regarded real owner of the Padres.” was also Sovereign created, defendant, capitalized controlled at the time of this although Smith, transaction it his appears Jean daughter-in-law, Myra nominally shareholder, the principal a member of the board of directors and an officer *33 of the corporation.
Embezzlement
In closing argument, characterized this transaction as em prosecution bezzlement. three it Defendant makes arguments why cannot be embezzlement.9
1) A person cannot embezzle from himself
Defendant contends he could not have embezzled from himself and himself, was Sovereign just another facet of his alter is ego. argument Sovereign’s fiction, separateness was a on which a criminal legal prosecu tion cannot be based. can no of person more be embezzlement guilty “[A] from a which corporation is his alter than he can embezzle from himself ego without of a separate persona corporation.” argument brief) 9 The by (actually basically third made the first in his is a series verdict, of suggesting by point attacks on the One is supported it is not the evidence. made People the defendant could not through have embezzled documented transactions. But v. (1934) 1057], (at 13): p. secrecy Talbot 220 Cal.3 or P.2d observed “While conceal [28 intent, may ment is evidence of a criminal or felonious nevertheless there embezzlement ” appropriation where the openly consequently is made and without concealment. Another transactions,
point “family” made personally is defendant did not from the but his benefit corporations (1952) of 585], People Cal.App.2d page did. In Pierce P.2d v. [243 argument rejected: “Any a similar of funds held in trust constitutes diversion long deprived personal embezzlement whether there is direct benefit or not as as the owner is money.” of point corporation his Another made is assets of the were all his own reality. him heading person This is discussed below under the “A cannot embezzle from point self.” Another is all the transactions were authorized or ratified officers Moreover, corporation. approved disposition of the of the Internal Revenue Service Padres, proceeds arguably Sovereign of the sale of the should have received was aware good provided by some of faith goes them. This branch of the evidence to the defense of (1976) 139-142 (e.g., People Penal Code section 511 Stewart 16 Cal.3d 1317]). Cal.Rptr. question trier P.2d The establishment of this defense is a 93]). (People (1959) of facts P.2d Cal.App.2d v. Proctor The Penal Code “Embezzlement is the fraud- relevant provides, part: ” ulent appropriation to whom it has been intrusted. property by person (§ 503.) .
“Every . . trustee ... or . . . or agent any (public corporation pri- vate), who in the due fraudulently use or appropriates any purpose trust, and lawful execution of his which he has in his any posses- property trust, sion or under his control virtue of his or secretes it with a fraud- ulent intent to it to such use or is appropriate guilty purpose, embezzle- (§ 504.) ment.” trustee, . . . with or
“Every ... otherwise intrusted agent person in his control who having any for the use other fraud- property person, ulently use or not in the due and lawful appropriates any purpose trust, execution of his or secretes it with a fraudulent intent to appropriate ....”(§ 506.) it to such use or ... of embezzlement purpose guilty Defendant does not contend that in case where the beneficial owner every of a corporation its funds or for his own there employs property purposes, can be no embezzlement. v. Schmidt People Cal.App.2d “ *34 215): states at 229 P.2d ‘. . . diversion of funds held in page Any [305 trust constitutes embezzlement whether there is direct benefit or personal not as as the long owner is of his . . .’In to the money. respect deprived of theft from the showing it is sufficient.that the took corporation, appellant of money for use without authorization.” corporation personal There, the court theft conviction on a embezzlement upheld theory sole, if not and of a against principal, stockholder president corporation, residence, where funds were for his and a race corporate yacht, expended horse, other among things. 163,
In People Applegate v. 91 165 to 173 pages Cal.App.2d [204 689], P.2d the defendant embezzlement by was convicted theft grand from a which he for which he furnished some equip- created and corporation officer, one- ment. He was never a he was to receive corporate although third of the stock which was never He received to be money paid issued. the new and it an account of another corporation deposited corporation which he owned wholly and used the for other without money purposes, ever it over fully to the new paying corporation.10
Defendant’s
to be there
an
to an
argument seems
alter
defense
ego
embezzlement
when the defendant is involved
transactions with
charge
Annotation,
Money
Preincorporation
by
10 See
Conversion
Promoter of
Paid for a
Sub
Embezzlement,
scription for Stock Shares as
1141 his Apple- wholly or owned Defendant relies beneficially corporation. 163, gate, supra, 91 174, where the court held since the Cal.App.2d page evidence did not show should be was corporate entity disregarded, not erroneous to refuse to instruct that the not be guilty defendant could from his alter embezzling in this is that on different facts it ego.11 Implicit be an might error fail to instruct a defendant cannot embezzle jury Schmidt, from ego his alter An corporation. alter claim was ego rejected supra, (at 229): 147 Cal.App.2d the court “In to the stating p. respect claim that the ego, was defendant’s alter had Corporation the jury ample could, distinct, evidence from which and did that there was a they determine However, formal corporate existence. even where the circumstances indi- cate that all of the of a capital stock is owned or controlled corporation by one person, this does not necessarily its existence.” destroy separate Harris,
A similar
argument
rejected
more
resoundingly
Conn. 589
A.2d
(which
the Annotation Criminal Re-
provoked
[164
399]
sponsibility
Embezzlement
from
Stockholder
Corporation
Owning
Interest,
There,
Entire
791).
Beneficial
A.L.R.2d
a defendant convicted
of embezzlement claimed error
jury
court’s refusal
instruc-
give
tion to the effect that a
cannot
embezzle funds from
person
corporation
which
error,
he
(164
owns. The court held
no
wholly
there was
explaining
did,
A.2d
402):
to,
“The defendant chose
the two
organize
and
cor-
them,
and he conducted his
porations,
affairs
through
thereby enjoying
benefits
protection
of his business. He cannot
corporate operation
(3d
11 Defendant
cites in support
argument
Goldberg
also
of this
States
United
Cir.
1964)
(cert.
1630]),
330 F.2d
den.
U.S. 953
L.Ed.2d
S.Ct.
(6th
1955)
(cert.
Davis v. United States
Cir.
F.2d
den.
now, and claim when it his aside the corporate entity suits brush purpose, he that the funds are his own funds to do with as pleases.” corporate Aladdin Oil v. Perluss context, (1964) 230 Corp. In a different 239], (at 603 made a observation pertinent Cal.App.2d Cal.Rptr. [41 do 614): of the busi- right “Parties who determine to avail themselves p. must assume the ness means of the a entity establishment of corporate ego The alter is applied burdens thereof as well as the doctrine privileges. to avoid not to eliminate the inequitable consequences corporate results ” operations. It would be of the doctrine of alter a of the perversion equitable origin embezzlement, it a means of promoting defense to as ego employ 373, People v. Jones (1950) As observed in 36 Cal.2d at page fraud. “Defendant, 353], P.2d a different context: having perpetrated [224 liability fraud the device of a cannot criminal through escape partnership, by reason that same device. ...” defense,
As a
it is established that a person
basis
this
separate
rejecting
cor-
who acts as an
of a
its
agent
estopped
deny
separate
corporation
69, 76
Co.
(Wynn
Treasure
(1956)
status
v.
Cal.App.2d
porate
[303
1067];
302,
617]).
People
v. Leonard
(1895)
P.2d
P.
see
106 Cal.
[39
Applegate, supra,
It
is worth
instruction in
noting
requested
174,
doctrine a
could not
was based on the
Cal.App.2d
page
partner
embezzle
been repu
That doctrine has
partnership money.
subsequently
v. Sobiek
(People
diated in California
463-469
Cal.App.3d
804],
den.
2) in this sale transaction. *36 cannot be Embezzlement found embez to finding
In because a breach of trust is essential general, zlement, with under a contract of sale when or is received money property use, and there can be out title to the recipient restrictions as to its passes Goodrich (1903) 138 Cal. (People no embezzlement in such a transaction v. 45, Holder (1921) 48-51 People 472, 509]; 53 Cal.App. 474-475 P. v. [71 785, P. v. Bullock 832]; (1928) 789 People 92 Cal.App. [268 P. [199
1143 1059]; 578, People (1954) 149]; Petrin v. 122 584 P.2d Cal.App.2d [265 447, (1954) 551]).12 Gould People v. 125 449 P.2d Cal.App.2d [270 The does prosecution not contend a trust arose on our facts virtue a by sale The agreement. there was no and the prosecution’s theory is sale trust arose virtue of the by between defendant and Sov preexisting relationship The ereign. The jury agreed key sale was a sham. apparently question thus is whether in criminal law the owner of a equitable corporation always an in regarded as a trust with the agent relationship corporation, regardless the form of the transaction between them.
The type relationship essential to embezzlement has been finding variously characterized. The or must be received property money as an agent (1926) bailee of the true owner (People v. Borchers 52, 199 Cal. 1084]). 56 fiduciary P. There must be a relationship [247 328, between the (1901) v. Gordon parties (People 133 Cal. 329 P. [65 746]). The statute names several common trust but the list is relationships, Sobiek, (See not 458, 464.) However, exclusive. 30 supra, Cal.App.3d as above, illustrated the sale (1964) cases as well Darling v. 230 People 615, Cal.App.2d 219], 621 page the mere Cal.Rptr. receipt prop [41 erty or money from another does not give rise a trust My relationship. concern is where in this sham a sale trust arose.
In civil law it is established stockholder is controlling fiduciary relation to (Remillard his corporation Brick v.Co. Remillard- (1952) 405, Dandini 66]; Cal.App.2d P.2d Jones v. H. F. [241 Ahmanson & (1969) Co. 1 Cal.3d 108-112 460 P.2d Cal.Rptr. [81 464]). The burden in civil law is on the stockholder to show his controlling with dealings his corporation (Jones are made in faith are fair v. good Co., H. F. Ahmanson & 108-112). 1 Cal.3d at pp.
There are several problems with
this civil law notion over into
carrying
a criminal context.
Most
Penal Code section 6 means
importantly,
”
“there are no common law
(Keeler
crimes in California.
Court
Superior
(1970)
Cal.3d
Cal.Rptr.
470 P.2d
A.L.R.3d
420].) “‘Constructive crimes—crimes built
courts with the
up by
aid of
inference,
implication, and strained
to the
interpretation—are repugnant
Leonard,
say
through
12 Thisis
exchange.
example,
not
the law cannot see
For
a sham
302, 313-314,
supra, 106 Cal.
corporate
when defendant claimed he
obtained
had
funds
note,
exchange
promissory
his
for
the court found embezzlement when he knew the note
gave
he
People
Cal.App.
which
In
v. Fronk
worthless.
P.
777], when
bank
exchange
personal
officer issued a cashier’s check
which
checks
worthless,
he knew to be
embezzlement
from our
was found.
difference
case is the
explains.
defendant here did
agent,
not receive the check as an officer or
as the discussion
Moreover,
worthless,
obligations
were
although
perhaps
price
Padres’
not
worth the
paid.
*37
” (Id.,
632.)
at p.
letter of
American criminal law.’
spirit
English
and
and
court will
breach
liability upon
This
not strain to
criminal
impose
fiduciary duty
General as
by
Attorney
implied
trust described
“an
in
(referring
Sovereign).
...
to act
the best interests of the company”
of the embezzlement statutes are
The closest
in
parallels
interpretation
Schmidt,
222, and
supra,
supra,
Applegate,
Cal.App.2d
Cal.App.2d
Schmidt,
in
In
at
count
discussed
only
clearly
163.
pages
use
funds de-
terms of embezzlement involved the defendant’s personal
agreement
in the
a written trust
posited
subject
account
corporation’s
229):
The
noted
“The
(p.
between the
and the lender.
court
corporation
a trust clause
between Southwest and the defendant contained
agreement
contractors,
were
materi-
that the funds received
trust
specifying
pay
In
167 and
almen and laborers.”
166 to
supra,
Applegate,
pages
to him
embezzlement was the
use of funds
to be
given
defendant’s personal
trust
a new
While the
paid
incorporated.
agree-
over to
association when
oral,
least some of the
ment
to have been
there was evidence at
appears
cases
account. Neither of these
money
supports
a trustee
deposited
owner of a
that the
stockholder or beneficial
controlling
proposition
in all
with
dealings
in criminal law as
corporation
regarded
fiduciary
his corporation.
Leonard,
General
Cal.
supra,
invites consideration of
Attorney
Talbot,
both,
In
officers took cor-
supra,
porate them. personal ‘“ 14): money “An officer of a cannot take p. corporation or agent him, which is or which into his possession entrusted to comes corporation office or use it even for his by personal virtue his agency, temporarily The law benefit and avoid it a loan. calls by calling criminal responsibility conversion, which a fraudulent intent such a transaction a from wrongful ’ can be inferred.” [Citations.]” cases, offices held In both the trust arose virtue of the by relation Leonard, defendant, 310 to at pages Cal. although facto corporation. the defendant was a de facto officer of a de only arguably de as well to facto The court there held Penal Code section applies shown, 312). In an trust but express agreement officers neither case was (p. between official relationship the trust arose virtue of the agency reading It of the defendants and their no strained requires corporations. Code, 504) Pen. to find embezzlement embezzlement statutes (particularly § case, if our on the facts of either Leonard or Talbot. Similarly, $8.9 million him a as its had caused to issue check simply Sovereign benefit, then for his such officer or and then used the funds agent personal transaction could be an embezzlement.
1145 The in our is the and his problem case between defendant relationship is not one on corporation in the Penal Code sections embezzle recognized ment as a inherently trust We are to him as designate invited relationship. Leonard, (cf. 302, facto 312) a de agent 106 Cal. as a supra, perhaps Sobiek, (cf. entrusted with person the 30 corporation’s property 458, 464) Cal.App.3d virtue of the fact he the owner of by was equitable the corporation. embezzlement be read be statutes cannot so broadly, construction, such law, cause a civil the lines of the would along subject bad deal a a any between and its beneficial owner to of charge corporation embezzlement. A trust be might relationship if evidence the had entrusted defendant with its but corporation money, sale does not rise give to a trust.13 There is evidence Sovereign expressly entrusted $8.9 defendant with the million. is no evidence of an There im agreement that plicit defendant was be money the for holding Sovereign’s benefit. We some of require evidence before we can a trust “intrusting” say was breached.
Other Theories of Theft cases will
Language many
indicates a theft conviction
be sus
tained when
challenged for
the evidence so
as
one
insufficiency
long
any
of the several
(1954)
theft is
types
People Ashley
shown.14
v.
42
(E.g.,
246,
Cal.2d
(99
707,
258
P.2d
den.
may theory been presentation have misled an erroneous alternate 468], Green following Cal.Rptr. Cal.3d 69-71 and see con P.2d clusion). Pretenses False *39 of was as to theft false jury theory by pretenses. also instructed the
The Penal Code in who provides, “Every person knowingly relevant part: de- and false or or by representation pretense, fraudulent designedly, any manner other of is in the same any person money punishable frauds ... so obtained.” money and to the same extent as for of the ... larceny 532.) (§ a trial cheat another de- with an intent to or defraud
“Upon having, the to a by any signature any person false obtained signedly, pretense, . instrument, or from . . having any person any money written obtained be if the false pre- ... or valuable the defendant cannot convicted thing, a token or by tense was in false expressed language unaccompanied writing, in note thereof is writing, unless the or some or memorandum pretense, defendant, or unless the by handwriting pretense subscribed in the of the or witnesses, the or that one witness and by is of two proven testimony 1110.) ....”(§ circumstances corroborating 506], (1894) v. 19
People explains Tomlinson 102 Cal. P. [36 (italics very 23 in “On the there must be a narrow often page original): facts between false larceny, money by cases of margin obtaining pretenses, embezzlement, the the of the crime secret depends upon because character ascertain; but, so far of the is intention which often difficult parties, concerned, is and . . well settled .... the law ... are . principles plain trust, and after Where one possession goods upon receives honestly use, a case them to his own it is converts them receiving fraudulently trick, fraud, or If de by embezzlement. has been obtained possession vice, his when he gives up and the owner of it intends with title to part offense, if false money by pretenses. is any, obtaining possession, false obtaining property by preten- “To conviction of theft for support or ses, (1) be made false pretense rep- it must shown: that resentation, defraud (2) made with intent to that the representation defrauded that (3) owner of his that the owner was fact property, (Perry v. he with his the representation.” reliance parted property upon 1, 368 276, P.2d (1962) Court 57 Cal.2d 282-283 Superior Cal.Rptr. [19 529].) by in the form Penal of the false pretense prescribed
Corroboration of theft false section 1110 essential to a conviction Code is support 183]; P.2d (1933) 340 Edwards 133 (People Cal.App. v. pretenses [24 867]). (1973) Cal.Rptr. Mason 34 288 v. People Cal.App.3d [109 statement, may oral but The false need not be pretense express an
1147 from conduct intended to deceive statements with implied conjunction 841]; v. (1925) Mace 21 P. v. Ran CPeople People Cal.App. [234 326]). (1973) dono “.. Cal.App.3d Cal.Rptr. [108 is, moreover, The rule that it the false necessary representations be made order one money defrauded in to convict person obtaining or false an clerk agent false A property pretenses. representation held has been a false pretense (People Pugh principal.’” 826], P.2d Cal.App.2d dism. U.S. 885 app. Indeed, 141].) L.Ed.2d S.Ct. since acts only a corporation through *40 theft from be agents, by pretenses only false could commit- corporation ted (1957) as described the rule 155 just People Coggan v. quoted (e.g., 42, 67]). 44 P.2d The Cal.App.2d false made pretense may through [317 an who agent authorized clearly by the to make v. principal (People (1913) 45, 334], 22 Green 50 on P. criticized other Cal.App. grounds [133 262; 246, 42 Ashley, supra, (1927) Cal.2d v. Moore 82 People Cal.App. 739, 266]; (1930) 211, 747-748 P. v. Robinson 107 People [256 Cal.App. 470]).15 227-228 P. [290
Here, there is a (See (1915) false written v. Fleshman People token. 788, 26 805]; Cal.App. (1924) 791-792 P. Pearson People v. 69 [148 524, 612]; 531 Cal.App. (1943) P. 59 People v. Cal.App.2d [231 Beilfuss 83, 332]; 96 P.2d 662 People (1962) v. Allen Cal.App.2d [138 789].) 9, 1973, Cal.Rptr. There was a written July [21 memorandum dated from defendant to Mr. Toft who was his and undeniably agent righthand man, which set in motion the Defendant transaction. July accepted Toft’s suggestion that the Padres’ from him Sovereign pick up obligations self and instructed that with the he would interest owed Sov proceeds pay and further ereign, instructed: “We can to the Padre then write organization and tell them I have sold these *41 Weitz 295], 1126, cert.
Cal.Rptr.
859].)
den.
The third element of the crime
false
caused the
pretense
owner to
(1898)
with title to the
part
Bryant
or
v.
property money (People
Annotation,
16 See
Modern Status of Rule that Crime of
Pretenses
Be Pred
False
Cannot
Act,
Upon
icated
Present
Comply
Intention Not to
With
or Statement as to Future
Promise
1149 595, 960]; (1920) Haskins 49 Cal.App. 119 Cal. 598-599 P. v. People [51 43]; 40 (1922) 643-644 v. 58 Cal.App. P. Whiteside People [194 132]). with P. If the owner did not on the false rely pretense parting [208 his then conviction v. Daniels People cannot be sustained property, (e.g., 387]; (1923) 64 (1952) 517-518 v. Cal.App. People P. [222 Frankfort be 401]). P.2d The false need not Cal.App.2d pretense [251 cause of (Whiteside, sole the owner’s with his property supra, parting 40), but it must have influenced him to so Cal.App. p. materially do 246, 259). (Ashley, supra, 42 Cal.2d
The of the owner is not he express testimony essential prove inferred relied on false but his may (People reliance be pretense, Schmidt, Quin Hong 1096]; Moon 92 Cal. P. 222, 228). When it is a which is the victim of false
Cal.App.2d corporation pretenses, reliance be found in the officer who may conduct an parts with corporate People under his control v. Cordish property money (e.g., (1930) 110 456]; Cal.App. Coggan, supra, P. 42, 44).
Cal.App.2d have prosecutor may not determined here whether Schroeder relied promise he receiving obligations Padres’ when requested $8.9 the check for million issue defendant. Defendant has repeatedly Indeed, that no argued victim has claimed be defrauded. the un given evidence of disputed defendant’s control it would re over Sovereign, if markable an had so. But agent done for the same reasons Sovereign embezzlement, above in given rejecting ego alter defense Sovereign *42 must be treated as entity a of on separate capable defendant’s false relying A pretense. person cannot create a it as a treat corporation separate when it his entity suits and then it could have relied a purposes, deny on alone, made promise him. If by that is to himself person making promises then there could be problem in But when showing reliance. other corporate of the officers are induced to with corporation money its part property, even the by may beneficial owner of the then their reliance corporation, suffice to support may conviction of theft false It inferred by pretenses. here the responsible officers of were influenced to issue Sovereign materially the check to defendant because he to deliver the Padres’ promised obliga tions to Sovereign.
Conclusion
It does there to was sufficient evidence conviction appear support by 1973, of theft false could not that transaction pretenses July although be an It on embezzlement. has been held a instruction embez superfluous zlement not a when of false is made out error a case prejudicial pretenses 110]; (1945) v. Gordon P.2d (People People Cal.App.2d 264]). P.2d Unfortu Shalhoob Cal.App.2d Gordon, (at 635): our In p. case is different. the court observed nately, of the evidence offered “The indictment false and all alleged only pretense, crime.” In established that the offense came within the that category Shalhoob, (at 459): of the the court noted “We find examination upon p. to the that no offense attempt prove the made reporter’s transcript People ” of embezzlement. case, for a At the of the defendant moved directed prosecution’s close Penal section 1118.1. The under Code judgment acquittal prosecutor to to transaction July this motion his as the theory stated response embezzlement; also, but I have argument was think we “primarily where the evidence obtaining by questioned false court then pretenses.” corroboration required each was and asked to out the support theory point discussion, the Penal At the of this pros- Code section 1110. conclusion July ecutor indicated he not even false as to the may pretenses argue transaction, embezzlement, the matter only but but that he would consider further.
It is on that “the Attorney prosecution conceded General appeal on 1-5 and made rely did a false counts pretense theory expressly in a cursory this clear the brief continues jury,” although argue that is not fashion there was evidence of false While it pretenses. crystal from does the only clear closing argument,18 appear prosecutor’s July in the as to the transaction theory emphasized closing argument his of theft was embezzlement. When the was theories prosecutor explaining count, on each “In June July prosecution he stated: of 1971 Smith that from State alleges Sovereign Capital Mr. embezzled monies connection In describing with transactions.” another these fraudulent sham count, the the form theft “Here we encounter prosecutor emphasized: In as to known as out facts obtaining by laying false pretenses.” count, he of false which pretenses, the elements prosecutor emphasized which did not do connection count five. There are other statements with five embezzlement. confirm count prosecutor’s theory simply *43 the
This of which it must be said: is one those cases of “[W]hen theories, some which its case to the on alternate prosecution presents jury incorrect, the reviewing and court are correct and others legally legally determine the ver- ensuing general cannot from the record on which theory jury keep in mind whether point closing argument, prosecutor 18 Atone in the did ask the 1971, by embez corporations in “either defendant stole from the different transaction, prosecutor the through pretense.” laying or false In out the facts of the zlement fraud or characterized as a sham. Green, 27 Cal.3d rested, supra, stand.” diet of the conviction cannot guilt five, only clear the 1, 69.) fairly In to count it is actuality, as the incorrect. instructions Despite to the was theory presented jury legally be that theft could closing arguments of the court both before after the false prosecutor’s of embezzlement or pretenses, established theories whether the to consideration jury in this case limited the a closing argument an relied on an The prosecutor transaction was embezzlement. July matter As be as a of law. embezzlement which cannot sustained theory trust above, was theory implicit relationship discussed the heart of the the theory While this between a and its beneficial owner. arising corporation law, of the criminal statutes in civil it is an overextension well-grounded I of theft under count embezzlement. would hold the conviction defining on this must be five reversed.19 theory
Ill
State Tax Offenses counts of tax for his 1971 tax return Defendant was convicted two fraud return, of the following and two fraud for under each counts of tax his fully variety a de 19 Thisconclusion obviates the to consider of other contentions need One of is that appeal concerning fendant has raised on instructional error as to theft. these jury pretenses theory apply court should did not to the 1971 and the have told the false above, charges. supported theory to the appears pretenses As the a false as evidence discussion), (see in tax fraud charge. appears 1973 theft As below fn. 29 and related text theory charges no theft of tax fraud. Another proved support had to be in of the 1971 important the contention is definition of left out the most element court’s embezzlement intent, (1953) 121 520-521 P.2d People Whitney Cal.App.2d fraudulent as in however, Whitney, repeatedly Unlike the here did not define embezzlement court 449]. fact, In the court here instructed “the required without mention of the fraudulent intent. necessary fraudulently appropriate property specific is an intent intent [for embezzlement] complains instruction infected of another violation of the trust.” Defendant this duty any or breach of trust or another which defined “fraud as act that involves breach of confidence, complains further injurious breach of and which is to another.” Defendant place, gave misleading court In the first both this definition and illustration of fraud. Talbot, 3, at In supra, page illustration were 220 Cal. 15. practically taken verbatim from jury place, given second so in time that would these instructions were not close naturally specific fraudulent intent. requisite connect the definition “fraud” with no respect. There was error in this jury failing sponte sua on the Defendant also claims the trial court erred in instruct Stewart, good defense of under section as occurred faith available Penal Code require of the prejudicial as to reversal pages 16 Cal.3d at 139 to which was so Stewart, all, alone judgment. testify our let to the effect entire Unlike defendant did Assuming he in fact to do what did. he was authorized or believed he was authorized witnesses, testimony other we need may through nonetheless this defense raised our in the record view of supportive not search for evidence of this defense substantial infected the entire any as the claim such error conclusions to the theft conviction. As to noted, just required theft in order to establish judgment, prosecution prove was not elements, any rest error fraud in Since the convictions on different tax 1971 or 1973. tax regarded charge cannot be failing good faith to an embezzlement instruct on the defense *44 theft, that still was but prejudicial. jury might have concluded there no The unreported had income. 1152
sections of the “(a) Revenue and Taxation who will- Code:20 Any person statement, document, makes and fully return, or any subscribes other which is contains or verified a written that it by declaration is made under penalties and which he does not be true perjury, believe to and correct as to every matter, and, material thereof, shall be of a conviction guilty felony, upon shall be fined not two or ($2,000) more than thousand dollars imprisoned in the state or prison, both.
“(b) return, The fact that statement, an individual’s signed name is or other document filed shall be facie evidence for all prima purposes return, statement, or other by document him.” actually signed (§ 19405.) who,
“Any within the time or under person by provisions required this willfully fails to file part, any return or information with supply any intent who, to evade any tax this or and with imposed by like part, willfully intent, makes, renders, or verifies false or fraudulent return or signs any or information, statement false or supplies fraudulent any punishable by in the imprisonment county jail not to one in the year, exceed or state or fine of more prison, ($5,000), not than five thousand dollars or by both fine (§ such and 19406.) at the discretion of the court.” imprisonment,
Elements and Code Revenue Taxation Section of Offenses—Is 19405 Necessarily Included in Section 19406?
The California tax fraud statutes have received much attention from courts. The cases them appellate only are v. applying People Rapoport (1956) 910], (1963) P.2d Cal.App.2d People v. Kuhn [295 253], v. Cal.App.2d Cal.Rptr. People Pedersen [31 577], Cal.App.3d and recent cases Cal.Rptr. People Jones, (1983) 144 Roper 15], Cal.App.3d Cal.Rptr. Kuhn, 149 Cal.App.3d Jones Supp. Roper complete 41. involve a fail- return, ure to file is not Rapoport which our case. involves the only here, following quoted 20 The section also be relevant in the should because it becomes following discussion.' who, “Any person any requirement part any with or intent this or without to evade requirement lawful part, any of the Tax this return Franchise Board under fails to file or to who, intent, makes, supply any required part, information under this or with or without such renders, statement, signs, any supplies any or or verifies false or fraudulent return or false information, or penalty fraudulent to a is liable of not more than one thousand dollars ($1,000). penalty Attorney shall counsel be recovered General or the for the any competent juris- Tax Board in the of the people by Franchise name action court of diction. person guilty upon “The is also of a misdemeanor and shall conviction fined not to both, ($1,000) exceed one thousand imprisoned year, dollars or be not to exceed one (Rev. Code, 19401.) of the discretion court.” & Tax. §
1153 19405, but Code the opinion under Revenue and Taxation section conviction conten- court to address any since the refused completely unilluminating is a evidence support to hold there was sufficient appeal tion except and expenses underreported receipts, conviction when a taxpayer grossly 851). (140 in a at p. connection with business profits Cal.App.2d made states, Code “An or omission which is Penal section 654 act part: be of this code may different ways provisions different punishable by but in no case can be punished under either of such punished provisions, section to penal provisions under more than one.” This applies codes, limitation Penal Code v. (People to “this’.’ other its apparent despite 577, 591, 5]; Hayes (1969) In re (1958) fn. 4 Brown 49 Cal.2d P.2d [320 790, 604, 430]). 451 This sec 70 Cal.2d 605 P.2d Cal.Rptr. [75 double tion must its from the constitutional distinguished application Tide- (People doctrine Penal Code section 1023 v. by jeopardy implemented 207, 574, 581, 6, (1962) 578, man fn. 57 Cal.2d 584-587 Cal.Rptr. [21 1007]). 370 P.2d The double subsequent doctrine bars a prosecu jeopardy same tion after defendant has been on the offense jeopardy placed 589, (1947) 30 necessarily a included offense v. Greer Cal.2d (e.g., People Tideman, 582-583). 512]; It supra, pp. 596-601 P.2d see 57 Cal.2d [184 Penal 654 if not con is Code section which bars multiplying punishment, viction, on both and offenses in the same greater necessarily lesser included Tideman, (see 581-582). supra, at prosecution pp. an
It is often stated a be convicted of both offense and defendant cannot (1968) another v. Pater necessarily (e.g., People included offense 921, 823]; (1978) v. Johnson People 924-926 Cal.App.2d Cal.Rptr. [73 380, 476]).21 If defendant has 387-388 Cal.App.3d Cal.Rptr. [146 and lesser necessarily sustained conviction of a offense included greater offense, offense and greater the evidence the verdict as to supports Moran (People conviction of the included be reversed v. offense should 411, 763]) (1970) 1 463 P.2d or vacated Cal.3d Cal.Rptr. 645 P.2d Cal.Rptr. Cole Cal.3d (People 1182]). another,
If committing one offense cannot be committed without (Greer, supra, latter is offense Cal.2d necessarily included Revenue and 596-597). here not contend in the abstract Defendant does section violating Taxation Code section 19406 cannot be violated without file a fáilure to 19405. former section can be violated a complete 21 Greer, here, cited, 30 Cal.2d is often as it in Johnson necessarily offenses. Dictum therein barring of an included double conviction offense Tideman, 574, 588, 599). supra, 57 Cal.2d may support proposition (p. noted in this But as section not 654. application this dictum issued in the course an Penal Code *46 return, while the latter filing. a from of the requires Apart comparison however, offenses, statutes one defining necessarily offense is included in another when the crime as in the accusatory pleading contains charged Marshall all the of the (1957) elements included (People offense v. 48 Cal.2d 456]). 405 P.2d filed, a false
When return both 19405 and is sections 19406 of Revenue and Taxation Code be violated. The section 19406 may violations as charged here state that defendant “did and make a false and wilfully sign fraudulent . California . . return . . with the intent thereby . evade the California individual income tax.” The section violations as charged here state that defendant “did wilfully make and a California subscribe . . . return . . . . . which . contained written it was declaration made under of and penalties which . did not believe to be perjury . . true [defendant] and correct as to material every matter therein.”
It is clear only element of the Revenue and distinguishing charged Taxation Code section violation is the return contained a written declaration it made under of Defendant this penalties perjury. argues is a false distinction because the return filed fact was under signed penalty of He perjury. recognizes under Revenue and Taxation Code section 1843122 the Franchise Tax may Board that a return or other docu- provide ment need not be verified aby written declaration under penalty perjury. He notes when sections 19405 and 19406 were enacted 1951 and section 18431 such respectively, returns this required contain declaration. It was a 1967 amendment to section which made this declaration optional within the Franchise Board’s Tax discretion.
We learn from the may similar federal statutes federal interpretation (Rihn Franchise Tax Board courts how to evaluate this properly argument 893]). 131 Cal.App.2d P.2d Revenue and Taxation Code section identical 26 United States Code section virtually 7206(1), which makes it a “willfully when makes and sub- felony person return, statement, document, scribes any or other which contains or is ver- ified aby written declaration that it is made under and penalties perjury, Board, return, declaration, 22 “Except provided by any as otherwise the Franchise Tax statement required any provision part regu or other document made under of this or to be contain, lations by, shall or be written it is made verified declaration that under the declarations, returns, returns, penalties perjury. Such statements or other all other copies required by part, documents or thereof form as the this shall be in such Franchise may prescribe, Tax Board from time to time shall be Franchise Tax filed with the Board. declarations, returns, prepare The Franchise Board shall Tax blank forms for the statements or throughout other and shall furnish them upon documents distribute them the state and application. any taxpayer making Failure to receive or from secure the form does not relieve ” return, declaration, 18431.) any (§ required. statement or other document material mat- every to be true and correct as he does not believe which tax law. federal a parallel 19406 does have close ter.” Section or any file a to supply return it the wilful failure punishes Insofar as 7203,23 Code information, States section United parallels section 19406 taxation. Insofar as an intent to evade 19406 also except section requires information, section false fraudulent the wilful punishes supplying 7207,24 with the above noted 26 United States Code section 19406 parallels *47 (26 U.S.C. to taxation. an intent evade that section 19406 exception requires return, but that also signing 7207 could be violated without person § case.) perjury be under signed penalty not our Federal returns need not is 6065,25 Secretary pro- as except under 26 United States Code section under vides, be under of perjury as state need not just signed penalty returns Tax as Franchise Revenue and Taxation Code section except Board provides. federal cases
The come in a order in several has reverse argument up was an in- Code 7207 which addressed whether 26 United States section 7206(1). penalties cluded in The former is lesser subject offense section be that Revenue and under federal law. The in our situation would parallel Taxation Code be a included offense of section 19406 is claimed to lesser (which 19406 an intent requires section 19405 would disregard § taxation). a 26 evade Federal courts have concluded on the facts proved in a section United 7207 violation was included charged States Code section 1967) 7206(1) (Escobar (5th Cir. 388 F.2d violation v. United States 1411]; den. 88 S.Ct. United cert. U.S. 1024 L.Ed.2d 390 [20 849, 856; States v. (11th 1982) States Gaines Cir. 690 see United F.2d 340, 347, 435 den. U.S. 995 (2d 1978) Tsanas Cir. 572 F.2d cert. [56 1647]). L.Ed.2d 98 S.Ct. 412 346 hand, U.S. Bishop
On the other United States v. [36 Code section 26 United States 2008], L.Ed.2d indicates that S.Ct. 7206(1) is not a lesser offense of a violation. necessarily included required part: “Any person provides, pertinent 23 26 States section United Code information, willfully any who fails supply or under this title ... to make return ... information, return, required by or at the time times supply . . . make such ... or such law, shall, guilty provided be of a regulations, penalties or to other law addition ” misdemeanor. “Any person who will provides, pertinent part: 24 26United States Code section 7207 return, statement, or other docu fully Secretary any . delivers or to the . . . . . discloses matter, ment, be any shall fined by him to be as to material known to be fraudulent or false $10,000 or year, than both.” imprisoned not more than ... more by the provided Sec “Except states: otherwise 25 26United States Code section 6065 declaration, statement, any return, to made under retary, required any or other document by a or be verified written regulations shall contain provision of the internal revenue laws or penalties perjury.” that it is made under the declaration settled a opinion difference how among circuits the word concerning “willfully” should be as used in the various definitions of federal interpreted tax crimes. The court concluded it identified the same element in both sec- (id. 7206(1) tion and 7207' violations at pp. 359-360 L.Ed.2d áf [36 951]), as well p. as in other violations. The claimed he taxpayer was entitled to a lesser included offense instruction as to 7207. The court indicated one difference between the offenses 7206(1) was section only where the applies (id. document under signed penalty at L.Ed.2d at perjury p. 949]). The p. taxpayer since all tax responded, federal returns contained such a provision, rejected offenses were The court this ar- equalized. gument reasons, equating offenses several one which was “the or his Secretary delegate 6065(a) has the under that no power provide § perjury declaration is he required. If does so then imme- provide, § diately becomes operative 7206(1).” area theretofore covered by § (Id. 950].) 357-358 pp. L.Ed.2d at Because of the p. differences *48 7207, between the of 7206(1) elements sections and the court concluded did not they ground, cover same had although “willfully” the same meaning each statute.26
Neither Revenue and Taxation Code section 19406 nor the vio charged lations of that section in this case to the return prosecutor required prove here was under signed penalties of One offense is not necessarily perjury. included another when of the proof former involves different elements than of the (e.g., People v. Francis (1969) 66, latter proof 71 Cal.2d 73- Tideman, 199, 74 591]; 574, 450 see Cal.Rptr. P.2d 57 [75 Cal.2d 585-586). Defendant’s 19405 violation argument section was necessarily included in the section 19406 violation the court to read into the requires accusatory that the return Contained a written pleading declaration made under of This penalties perjury. type of test expanded identifying People v. Lohbauer necessarily included offenses has been rejected 364, (1981) 29 453, Cal.3d to 369 372 pages 627 P.2d Cal.Rptr. [173 183], where the evidence offered at the People argued preliminary hearing could supplement accusatory so as to defendant there on pleading put notice of additional necessarily included defenses. The court reasoned the unfair, test proposed new would be and unworkable and several disapproved which had case, cases In it. our if the act to be 19406 adopted proved violation is the same act to be a then proved violation of defendant is entitled to the Tide- (see 654 protection afforded Penal Code section man, supra, 57 Cal.2d 574, 584-587), but neither the statutes nor the ac cusatory pleading here conclusion section violation compels was a included necessarily offense of the 19406 violation. Annotation, “Necessarily 26 See What Constitutes Included” Lesser Offenses in Offense 31(c) (1972)
Charged, Under Rule
Federal Rules
Criminal Procedure
11 A.L.R.Fed.
sections 20
22.
com-
have the
19405 and 19406
both
As
violations
sections
charged,
(3)
(2) wilfully,
a return
(1)
made and signed
mon elements:
the defendant
contains
additionally
The section 19405 violation
return was false.27
which
under
declaration it is made
(4) the
a written
the elements:
return contains
it to
false
(5)
materially
believes
and
defendant
perjury
the penalties
violation
The section 19406
accuracy.
at least
unaware of its material
an intent
(4)
with
acted
contains an additional alternative element:
evade taxation.
volun
means defendant
The
element of both violations
“wilful”
supra, duty
known
violated a
(Bishop,
tarily
intentionally
legal
States v. Pomponio
United
941, 951];
U.S.
L.Ed.2d
[36
22],
den.
“The test of is whether a materiality particular tax correctly.” in his compute order estimate ported taxpayer cf. United 1181; 1178, (United States v. 1969) 415 Null (4th Cir. F.2d 8, 1211-1212, 10, v. Miller (9th 1976) 1204, fns. cert. States 545 F.2d Cir. 774, 1549].) where Obviously, 430 den. U.S. 930 L.Ed.2d 97 S.Ct. [51 (e.g., be a of section 19405 income there violation underreported, may return which taxpayer be if a filed an accurate 27 Technically, section could violated 19405 prosecution. inaccurate, subject one such will he believed to be but doubts behavior guidance required mental referring to pre-Bishop 28 Careshould be taken in cases statutes, among the conflict Bishop because resolved a for violations of federal tax element way of than others. more in wilfulness whether some crimes involved circuits about 1158
United States v. Fontenot 923, (5th 1980) 921, 452 Cir. 628 F.2d cert. den. 406, U.S. 905 L.Ed.2d 3030]). 101 S.Ct. [69
It is worth neither section 19405 nor noting, 19406 require prosecution to prove additionally the or income underreported unreported crime, derived from any such tax particular as theft. For fraud purposes, is the of the return falsity which is and not important, whether the income was generated by (Cohen United States legal illegal (9th means.29 v. Cir. 1962) 760, 768, 84, 297 F.2d cert. den. 369 865 82 U.S. L.Ed.2d S.Ct. [8 Miller, 1029]; 1204, see 1213.) 545 F.2d so prosecutor argued in his closing argument.30
Method Items Proof—Specific Approach
The prosecution here set about show the failed to report several specific items income in one 1971 and item of income in specific 1973. This is sometimes called the approach specific items which approach, is but one way (See, which to income. demonstrate unreported e.g., United States Scott (7th v. 1981) Cir. 660 F.2d cert. den. 455 U.S. 907 1252]), L.Ed.2d 102 S.Ct. items specific discussing approach alternative method proving net worth and As expenditures.) in United States v. Horton explained (5th 526 1976) Cir. F.2d at page (cert. 886 67]); den. U.S. 820 L.Ed.2d “To be con S.Ct. trasted with the item specific method the net worth method proof, hinges on a increase in the proven net worth taxpayer’s during ques period tion an amount than that the IRS greater with reported consequent See, Meriwether, e.g., United States implication of unreported income. denied, (5th cert. 1971), F.2d Cir. U.S. S.Ct. (1974). L.Ed.2d 668 The net worth method generates a circumstantial turn, case is, laden with possibilities for error and circumscribed in its *50 light 29 A appeal point. number of defendant’s contentions on force in of this Defend lose every argument ant against raises made in with 1973 conviction connection the theft the prosecution’s theory Although the money property defendant embezzled in and 1971. this might conviction, court reach the same conclusions as it has there a theft above if were arguments simply the miss the in to or response mark tax fraud convictions. Whether not by there was a theft in embezzlement other means in 1971 or 1973 is not critical to showing there was income. example, prosecutor 30 For the argued: say on went to as to Count “[Defense counsel] Five, specific charge dealing July you the of theft the with 1973 transactions: ‘If can’t theft, No, find go.’ you then the tax counts not if not that is correct. Even do find embez Five, on you upon zlement Count the to evidence such that would be called deliberate and determine whether or he not had income the amount of 8.9 million dollars from the ’73; income, July of transaction and if he had then further determination as to a whether taxes, report or not he failed knowingly, intentionally, intending to it to evade his income Four, which would be charge the thrust or the for Counts which basis Three income tax year evasion for the 1973.” States, 348 U.S. use a rules. See Holland v. United number of by limiting States, United 327 F.2d (1954); S.Ct. Merritt v. 99 L.Ed. establish 1964). opening For the Government must (5th Cir. example, and show false investigate net with and must certainty worth reasonable States, 348 United U.S. E.g., leads furnished the Holland v. taxpayer. States, 135; 135-36, 409 F.2d 75 S.Ct. at v. United Agoranos States, 1969); (5th Cir. Merritt v. United at 822-23. is, however, The usual
“The
direct in its operation.
item method
specific
to
evidence
produce
with the latter method is for the Government
strategy
income
the defendant that
items of
receipt
specific
reportable
do
in diminished amount.
on his income tax return or
appear
appear
Goldstein,
52, 55,
(D.Del. 1972);
v.
see
United States
56 F.R.D.
n.
States,
1958);
v. United
(5th
Lloyd
United
The has rise to two related use of this method proof given the pros contentions on the trial court allowed Defendant contends appeal. irrelevant, net ecution to or at evidence of worth. introduce least prejudicial, to give sponte also court erred in sua failing Defendant trial argues instructions on net case. the limitations involved in a worth proving to a chart which the
Defendant an he made before trial points objection to net to introduce on the basis defendant’s prosecution sought emphasized objection worth had court sustained his increased. record reflects the insofar as the the prosecution pro- chart had emphasis required duce the out what he contends points evidence form. Defendant different on in the improper prosecution’s argument an emphasis opening record reflects there was presented information as different form. The its no ruling. inconsistent with court’s emphasis questioning
The defendant otherwise objects prosecutor’s appeal witness, Johnston, the 1971 tax one Mr. an accountant who prepared reconcile the facts the returns return. The asked the witness to questioning income, than several financial state- showed more deductible while expenses to a objects portion net Defendant also ments showed an increase in worth. way only wherein the closing argued argument prosecutor could grow the net worth reconcile such an was to conclude inconsistency if his income.31 accurately defendant was not reporting argument to a certain extent in his appears to have this 31 Counsel rebutted taxpayer got gain in his closing argument, stating, whereby own “here is transaction *51 with taxpayer that coming Is it And it ... if off that transaction wealth. ... income? is may be If it is a gain recognize—there obligation repay, not then it income. does is no to wealth; course, got gain in gift, obligation repay, of then it income. You have no to is not not income— you obligation repay; you recognize obligation repay; do not an have no okay—a every income because we gift. saying gain So not in wealth constitutes we are that all that it know does not.” course, Of one of the in involved problems the net worth meth- employing od is it invites such among which is the of “assumptions, unex- equation plained increases in net worth with taxable unreported Obviously income. an such has assumption inheritances, It many may weaknesses. that gifts, loans and the like account (Holland for the wealth.’’ newly acquired (1954) 150, United 121, States 127].) 348 U.S. L.Ed. S.Ct. Defendant’s thesis to be in a appears that items no specific prosecution, evidence of the net worth should be admitted. A taxpayer’s similar argument Horton, in rejected 526 F.2d 884. The court held the prosecution could evidence of employ taxpayer’s total bank several deposits years' order testimony corroborate his clients him paid had amounts (id. of 886-887; excess his reported gross see also United receipts pp. (10th 1983) States v. 1244-1245). case, Cir. 705 F.2d our Kaatz In net worth statements were properly admitted show defendant claimed to own shares hand, of stock in fact owned others. On the other the limited of of admissibility evidence net worth should not be abused aby prosecutor a net worth “piggybacking” into a theory items case. This did not specific occur our case to any significant degree.
Defendant argues evidence should have been excluded as prejudicial under Evidence 353, however, Code section 352. Code Evidence section “A provides: aside, verdict or shall not be set nor shall the finding judgment reversed, or decision based thereon be reason of the erroneous admission of,evidence unless:
“(a) There of record an appears objection to or a motion to or exclude to' strike the evidence that was made and so stated as to make clear timely motion; of specific ground the objection or
“(b) The court which the effect the error or errors passes upon that opinion the admitted evidence have should been excluded on the stated and ground that the error errors resulted a mis- complained ” carriage justice. out, As the Attorney General points objected does not appear . on the Johnston, ground prejudice during the of Mr. questioning although did object he on the ground of Defendant relevancy. responds having more than already objected once to such evidence on the of its ground value, he is prejudicial not to renew his when similar required objection evidence is (1975) introduced Antick (People v. Cal.3d 95 [123 43]). 539 P.2d Cal.Rptr. Defendant also the trial court did complains on the record the weigh balance of the value against danger probative of prejudice v. Green 24-25 (People Cal.3d Cal.Rptr. *52 to sua the trial court However, cannot 468]). one expect 609 P.2d defendant only to which evidence the effect of sponte evaluate prejudicial evidence the it is renewed when objection, particular unless continuing has the record when on is The must make its determination introduced. court ob defendant’s made, in sustaining the as it did here is objection initially to the form of a chart. jection there question appeal, did the
Assuming objections his preserve stated for the purposes statements no error in the financial admitting was net worth a specific above. The some evidence danger employing increases unexplained is asked to infer the jury items case arises when the When the pros taxable income. in net worth are attributable to unreported inway done in a limited as was ecution takes the to so opportunity argue, than case, misconduct more one of prosecutorial our question note defendant did evidence. We or value admissibility prejudicial v. argument32 (People this of the object closing not portion prosecutor’s Green, Cal.3d 78]; supra, Steelik 187 Cal. 377-378 P. 1, 27-35). did introduce a does record the here
It not from the appear prosecution as transform a items specific amount of net worth evidence so prejudicial case into a net worth case without the instructions limiting required Holland, 161], at at L.Ed. page page U.S. sua net must given Defendant has cited no case where worth instructions 1981) (9th Cir. in a States Hall sponte items case.33 United specific There, the prose F.2d is the on this authority point. most persuasive and an both net worth method sought cution to establish tax evasion on (The method is de other method called the bank method. latter deposits 4.) either 996-997, No instructions were scribed fn. opinion pp. error for the trial court court held it reversible The was requested given. method, in the net worth to fail to instruct on the involved assumptions (id. at 997- pp. failure to instructions notwithstanding request taxpayers’ net 999). The since the worth method there prosecution argued method, net worth instruc used of the bank only deposits corroboration on two grounds: were rejected argument tions court this required. corroboration, the been used for may the net worth method have “Although to the jury by analysis thoroughly presented results of the net worth were Gov role which the on the Government’s We cannot expert. speculate Beck v. United of the jury, ernment’s net worth the minds analysis played prose made after objection part raise of a motion for mistrial 32 Defendant did closing argument. cutor’s initial 1956) (2d v. Tolbert F.2d and United States 33 United States v. Cir. O’Connor cases, (7th requested 1966) in Tolbert both sides F.2d are net worth Cir. both net worth instructions. *53 States, (9th 1962), F.2d Cir. but it have been substantial. may If result, the had jury disbelieved the very Government’s net worth it may well have cast doubt well, on bank result as inasmuch as both deposits analyses yielded the same But on figures. we need not rest our decision our estimation of method, the role the net worth for we played by believe that explanatory instructions are similarly when the bank meth required deposits od of (Hall, is used.” proof 999.) 650 F.2d The court supra, went to find the bank rested of deposits method on some the same shaky assump (Hall, tions as involved in 999). the net worth method 650 F.2d supra, Hall, From the court’s comments in it the net worth appears analysis there an played Also, important tax That not our part showing evasion. case. the alternative of method used in Hall proof was a one circumstantial and some required cautionary instructions. That is not the situation in a specific items case. A case be found might ostensibly on a items proceeding specific which approach transforms through the evidence and weight argument into a net worth case The requiring cautionary instructions. record does not this support of our have interpretation case. While defendant been might entitled to a cautionary instruction as to the admissi- limiting upon request statements, bility of financial there was no error in one failing give Horton, (Evid. Code, 355;34 a absent request cf. 526 F.2d § 887).
The 1973 Counts Defendant on does not contend the facts are appeal other than as proved by the that criminal but do not The prosecution, they support conviction. 1973 transaction will it be described first because is more straightforward and some its details been have set forth in the theft above. already discussion O’Sullivan,
Mr. attorney, tax an and IRS agent, accountant former prepared defendant’s 1973 tax return in October 1974. ad- reported justed gross $599,519, income was which included interest income of $239,168. The prosecution contended the item in- specific unreported $8,930,867 come was the received in the July transaction described above wherein defendant with promised provide Sovereign ownership at least and proceeds surplus certificates note owed him promissory return, it Padres. was not reflected on the tax Although appeared from O’Sullivan’s work interest papers income was part reported $60,867 connection received defendant from with its pur- Sovereign 34 Evidence section party Code 355 states: “When evidence is admissible as one or for purpose one court party purpose, upon is inadmissible as to another or for another request scope accordingly.” proper jury shall restrict evidence to and instruct the its this (The subtracted accordingly chase note. prosecution Padres’ trial.) amount from its claim of income unreported information the return from papers It O’Sullivan appears prepared *54 by him in tax returns submitted to assist specifically preparing to pre- in from several sources general prior and Mr. Toft. He was aware due of obligations return still professed ownership that defendant paring Padres, claim with did correlate this from the but O’Sullivan apparently nor did been to Sovereign, the information that certain had sold obligations He was not provided he what the tax were. question possible implications transaction. with the records of which reflected the Sovereign The Counts of Johnston by
Defendant’s tax return was the partnership prepared in income was gross and Rundlett June 1972. The adjusted reported $430,851. The transactions as generat- identified four prosecution separate ing income. unreported discussion, 18, 1971,
As to there was alluded above the theft on June $5,313,264 to a transaction issued three checks whereby totaling Sovereign 161,008 defendant in for of United National Bank shares States exchange 64,500 29,008. (USNB) 67,500, stock in The of Sovereign lots of books shares, reflect an never transferred into acquisition they those but were The the Annuity name. lot of shares was to Sovereign’s largest pledged Board for a loan to defend- Southern Convention as collateral Baptist ant and was retained for USNB in October 1973. This after failed litigation loan lot to was extended in The next was September largest pledged 1973. Life and for loan Bankers Insurance of Nebraska as collateral Company defendant, USNB to which was after failed likewise retained litigation with the to loan Most of the smallest lot of shares was pledged unpaid. Crocker Citizens National as for a loan to defendant.35 Bank collateral loan were returned defend- was in December and the shares repaid loan to de- ant. were then to Bank of California on another They pledged institutions these variety fendant. Defendant made a of representations shares, even after the June and others that he owned these writing 161,008 shares, 60,008 were owned other transaction. Of the 26,000 owned Sov- already which were shares corporations, including a written was In June after the tax return ereign. shortly prepared, 18, 1971, Sov- on June “bailment” was to reflect that agreement prepared 156,008 had just back the shares it ereign purchased. lent to defendant by Sovereign through a made repayments after the “sale” to be 35 Defendant caused loan companies the life signatures insurance cashier’s check order not “to disturb recognize.” The sale of the shares reported tax return Sovereign as generating long-term gain to defendant of somewhat over capital $900,000. Mr. 60,008 Rundlett determined there was no on the gain shares which defendant did not own at that time it had been because determined he those acquired shares at the same he cost at which had sold them. The nature his of those acquisition shares and the determination of the cost was made in May and June will 1972. Further details below provided after the other summarizing transactions as income defendant. charged
The prosecution also items of income charged unreported three trans- actions had whereby defendant issued his USNB name shares previously in the standing name other It is not to detail corporations. necessary *55 nature of his in interest these to like corporations except say, Sovereign, defendant them controlled and employed their officers. On June 80,000 name, 37,230 defendant had shares issued into his of which at least in were the name of Terminal 10,000 National Marine and of which another were in the name of Missouri Western Realty Company, although they may have to National belonged Marine Terminal. The certificates representing those in shares the corporation’s names were simultaneously canceled. On 8, 1971, 5,250 September name, defendant had shares issued into his with 4,000 cancellation of corresponding certificates in representing shares of 1,250 name Sovereign and in shares the name of Realty Westward Com- 22, 1971, On 5,000 pany. September defendant had shares issued into his name, with 3,496 corresponding cancellation of c'ertificates representing shares in 1,504 the name of and in the name Sovereign shares of British Columbia Investment Each occasion on which defendant Company. obtained USNB shares from one of these to be represented came corporations by written “bailment” agreement, in and June prepared ultimately signed by the appropriate corporate officers.
The bailment agreements came about as the result of work done by Mr. Rundlett initiated by defendant’s 1971. Rundlett September was request to trace assigned by how defendant had come the various USNB shares in his name and what the cost basis of Apparently these over acquisitions. defendant had years directed the USNB stock Mr. transfer Ten- agent, ney, certain in the cancel certificates name of various controlled corpo- rations and to issue them in his name. Some of these transactions were reflected as sales of stock to defendant. able trace a Rundlett was number of the shares while with but was unable account for working Tenney, others, as he back reported to Mr. Toft. Schroeder was directed Toft to by fill in the involved, As gaps. of a number of the comptroller corporations Schroeder had access to the In a books. number of instances where USNB pame, stock had been issued in of defendant’s there was no record transfer of the which the books the corporation previously shares information over Rundlett April owned them. Schroeder turned his Schroeder 1972. listing ownership.” Schroeder had a shares “disputed been borrowed of these shares had to Rundlett that least some suggested identify was unable to defendant from Schroeder the corporations. cost basis for some of the shares. Schroeder,
Rundlett was not with the information provided satisfied Toft, it with he discussed discussed the matter with Johnston. Johnston writing. resulting and Toft their suggested they put questions defend- involving were the questions meeting May topic had ant, Johnston, work The tracing Toft and Schroeder.36 possibly 17, 1971, but it became the Sovereign, the June with uncovered transaction after at the At meet- meeting. 21st Toft informed Johnston it question had in a of cases defendant borrowed USNB ing, was determined number he had confirmed loan stock from various corporations, loan agree- with several of It was also determined such agreements them. ments should into put writing. it to and Rundlett returned meeting,
After the Johnston reported Rundlett work, to his from of defendant’s tracing receiving employ- material several *56 ees. the work and additional ma- With material from his generated tracing terial to Rundlett in the by preparing defendant assist supplied specifically return, of the tracing tax he was to it mid-June 1972. The by able prepare 60,008 17, 1971, June had did not own transaction revealed defendant he to treat this shares sold Rundlett and Johnston Sovereign. proposed as a which did bailment those shares from borrowing corporations them, he own which defendant when himself by converted into purchase return, sold them to Before of the tax Rundlett pro- Sovereign. preparation books should be adjusted to the officers their posed appropriate corporate done, to Schroeder although reflect these transactions. This was eventually by did not do so for also Johnston year. about one Defendant was informed return, over at the tax and more specifically Rundlett time of his signing later, in he would have write a week the transactions complete order to the stock he had sold.37 some checks whose borrowed corporations had some Soon and Rundlett after tax returns were Johnston prepared, defend- provided by the bailment from models part preparing agreements above, were defendant signed by ant. As indicated the bailment agreements later of although and the June or officers appropriate corporate three and them back to had occurred some of referred transactions which with Johnston and although admitting denied he was contact being present, 36 Schroeder Schroeder was there. Rundlett around that time. Johnston recalled checks, writing appear complete 37 It ever these transactions does not defendant did liability for although corporations reflect his them. the records of the did four years earlier. There was no evidence defendant in fact the time had ever negotiated with any officers to borrow the corporate stock.
It does not Johnston appear or Rundlett contacted defendant making their determination on 161,008 how to the sale of report shares on June 1971. They discussed it between themselves and recognized they had not even to option 60,008 report sale of shares since they had determined them acquired at the same cost at which he sold They them. reported them because it anyway seemed most consistent corporate with the records involved. Tax Law Is Not Unconstitutionally Vague Economic Ben-
California’s May Be Taxed as Income efit
Defendant raises related (1) that arguments economic benefit is taxable law, income under California or if economic benefit is taxable (2) either the statutes are unconstitutionally vague or defendant could not have had the necessary criminal intent.
With unintentional irony, defendant relies cases involving federal tax crimes to argue state tax crime law either does not reach the transactions or, does, involved here if it it is unconstitutionally vague. We agree with the advanced, abstract proposition when the namely, of a taxability uncertain, transaction is bemay legally have the impossible requisite criminal intent to evade taxation the transaction failing report prop States, erly. James v. United supra, U.S. L.Ed.2d 81 S.Ct. 1052], in a split There, opinions gives to this support proposition. court Wilcox, overruled Commissioner Internal Revenue U.S. *57 (at U.S., L.Ed. 66 L.Ed.2d, S.Ct. [90 546] p. [at James, 255]). In p. the court held embezzled funds just were as income other (366 were illegal gains U.S. at 218-219 pp. 253]). at [6 L.Ed.2d p. Three justices (at went on to conclude pp. 255]): 221-222 L.Ed.2d at p. [6 “We believe that the element of willfulness could not be in crim proven inal prosecution for to include failing embezzled funds income in gross the of year so misappropriation as the statute the long contained gloss placed upon by Wilcox at the time the Therefore, crime was alleged committed. we feel that petitioner’s conviction not may stand and that the indictment him against must be dismissed.”
Two other justices dissented from of “prospective” overruling this Wilcox, if it was contending (366 then wrong James U.S. at was guilty 223-225 pp. L.Ed.2d 255-257]). at pp. agreed [6 A with this justice third dissent in (366 his own opinion 266]). U.S. p.at L.Ed.2d at Yet p. [6 Wilcox, two other justices if agreed James had in fact relied he could made in new convicted, should be be but a factual determination not such 266-269]). In fifth (366 the at L.Ed.2d at pp. U.S. 242-245 pp. trial court, reversing the judgment the ninth concurred opinion justice the (366 U.S. at conviction, he Wilcox agreed p. because with apparently 270-271]). at pp. L.Ed.2d James, be a bare majority In there does to appear 366 U.S. valid under position that if a took a proposition taxpayer the support in- generating reportable law in a transaction as existing treating tax not come, conviction support he could not have the wilfulness required then (4th here also on United States of tax evasion. Defendant relies Critzer (5th 1979) Cir. 1974) United v. Garber Cir. 498 F.2d and States law, (at 1162): defendant cannot F.2d 92. states “As a matter p. Critzer income, the be income taxes on willfully and guilty evading defeating branches which is co-ordinate so uncertain that even taxability directly reach conclusions. plausibly opposing United States Government law, As a and income is matter of intent to evade defeat taxes requisite missing. The is so that defendant’s actual obligation pay problematical intent sought irrelevant. if she had consulted the law and to guide Even what the law herself have no as to accordingly, certainty she could had required. debatable,
“It is that a defendant— settled when the law is or vague highly fur- intent violate it.” actually imputedly—lacks requisite Critzer (at 1163) ther of the tax law should not states p. interpretations “pioneering under but rather sought or rendered in criminal prosecutions § from civil Garber first above quoted quotes language suits.” Critzer (607 F.2d second above 98) and p. paraphrases language quoted 100). (p. Critzer,
In with un- charged F.2d the defendant was supra, 498 held business The income derived from derreporting property income. It trust allotted to her as a Cherokee Indian. government appeared some case of the took Department Interior the position, supported law, taxable rental and income from such property business (id. 1161-1162). been at pp. defendant had advised Garber, with not re- charged In defendant was supra, 607 F.2d to blood banks her income from blood plasma derived porting selling *58 if the of not be income value clinical It there would laboratories. appeared 97).38 (id. at p. were the paid the blood deemed to plasma equal price a one tax law. a was new of the treatment of such transaction question (2d Corp. Technology Cir. Ingredient 38 Garber has been criticized in United States v. 88, 97, 1983) the tax law is jury to decide whether 698 F.2d as it holds is for the insofar evidence that defendant sufficiently negate to in the absence of uncertain defendant’s intent actually relied on one view. 1168
Defendant supports argument his the California tax law is uncertain or vague to the of by pointing convictions of tax crimes. One paucity reported recent, of the 1033, most 144 1040 Roper, supra, Cal.App.3d at to pages 1042, a rejected which “in vagueness challenge only contended part come” vague is and That uncertain. court found the California statutes suf clear without ficiently reference to federal An statutes. parallel is, additional answer to this contention we look to law to de may federal how to termine (Rihn, similar state tax statutes interpret supra, 356, 360; see Cal.App.2d Calhoun v. Franchise Tax Bd. Cal.3d 881, 692, 884-886 763]). Cal.Rptr. P.2d
Indeed, defendant looks to federal benefit” argue cases to “economic is Critzer, not taxable. We will adopt supra, suggestion Garber, 1163, F.2d supra, 607 F.2d and not rely civil tax to proceedings order establish whether the transactions at issue here are taxable. Miller,
As indicated in 545 F.2d 1212 to pages 1215, a court involved in a criminal tax not become should proceeding overly with how preoccupied a transaction should have been re precisely what ported (at amount of tax should have been As Miller states paid. 1214): “In p. civil tax cases the collection key is tax and the issue purpose is the establishment of the by amount owed In a criminal taxpayer. tax tax is not proceeding concern over the or the amount of type specific evaded, tax which the defendant has but whether he at willfully has to evade the tempted a tax. Where the payment assessment ... [¶] return, taxpayer has income a he sought filing conceal false has vio lated the evasion tax It could statutes. does not matter that amount have somehow been made if nontaxable had aon different taxpayer proceeded ” course.
It may general rule distribution of its stock to corporation’s is not (Rev. shareholder treated as income the shareholder & gross Tax. 17335; Code 305(a)).39 It further may U.S.C. be the case that a § § bailment of stock to a is not as a corporation necessarily regarded capital (Stahl 1970) (D.C.Cir. contribution v. United States 1002- F.2d 1005). Whether a transaction is a loan or income truly deT (4th fendant is a question (United Pomponio for the however States v. jury, 1977) 659, 662-663, Cir. 563 F.2d cert. den. U.S. 942 L.Ed.2d 1521]). 98 S.Ct. “The test is whether taxpayer things acquired “Except provided 39 Revenue and Taxation Code section 17335 states: as otherwise 17336, gross Section any income not include the distribution of the stock of does amount corporation made corporation respect such to its with its shareholders stock.” 26 305(a) virtually United Code States identical. §
1169 of an obli or express implied, value ‘without consensual recognition, ” (United to their and restriction as disposition.’ to without gation repay 837, 842, 412 (2d 1972) cert. den. U.S. Rosenthal 470 F.2d States v. Cir. (10th 975, 2298]; 93 United States v. Swallow Cir. 909 L.Ed.2d S.Ct. [36 66, 514, 519, 96 S.Ct. 423 U.S. L.Ed.2d 1975) 511 F.2d cert. den. [46 82].) of an where there is of an intent express recognition
Even
some evidence
837,
(Rosenthal,
470 F.2d
supra,
to
conclude otherwise
jury may
repay,
name,
he
842).
“When a
holds stock
own
cannot
his
taxpayer
was
a
only
if he is later unable to convince a
that he
nominee
jury
complain
1977) 554
(United
(2d
Cir.
F.2d
Garguilo
else.”
States v.
somebody
124,
59,
62.)
(9th
1965)
pages
O’Rourke v.
Cir.
347 F.2d
United States
128,
himself
the same
a defendant who characterized
says
about
thing
Indeed,
as
not even stand
a
a trustee
his
stock need
corporation.
him,
in order
as
name
for it to be treated
income
taxpayer’s
depending
1974)
(United
(2d
491 F.2d
the circumstances
States v. Catalano
Cir.
42]).40
272-273,
48,
A
268,
cert. den.
L.Ed.2d
95 S.Ct.
419 U.S.
[42
(Garguilo,
of stock in
taxable
received
when
receipt
payment
ordinarily
59, 62;
1974)
493 F.2d
(7th
F.2d
United States v. Isaacs
Cir.
States,
1161,
Similarly, jury reported ordinary was a sham and the had income capital gain taxpayer unreported (United 308, 310, den. (2d 1972) States 455 F.2d cert. Wenger v. Cir. 2458]; (5th Parr United Cir. U.S. 920 L.Ed.2d 92 S.Ct. States funds from cor- 1975) F.2d A diversion of 1384.41 “Now, property we have in this case jury properly 40 The was instructed: evidence legal because acquired consequences tax not through property loans. Such is free of income taxpayer, but there is consensual ownership person remains in a other than the because future to obligation property at time in the recognition legal of a to return the some loan, money property. or repay whether taxpayer And the must intent to owner. have an however, loan, the Government from prevent of a transaction does The mere label as a If it gain to wealth. can impose for his or addition seeking an income tax on a borrower borrower, that the legal obligation property no to return the shown that there was fact, return, subject to the income tax repay acquisition will be did not intend to then the additions are gains Such acquisition or retention was lawful or unlawful. whether year during subject they tax in the which are realized.” the June jury as to prosecution’s theory, might conclude Although this was not to sell would not authorized transaction that the sale of stock which (5th 1974) (United Cir. ordinary gains v. Burrell generate capital income rather than States 904, 910). 505 F.2d *60 to the poration taxpayer’s use also be as personal may regarded income to (O’Rourke, Miller, the taxpayer 124, 128; supra, 347 F.2d 545 F.2d supra, 1204, 1215-1216).
Since these transactions were if clearly taxable viewed as char acterized the by we prosecution, need not be drawn into an abstract discus sion whether “economic benefit” is taxable. We with defendant in agree sofar as he is asserting the had to prosecution convince the the bail jury ments and the sales were sham transactions order to establish the noted, received more income than the As sales were reported. both the one in reported, June as generating and the capital gains, one in July as generating interest. sales should have been re ported if differently defendant never intended to with what he part promised for the exchange payments received. We with defendant disagree insofar as he is asserting prosecution had to form of any theft prove particular (see fn. 28 text). above and related
Defendant argues definition of income given court and elabo- by rated on prosecutor is so broad to closing argument as sweep nontaxable transactions such as gifts, inheritances and interest-free loans. context, Out of so, that but there may is no evidence of the trans- any actions at issue in our case was such a nontaxable transaction. Like the Miller, court in 545 F.2d 1215 to we will not permit to taxpayer recharacterize the transactions differently than the he way to chose at the time in order to make an are nontaxable. argument they There, the taxpayer sham loan argued to him from his repayments corpo- ration in fact were a return of capital.
Part of defendant’s argument is this definition of income would make a true bailment taxable. The instructed on jury this area of the properly (see tax law above). fn. 40 Defendant to some extent is trying persuade this court the transactions were not A sham. portion Pomponio, supra, (not F.2d General), cited page Attorney answers this argument. “We realize that a course of between self-dealing individuals their closely-held corporations must be considered from both sides. On one hand, the need to transactions, examine closely the substance of the as well acute; as the form in couched, thus, which they are the fact especially that the advances were treated formally as loans on books is corporate hand, On the other controlling. exists that possibility [Citation.] bona fide loan transactions be carried out in the informal manner may pre- sented here within held But these are circumstances closely corporations. for the jury have and have force on where our re- weighed less appeal role limited viewing factual matters is whether the ascertaining evidence, jury’s verdict is in the substantial viewed most supported by light ” favorable to the government. *61 Thus, the transactions at the viewing portrayed by issue as prosecution, taxable, were they without clearly undertaking pioneering interpretation of tax the law to reach this conclusion. We cannot was so say highly debatable whether these transactions should have been reported differently here, that defendant’s actual As intent is irrelevant.42 California applied tax statutes are not unconstitutionally vague. Received Taxable Income
Defendant taxable, Defendant contends that even if on “economic benefit” is the facts he did receive personally not income. Defendant does any wisely not attempt $5.3 $8.9 how explain million receipt exchange for nothing is not income. Defendant not ar does address this specifically 25, to the gument 1971, June of stock either. It acquisition he appears 80,000 stock, pledged 47,230 entire shares USNB he including “borrowed,” $1.5 from security a loan him of million Union Bank.
Defendant focuses stock September acquisitions arguing 10,250 he did not receive any benefit. personal shares Apparently USNB he stock “borrowed” then were as additional for a pledged security $3 million loan from National Bank Com- Valley to United States Holding another pany, one of defendant’s He it was “fam- corporations. argues his ily” of corporations which benefited.
It ais question for the whether received income jury defendant has (O’Rourke, Catalano, 127-128; supra, 347 F.2d 491 F.2d supra, 273). (Catalano, Receipt valuable stock itself be income may 272-273; 491 59, 62). F.2d pp. 554 F.2d a tax Garguilo, supra, What does with payer money or after it does property receiving necessarily (8th its nature as income change United States v. Milder upon receipt (e.g., 1972) 801, 804, Cir. 459 F.2d 93 cert. den. U.S. L.Ed.2d [34 60]; 352, 355-356, (5th 1974) S.Ct. United States v. Lawhon 499 F.2d Cir. 804]; cert. den. 419 Geiger’s U.S. L.Ed.2d 95 S.Ct. see (8th 221, 231-232, Estate 1965) v. Commissioner 352 F.2d den. Cir. cert. 620]). U.S. L.Ed.2d S.Ct. evidence supports jury’s implicit conclusion defendant benefited and had income by receiving 42 Although argues point his vague defendant at one is so actual intent the law irrelevant, requisite he argues also as a matter of law the show he did not have the facts argument This be separately intent. will discussed.
stock, and whether he benefited from personally his use of that stock is not the issue.43
Was the
Reliance Established as a
Defense of
MatterofLaw?
“It is a valid defense to a
a false return if a
charge
filing
defendant
full
provides
information
his taxable income
regarding
and ex
to an
penses
returns,
accountant
...
tax
and that the
qualified
prepare
and files the return as
without
adopts
reason to
prepared
having
”
believe
(United
(7th
that it is incorrect.
1983)
*62
States v.
Cir.
Whyte
699
375, 379;
Annot.,
F.2d
see
Accountant,
Reliance on Advice of Attorney,
or Tax
as Defense in
Expert
Criminal Prosecution for
to Evade
Attempt
Federal Income Tax Under
7201 of the Internal Revenue Code of 1954
§
(26
7201) (1970)
U.S.C.
665.)
defense,
3
If
A.L.R.Fed.
not a complete
§
it at least tends to
establish
defendant lacked the
wilfulness
requisite
(United
commit tax fraud
(9th
1980)
869,
States v.
Cir.
624 F.2d
Conforte
876,
470,
cert. den.
568]).
The defense of reliance is undermined and will fail if it appears
the defendant did not fully disclose relevant tax information but withheld it
(United
294, 296;
instead.
(6th
1965)
States v. Cox
348
Cir.
F.2d
United
(7th
States
1973)
319, 321;
v. Scher
Cir.
476 F.2d
United States v. Gara
(6th
1977)
1056, 1060;
vaglia
Cir.
566
Conforte,
F.2d
624 F.2d
supra,
869, 876-878;
(10th
1981)
701, 703,
United States v. Samara
Cir.
643 F.2d
104,
cert. den. 454
122];
U.S. 829
L.Ed.2d
102
United
S.Ct.
States v.
[70
(5th
1982)
170, 177-178,
Cir.
676 F.2d
cert. den.
1173 (United 1954) mental (7th element F.2d Phillips States Cir. 439-441).
Whether the on facts establish defendant’s reliance a tax return (United (7th is a preparer question 1962) v. Baldwin Cir. jury. States 577, 579, 307 F.2d 501]; cert. den. U.S. 947 L.Ed.2d S.Ct. [9 1288-1289, (5th 1970) United States v. Stone Cir. 431 F.2d cert. den. 401 879]; U.S. 912 L.Ed.2d 91 S.Ct. United States v. Dowell (10th 1971) 145, 148, Cir. F.2d cert. den. U.S. L.Ed.2d Vannelli, 448]; 659, 662-663; 92 S.Ct. Pomponio, supra, F.2d 595 F.2d 404.) The defense to have succeeded only appears once not in of the cited but in United appeal, any cases above States v. (3d 1956) Pechenik Cir. 236 F.2d our naturally 844. Defendant asserts case is “very There, much like” that one. contended prosecution corporate tax returns improperly reflected capital expenditures expenses operating (id., 845). at showed, p. The evidence while the defendant the president of the he left how to corporation, to the up corporation’s bookkeeper record the 845-846). expenses (id., records A certified corporate pp. *63 accountant public the prepared tax returns from the corporate corporate records, without how were characterized independently verifying expenses (ibid.). (at 846): The court further noted “There is no evidence that the p. defendant interfered with either them or with the books. . . The book . testified
keeper that the defendant did not him directions to an give charge to one item of expense account rather The than another. accountant prepared the corporation’s tax returns from the books of the and de corporation, fendant caused them to be filed. He did not attribute the errors to the de fendant or to any directions information the defendant.” It given to the appeared court there that at the but he most defendant was mistaken did not have the (id., 847). wilfulness at requisite p. case,
It above, does seem to be the at narrated least as to the return, tax defendant here and essentially made available Rundlett Indeed, Johnston all the relevant information. it was Rundlett’s stock tracing work, books, with in Schroeder’s the which help summarizing corporate underlay prosecution’s the The case here. stock work uncovered the tracing fact there 17) were a number stock defendant (apparently acquisitions by which came different written bailment represented by agreements. These were from and between acquisitions corporations various took place Moreover, 17, 1971, and 1971. did hot uncover the June tracing transaction, but defendant about it had accountants informed through Mr. Toft. It was Johnston’s of all defendant unaware impression the details of how he came into his USNB ownership all stock.
It also seems be the Rundlett and determined how to case Johnston 17, 1971, the June from report transaction without de- specific guidance he had “borrowed” stock which fendant. worked as to They theory up (2) and sale sold, bailor and purchase he had to it from the buy Indeed, wash, the involvement would be a the same cost basis. involving of the relevant facts stands these accountants in and their knowledge return. contrast to that of O’Sullivan the 1973 preparing from exclusively almost O’Sullivan reiterated he the 1973 return prepared of the to assist in preparation information submitted to him 17, 1971, of the July return. He awareness acknowledged only general transaction, like the the return. He was but did not relate it to preparing reliance in Conforte, whom the unsuccessfully on asserted expert taxpayers know and did he did not 624 F.2d that it seems page want affairs. to know too much about defendant’s General’s theory below and the theory Attorney prosecution’s did not they unreliable because is the tax were appeal part preparers financial audit of defendant’s conduct a thoroughgoing independent has a dubious fac returns. This argument before his tax dealings preparing That tual as to Rundlett and Johnston. predicate taxpayer be said a is not the burden on a tax before can preparer placed relied on him in event.44 any of reliance on his tax way errors in the his defense 44 Defendantclaims a number of other major is the trial court allowed preparers complaint was treated in the trial court. The it was preparers of the tax on the basis prosecution question competence expertise contends asserted as a defense. Defendant taxpayer’s an issue when the reliance on them was questions prosecutor’s prejudicial both that this resulted in admission of evidence and *64 of instances. closing argument to in a number topic and on this amounted misconduct afield, of Rundlett and appear particularly in examination prosecution It does the went far as to uncharged 1971 transaction example, they questioned
Johnston. For
were
about an
par-
between “related
reported
how it should have been
under tax law about transactions
times,
taxpayer
the
from the issue whether
possible,
jury
ties.” It is
at
the
was distracted
294, 296).
(Cox, supra,
It is not clear
truly
honestly
preparer
on the
348 F.2d
relied
tax
extent,
competence is
any,
preparer’s
the tax
the
cited
to what
if
from
authorities
above as
preparer
appeared
may
relied on a tax
who
chargeable
taxpayer.
taxpayer
to the
A
have
Bursten,
(see
supra,
him,
incompetent
as
competent
though might
to
even
he
strike others
hand,
wilfulness,
976, 981-982).
taxpayer
if the
sign
on the other
It would be a
of
395 F.2d
honest,
competent and
he believed to be
preparer
withheld information from a tax
whom
dishonestly conceal
plan
in a
to
taxpayer sought
preparer
participate
if
out a
who would
the
to this de-
important
that is
taxpayer’s relationship
preparer
It
the
with the tax
income.
fense,
is
there is evidence of
competence
only relevant insofar as
preparer’s
and the tax
is
taxpayer.
what it meant to the
ground
on the
objections
had the
to them sustained
questions
Some of the
should have
However,
Code,
352).
say
(Evid.
any
cannot
we
they
an undue
of
§
consumed
amount
time
353. Defendant
under Evidence Code section
prejudicial
evidence elicited
them was
Johnston
by Rundlett and
experts praised the work done
points
prosecution’s
out some of the
they
competent.
and indicated
were
very
preparers
of the tax
questioning
the
appeal
to the
claims made on
As
numerous
of them as “eco-
closing argument’s
and the
characterization
prosecutorial misconduct
was
nomically
misconduct,
objection
no
was
appears
defendant was other
beholden” to the
(Green, supra, 27 Cal.3d
complained of
questions and statements
made to several of the
Nevertheless,
of
it cannot be
there was reliance as a matter
said
law, even on Rundlett
None of
considered the
and Johnston.
them
transac
tions,
bailments,
either the sales or
answer
Again
be sham.
the
is
Pomponio,
563 F.2d
662:
loans which are not
at page
“[T]hat
actually
income,
such
beyond argument.
are
is
If
intended
Pomponios
advances,
the sums
did not constitute
repay
advanced
them
re
income, as the
While there
be
portable
jury
may
instructed.
instances
in which an
of
accountant’s
the tax laws can
interpretation
justifiably
Pechenik,
erroneous,
relied
if
upon by taxpayer, even
see United States v.
1956),
“The Pomponios they time their tax whether signed had received they funds from their with intention corporations repay- mind, them. On ing fact, their state question of own a matter they can hardly accountant, claim reliance on their for it was incumbent upon them inform Bates that if the advances were not loans had no they inten- ” tion repayment. case, Similarly, our Rundlett and Johnston accepted defendant’s state- ments the transactions genuine were them reported accordingly. If de- fendant did bailments, not intend to be them as genuine sales and the jury found, then implicitly he could on the return only claim reliance tax pre- if he had told parer them the no transactions were sham. There is evidence he did so.
Was Lack Established a Matter Defendant’s of Wilfulness Law? course,
Of whether defendant had the wilfulness to sus requisite (United tain a conviction of tax fraud is a for the States v. question jury (7th 1268, 1272; 1974) (7th Lisowski Cir. 504 F.2d States Walsh United 1980) 88, 91-92). Cir. 627 F.2d mental state has been de required *65 scribed above in the of discussion the elements of the offenses.
“[Pjroof of willfulness is often made circumstantial through most (Walsh, evidence” 92). 627 F.2d at Wilfulness: be inferred supra, “may p. Moreover, 34). (ibid.). they miscarriage justice it does not of The appear resulted a did, times, prosecution’s closing argument suggest preparers’ complicity the tax de- reliance, jury fendant’s tax fraud scheme. on the of properly The was instructed defense however, and arguments was of were not evidence. Other admonished that counsel might specific objections admonitions have been if had at the time warranted defendant made (ibid.). which would have remedied the harm now claimed be done
1176 books, false entries set of making from conduct such as a double keeping or rec alterations, documents, books or or destruction or false invoices income, ords, handling sources of covering up concealment of assets or kind, of the usual in transactions one’s affairs to avoid the records making or to con conduct, be mislead of which would any likely effect 418, 492, L.Ed. 317 U.S. ceal.” United States (Spies 423, 364].) 63 S.Ct. dealt in cash rather not the taxpayer ours is a case where
Admittedly, (Cf. checks, other records.45 destroyed than records kept incomplete Stone, 1286, was able to take 1288.) The F.2d prosecution Ar- so complete. defendant’s records were approach items because specific may is where an inference at least as to this not case guably, (Cf. concealment tax return drawn of information from the preparer. from de- 170, 177-178.) about all F.2d As Thetford, supra, just explained, in the of material essen- way fendant concealed from Rundlett and Johnston and bailments. an intent to the sales feign tial to his returns was prepare was that Sovereign was not sham Some evidence that June sale were secured thereafter made on the which payments obligations it had from stock which defendant. acquired is the main
Defendant of wilfulness indicated by his lack argues accurately records. Unless this information taining business complete return, however, does of business records accuracy on a tax reflected 1971, and of June report much itself. Defendant did sales prove June and bailments of as sales and did not the stock July report for tax 1971. His treatment the transactions purposes September with their authenticity. consistent were the sales and bailments
Other evidence undermines the assertion wilfulness is some evidence of The of documents backdating genuine. (8th 1983) 26; Cir. v. Hecht see United States (Drape, supra, F.2d controlled 976, 977-978). in the names of 705 F.2d assets placement (United v. Holo States is also some evidence of wilfulness corporations 345, 358, (7th 1963) cert. den. U.S. vachka Cir. 314 F.2d 1695]). L.Ed.2d S.Ct. sales, never received what Sovereign, buyer,
Most as to tellingly, Defendant, according even June 1973. July either purchased transaction, from Sov- borrowed back immediately his own view of the transaction, evidence, had uncharged an 45 There connection with was some *66 does purpose. had served its This destroy memorandum when it instructed Schroeder to suggest some other information was deleted. him ereign almost all the stock it in June The acquired from 1971. bailment all agreements defendant would return the stock to the provided bailors 31, December 1973. Whether defendant intended to or not moot became when USNB was declared insolvent in October 1973. The bail- question of ments were USNB But the for stock. bailments also extensions provided and were subordinate to the claims defendant’s creditors. of bailments,
As to the virtually there was also evidence that no one outside authorities, defendant’s for the tax heard corporations, except about them. others, To a of variety lenders and to defendant continued he represent owned the shams, stock. If the bailments and sales were except reported (or tax bailments), on returns in not the case of the this reported would be sufficient evidence of to wilfulness. support finding
Defendant contends he relied on a limited the California investigation by 1971, Franchise Tax Board into in his return the June reporting sale. in December Apparently defendant had sold United States Holding 50,000 Company $1.85 shares of USNB stock for million. As June the shares were never transferred buyer. into name subse- They were to a quently subject bailment in June agreement drawn 1972. The up Tax Franchise Board about what inquired generated interest deduction took, which defendant after on taking proceeds that sale an pay he obligation owed to United States Company. tax board was Holding informed of the nature of the debt owed and that the company payment had come from the sale stock. It sold was informed the stock was same company to which the debt was owed. He cannot on an in- rely conclusive civil audit as of his method on his tax approval reporting Hecht, (see returns 979). 705 F.2d
Defendant also tries assert some fact reliance on the that after extensive investigation by Service, the Internal tax Revenue a criminal prosecution, recommended, after being ultimately declined June 1974. Obviously, he could not have had this in mind in June his 1971 reporting However, return. implication His from this tax is there was no fraud. there nois evidence why was declined. if our state prosecution Even income tax extent, law on may modeled the federal income law to tax some this does not mean federal revenue or the agents Justice does the Department for thinking those responsible our state statutes. implementing The evidence is short of as a of law that defendant matter establishing did not have the number of stock wilfulness. It does requisite appear determined acquisitions may defendant to be bailments have resulted from There more negligent stupidity criminality than recordkeeping. 5,000 on selling shares stock March selling again *67 1178 17, 1971, cor- It defendant considered the
June as defendant did. appears he draw out might in his as from which almost porations “family” pockets in the lied artificiality argument stock certificates. There is some in he the he and their officers which employed to controlled to corporations deliv- assets did not intend to order obtain in he payments exchange does It support er.46 not seem but evidence may “overwhelming,” determination to defendant’s wilfulness. jury’s as Uncharged Prejudicial? Returns Years
Was Evidence from of stated; Holland, 166], supra, 348 U.S. L.Ed. be by indepen ‘involves a intent which must specific proven “[W]illfulness dent be from the mere understatement evidence which cannot inferred however, Here, of a consistent pattern of income.’ . . . there was evidence income, of and of failure on of amounts large petitioners’ underreporting Since, on of records. include all their income in their books and part submission, acts an could found that these jury supported have proper inference willfulness, must stand.” their verdict
This tax prosecutions has echoed in a federal passage variety been amounts large since. Some a consistent simply say underreporting pattern Vannelli, is evidence wilfulness F.2d (e.g., supra, income is, our One 405). There are three case. limitations its application of 26 Holland the statutory precursor involved tax under prosecution above, Revenue United Code 7201. As California’s States section explained 26 United States virtually and Taxation Code section 19405 is identical to 7206(1). other federal tax Code section is similar to section Our definitions, crime section but like 26 United States Code is not particularly 7201.47 requirement
At one court observed the evidence independent least has 7206(1) Code section to a violation of 26 United States applicable 807, 810, (United (E.D.Pa. 1977) 431 affd. States v. Vacca F.Supp. Second, of wilfulness given a definition 573). F.2d Holland applying It in definition of wilfulness 492. was by Spies, supra, part U.S. 412 U.S. which court modified in Spies Bishop, given not as much clarify U.S. The latter cases supra, 429 10. Pomponio, cases be earlier seemed need order to show wilfulness proved was net worth case. Third is Holland require. Thetford, (e.g., theory might disregard corporations 46 An of income be to alternative 170, 177).
supra, 676 F.2d states, “Any willfully attempts who part: person 47 26 Code United States section shall, payment thereof any any imposed evade or tax this title or the manner to defeat law, felony penalties guilty of a . . . .” provided in addition to other *68 1971, Defendant was tax in with fraud 1973 and 1974. Not charged only evidence, the were tax returns for years those in but the also prosecution 1965, 1969, 1968, 1972, introduced the for returns the 1970 and and years summarized on the charts information from them. Defendant at the objected effect, of outset the case both as to their and but the relevancy prejudicial trial, objection was overruled. The other the returns were employed during among other the ways, to prosecutor’s defendant’s tax attempts impeach return preparers, either should have known more about insinuating they the that, returns than prior them, did or have they about should seen knowing the overruled, of tax pattern fraud. Defendant’s objections again were al- the though jury was instructed trial and the about this end limited during relevance.
In his closing argument, the used the return prosecutor 1965 to contend there was 1965, tax fraud in 1965 virtue of the December sham sale. He argued the sale income, resulted an interest deduction which offset occurred to some 1971, extent in June and more significantly July 1973. He utilized the of returns 1968 1973 on chart through to show a consistent of pattern more having than income most those expenses expenses coming from interest deductions. The returns 1968 through 1973 were also shown on another chart which was used compare reported income with from advances to defendant. Sovereign The prosecu- tor’s suggestion was the advances were not loans really (although defendant did sums pay large 1973, in June Sovereign July repay- ment).48 evidence, Further this exploiting the Attorney General appeal at one argues point defendant’s was 1968 income reported “ridiculously low.”
Evidence Code section 352 “The court in its discretion provides: may exclude evidence if its value is probative substantially outweighed by the that its probability (a) admission will necessitate undue consumption time or (b) create issues, substantial danger undue prejudice, confusing or of misleading the jury.”
Evidence Code section 353
provides
test
an
court in
appellate
reviewing
done
admission of
We have
damage
evidence.
already
that test in
applied
connection with the
of net worth.
evidence
In net worth prosecutions,
tax returns
been held admissible to
prior
have
(7th
establish the taxpayer’s
(United
Mackey
net worth
States v.
starting
prosecutor
argument
argument
48 The
his
questioning
followed
from these charts with his
how
net
defendant’s
worth could
continue
increase. See footnote
above and related
text.
504-505,
1965)
den.
U.S.
L.Ed.2d
Cir.
345 F.2d
cert.
(United
54])
States
or to
net worth
taxpayer’s
S.Ct.
corroborate
1973)
den.
U.S. 948
(5th
v. Tunnell
Cir.
F.2d
cert.
tax
1469]). In
items
prior
L.Ed.2d
94 S.Ct.
a specific
prosecution,
income
returns
certain
were held admissible
rebut a
contention
taxpayer’s
return and
he was unaware of how to
unreported
complete
because
1005, 1010,
(7th
1979)
cert.
(United States
Falk
605 F.2d
report
Cir.
*69
319,
1079]).
den. 445
100 S.Ct.
U.S. 903
L.Ed.2d
[63
1965) 340
(Hamman
(9th
In a
case
v.
States
Cir.
F.2d
net worth
United
145, 149,
1339])
271,
and
cert. den.
The
is
but wheth-
here
not whether
are
question
they
probative,
1972)
(cf.
(5th
v.
468
they
er
too much”
United States Waller
Cir.
“prove
327, 328-329,
588,
L.Ed.2d
93 S.Ct.
F.2d
cert. den.
U.S. 927 [35
1358]).
net
impact
In two
worth cases which did consider the prejudicial
returns,
in
error. In United
the use of those
resulted
reversible
prior
returns
230,
(6th
1969)
the
was
Logan
taxpayer
pros-
States
Cir.
F.2d
when
he
for
false
in 1961
the
showed
filing
government
ecuted
returns
and
court
the
gave
jury
had not filed
returns from 1946
1955. The
any
through
instruction
show his intent. The
limiting
appellate
this could
indicating
reversed, nevertheless,
232):
effect of such
(at
likely
court
“The
stating
p.
rather than to prove
evidence was to
the
prejudice
jury against Appellant
believe,
do
he
the
We
not
that
committed
crimes named in the indictment.
moreover,
this evidence
jury
disregard
Court’s instruction
‘of
is
was sufficient to take it out of the case. Evidence of prior wrongdoing
of the
and to
a sort most
to remain
likely
firmly
memory
jury
lodged
consider-
excite a
which would
a fair and
prejudice
preclude
dispassionate
”
ation of the [case].’
1975) 514 F.2d
when
(9th
In United States v. Colacurcio
Cir.
gov
for
false returns
filing
taxpayer
prosecuted
The
conclud
he
income for
court
ernment showed
had
1965.
underreported
the income claimed
ed there was
evidence he had received
inadequate
4-7)
had
heav
and then
because the
relied
government
concluded
(pp.
7-8). See also United
ily on the 1965
it was
underreporting,
(pp.
prejudicial
(4th
(cert.
States v.
468 to 471
1967)
Wilkins
Cir.
F.2d
pages
1043]),
den.
Reading other alone cases will determine the prejudicial impact evidence other with any case. As above in connection explained (under defense ultimate Cal. discriminatory prosecution, question Const., VI, Code, 353) art. as well rea as Evid. is whether § § result sonably probable a more favorable to the would have appealing party been reached absent admission of the law evidence. case shows evidence of tax returns from has years tendency uncharged prej *70 udice the and jury confuse the issues. The prosecution’s closing argument did from emphasize figures the returns of and uncharged years suggested defendant tax committed fraud in every year, just years the charged. criminal, Defendant was portrayed as a tax not a on trial for person com mitting particular tax crimes. for after Defendant moved a mistrial this clos and, motion, ing argument while the the trial court noted it denying may have been returns, an error initially to admit the but so they were prior “interwoven” in case the could not be for on prosecutor faulted relying them. case,
In this however, it is lengthy say no to that exaggeration thousands of documents were to the Tax returns for un- brought jury’s attention. years charged case may particularly important being when tax fraud but we cannot prosecuted, balance and a ver- say they tipped produced dict of guilt where there In light otherwise would have been an acquittal. above, of the evidence already recited we cannot absent the tax returns say, years, a result more favorable to prior probably the defendant would have been There of the reached. was sufficient other evidence requisite specific intent. For in 1971 example, advice from his tax despite preparers that he would to have write conclude sale of checks order to stocks borrowed, Also, he had it does not he so. the fiction of the ever did appear bailments appears to have been in order to avoid tax adopted consequences.
This conclusion to the of this case. applies only particular circumstances could to Attorney General on returns be used argues appeal prior rebut an assertion the defendant or merely his sloppy record-keeping Falk, had to in the inadvertently charged years. failed his income report supra, F.2d did returns to be used page permit prior the manner last mentioned. Ours was not a where the claimed taxpayer case Such
inadvertence however. or tax ignorance reporting procedure, proper rebuttal, evidence rather than may prom- more be confined to appropriately jury. in the inently featured prosecution’s opening presentation In Jury’s Pecuniary to the Appealed The Prosecutor Improperly terest system
In our tax closing reporting described argument, prosecutor self-assessment, on the rely one of the federal and state governments where of this on himself. He stated: “Because self-assessment taxpayer report each each and fairly honestly report one of us other system, depends upon or otherwise his tax because to extent that a lies cheats liability person you the burden that just does not his true tax that increases report liability, I have of the Government.” meeting as far as the expenses coincidence, was made By April this strange argument filed. Even tax have been year which returns should day ordinarily interest is from such to the timing, jury’s pecuniary such an apart appeal (2d (United v. D’Anna Cir. States recognized as improper prejudicial Falk, 1005, 1012). In 1971) 1205-1206; F.2d F.2d error, constitute reversible neither these cases did the argument improper ’Anna, As D did not this directly argument, however. object We are argument. he in the did to the statement although object following *71 have to admonition would objection ascertain whether a and timely required 1, an is not to frame (Green, 34). easy cured the harm 27 Cal.3d It supra, merely The prosecutor instruction which this bell. might “unrung” have aware already were jury underscored what at least some of the presumably of, man able less taxes than some namely, a had been to wealthy pay on the whole record them had The next is whether just paid. question (Green, 27 Cal.3d caused a argument miscarriage justice supra, improper 1, the case. 34). in of the evidence this is we cannot other Again, say light noted, coming was redundant just As prosecutor’s argument probably day on the did. Included
The Trial Failed to Instruct on Lesser Court Offense (in fn. is set above Code section out Revenue Taxation included 20). necessarily lesser It to define a implicitly recognized Kuhn, 695, A 696. supra, Cal.App.2d offense section 19406 case. The difference is the of the statutes demonstrates this comparison any to evade “with intent “wilfully” section 19406 action requires evade without intent to tax,” of action “with or speaks while section 19401 Tax of the Franchise of this lawful any or any requirement part requirement (1) de- filed, violated where Board.” Where a return is section 19401 is element of the not an false. Intent is (2) makes a return which is fendant Jones, 698; 695, supra, (Kuhn, supra, Cal.App.2d offense 41, 45). Supp. Cal.App.3d this case were given well the time the instructions
It was established at offenses even included instruct on lesser that a trial court was to obliged instruction, unless defendant such an where the defendant does request (1969) Graham v. People of trial tactics objects as matter expressly Sedeño 303, 153]; 217, People 455 P.2d Cal.2d 318-320 Cal.Rptr. 913], 518 P.2d disap Cal.Rptr. 10 Cal.3d 715-717 [112 (1979) 25 Cal.3d 684- on other v. Flannel grounds People proved Indeed, 1]). the court stated: fn. 12 603 P.2d Cal.Rptr. Court, to sua sponte, did me of case law “Counsel advise requiring without reference instruct on lesser included offenses where applicable, otherwise, tactics, counsel Defense posture applicability offense; of the included and so I am conscious responsibility lesser any instruction, atti of the regardless lesser offense give properly applicable ” court did not or the defendant. Yet the tude taken either the People Revenue and Tax described by instruct the the misdemeanor jury regarding ation Code section 19401. the failure why
The General makes several Attorney arguments least was not not an error or at instruct this lesser included offense was was sec the instruction The trial court’s reason for not prejudicial. giving sense, in a case where tion 19401 made no because it a violation permitted a fraudulent the defendant had no intent to evade but nevertheless signed The a return could return. trial court disregarded possibility apparently without intent on the maker’s part. false criminal involving any would which the instruction General contends the issues Attorney instructions, have under other before the were fact resolved brought jury Sedeno, (see 10 Cal.3d so there was no to the defendant prejudice transaction 721). More the conviction of theft for the 1973 specifically, *72 intent the tax law. defend Assuming is inconsistent with a lack of to evade Sovereign’s ant did have the fraudulent intent to steal false by pretenses 1972, 1973, in when the 1971 that hardly finding assets this precludes More not intend to evade taxation. tax return was the defendant did signed, 1973, did not over, theft in but 1974 it is defendant intended possible the theft as He could have reported intend to evade taxation on the theft. interest income, as a sale generating and indeed did transaction report have been would to him. It does not the theft conviction appear income tax offense. inconsistent with a misdemeanor error a delib- invited the
The General also Attorney argues Graham, Cal.2d (see 71 supra, instruction erate to the objection tactical 1184
303, 318-320; People (1982) 307, v. Wickersham 32 Cal.3d 330-335 [185 436, 650 Cal.Rptr. 311]). P.2d Defense counsel stated their position “ambivalent” an instruction on regarding giving Revenue and Taxation Code section 19401. He also stated the of the section wording “leads only ” to confusion and contradiction. The trial court’s statement just quoted tends to dispel contention it was defense counsel’s which dis- argument suaded the court from on instructing section 19401. Defense counsel in our case certainly went further than did (1979) counsel in v. 23 People Barraza 675, Cal.3d 459, 947], at 683 to 684 pages P.2d 591 where Cal.Rptr. [153 an erroneous instruction was held not to be invited a failure to object it, with counsel it was stating “immaterial” to him whether the instruction However, was given. it is arguable, counsel went further in v. New- People (1970) ton 8 394], at Cal.App.3d 379 to 381 pages Cal.Rptr. where [87 no invited error was found in the failure to an instruction give although defense counsel had dropped his it be The court in Newton request given. it did emphasized not appear the for instructions had been request with- drawn due to a (Cf. “deliberate tactical Finney (1980) purpose.” People case, Cal.App.3d 80].) In our it seems Cal.Rptr. fairly clear from the trial court’s statement it was the court’s own determination to not instruction, give defense counsel although certainly acquiesced Graham, this course of action. The error was not invited within the limits supra, Cal.2d 318 to pages 320.
Finally, the Attorney General contends on the instructions lesser included offense were not because there required was no evidence the offense was less than that charged (e.g., v. Osuna People Cal.2d 462, 452 Cal.Rptr. 678]). P.2d At the time the instructions were given case, in this appeared trial court had a duty instruct on a lesser included offense unless there was no evidence a conviction on support Sedeno, lesser charge (e.g., 715, 720). supra, Cal.3d Subse quently, duty has been modified so an instruction is only when required the evidence conviction of the included supporting lesser offense is substan tial enough jury could have convicted on the lesser reasonably charge (Wickersham, 324-325). Cal.3d
The General Attorney out the defendant points did not himself on testify his state of transactions, sales, mind in the various engaging charged bailments, or signing the tax returns. defense was to estab- strategy lish other through sham, witnesses transactions were proper, properly reported the tax returns. It did from the develop testimony *73 however, some of the tax preparers, the transactions been have re- might ported differently. There was some evidence the transactions were charac- terized in a way which would reduce the tax but it also consequences, ap- at Thus, least the sales pears were some form. there is some reported
1185 them from conceal entirely intend to defendant did not indicating evidence sham, if the sales were false While the returns were authorities. taxing intended gen- the defendant from the fact it does not follow necessarily to conceal that intended further income a sham sale that defendant erate to warrant consider- evidence substantial income on his return. There was returns, he did not have filed false that while defendant had ation aby jury no “The state has conviction. a felony wilfulness to sustain requisite innocent of the he is where in a defendant an obtaining acquittal interest offense. Nor included necessarily of a offense but charged guilty primary of the offense a conviction obtaining interest in has the state any legitimate guilt charged doubt where the entertains a reasonable charged jury jury because the solely that offense offense but returns a verdict of guilty has been guilty the defendant that unwilling where is satisfied acquit Likewise, offense. included necessarily conduct wrongful constituting an all jury adopt in compelling a defendant has no interest legitimate halls are not gambling Our courts to the issue of nothing guilt. approach (1970) 1 Martin v. St. (People but forums for the of truth.” discovery 390]; (1984) 524, 166, Geiger v. People 533 463 P.2d Cal.3d Cal.Rptr. [83 1303].) 45, 674 P.2d Cal.3d 519-520 Cal.Rptr. [199 on a conviction of agreeing The deliberated for before jury eight days counts. After being the remaining count one. an on They reported impasse rendered more, count two was verdict on guilty instructed deliberate on the deliberations, remaining verdicts on the ninth day guilty reasonably certainly probable counts were returned on the tenth It is day. name- charges, the tax fraud had the been another jury given that option 19401, these pro- Code section Revenue and Taxation ly, provided by General Attorney argues deliberations have been shortcut. might tracted doubtless, in- was, under the It was an all or nothing proposition.” 7this a consti- defendant has been. The but it should not have given, structions issue presented material every tutional to have the determine right jury Cal.Rptr. (1963) Cal.2d evidence v. Modesto (People [31 Flannel, 33], on other grounds 382 P.2d disapproved 510, 519). 12; 35 Cal.3d 668, 684-685, Geiger, supra, Cal.3d fn. Several Unanimity Regarding Jury There a Failure to Instruct on
Was Transactions? Charged were contended there
Defendant contends because prosecution 1971, the trial income to defendant transactions which generated several on at unanimously had to agree have instructed the jury they court should (1982) 31 Cal.3d v. Diedrich transactions (e.g., People least one of those Madden 971]). People 643 P.2d 280-283 Cal.Rptr. 897], adequately 216 to Cal.Rptr. pages Cal.App.3d *74 the reviews cases the discussing rule that when the jury unanimity requires acts, defendant is in one count with one of charged any several which could a support conviction. Defendant is unable out case any California point factually similar to ours.
The case most similar factually our own cited defendant is United v. (E.D.Pa. 1979) States O’Neill 1200. The defendant there F.Supp. was charged with false making statements in loan to a federal applications insured bank. He contended because he was with two false charged making statements in an he was with two offenses application, actually charged 1201-1202). the same count this (pp. rejected While the court contention that two offenses were it would the being charged, did indicate charge count, before jury, defendant could be convicted of it had to agree such one unanimously 1205). at least of the alleged misrepresentations (p. O’Neill, defendant, The to our does parallel case not aid however. 1200, 1203-1204, 463 F.Supp. also pair representations indicates made in the course of which single target fraudulent transaction was the federal statute. It is clear the number of false of a statements making ato lending institution in document constitutes one criminal single only (United violation (D.C.Cir. 1982) 1270, 1281). Mangieri States v. 694 F.2d Defendant misses the that it not the of income which is receipt is point Instead, of our target tax fraud statutes. it is failure to report income which constitutes The of the income in our receipt violation. offense, case is not a a method of separately chargeable only but proving offense, element (Cf. an of the income. Peo- namely, underreporting v. Kent 28].) ple Cal.App.3d Cal.Rptr.
The how prosecution exactly is not establish much income required (United 1968) was not (2d States v. Marcus Cir. 401 F.2d reported 633]; cert. den. 393 U.S. L.Ed.2d 89 S.Ct. United (3d 1979) 95, 99). States v. Wilson Cir. F.2d prosecution of tax one required each act evasion so as there is prove long alleged, 1978) (United (7th act to violate statute proved Mackey States Cir. 376, 387). (9th 1978) 571 F.2d In United States v. Cir. 588 F.2d Shelton 1242, defendant contended the should been to determine jury required have of six which items constituted income to him. The court this con- rejected tention, so as the holding a substantial amount of income long jury agreed 1251). was unreported, that was enough (p.
The act which our tax fraud was the of a tax signing violated statutes which return was false with the intent described above. There was requisite one only act of and the have in which agreed way need not signing, jury *75 the exact had to find have false, more than it would return was any the in our case event, no question In there is any of income unreported. amount how should they trial was the issue at transactions took place; the 1971 characterized.
Other Contentions misconduct of claimed prosecutorial In addition the other instances at least has identified 44), discussed in fin. defendant above already (e.g., of counsel is industry appar instances The 20 more of misconduct. alleged however, would, lengthy this already unduly protract ent and admirable. It summarize, reasonable, let alone limits to even any readable beyond opinion discuss, in which success them cases defendant each them. Some of are (Green, 27 Cal.3d others, In made objection no fully objected. the The all them is whether 34). ultimate as each and question of justice and the caused a argument miscarriage prosecutor questions (ibid.). consequence. None them us as that having strike of law denied due Defendant makes an he was argument process allowing the trial the or at least court abused its discretion prosecution transactions “theft from “sham” attempt prove there was income” in the comments made argument in 1971. is based on trial court’s regarding course of defendant’s Penal Code 995 motion denying section counts. The indicated did not to be appear probable 1971 trial court there been an to find there have may cause “theft income” in although benefit.” no collateral estoppel “economic there would have been Since basis, if these the court’s statements effect counts had been dismissed on this introducing dismissing in not them did not from preclude prosecution court upon evidence at was not or the grand jury other trial that before the Penal Code motion v. Patrick (People section 995 276]). Cal.App.3d Cal.Rptr.
IV
Disposition it was (count five) because I would reverse Smith’s conviction of theft below, however, result is on a incorrect As noted legally theory. based my the concurrence of With not shared other members the panel. the possi- been instructed on we conclude the should have colleagues, jury misdemeanor for the years of a tax bility finding guilty tax felonies conviction of only instead of alternative facing under counts one to four. or acquittal
Accordingly, Smith’s convictions of tax fraud are affirmed as misdemean- or violations of Revenue and Taxation years Code section 1973 and the cause is remanded for resentencing unless within of the issuance of file days the remittitur the a written demand for a People trial filed, new on these If such shall counts. demand a new trial *76 take place.49 and Dissenting.
WORK, J., Concurring — We concur in the results reached in I and III of lead sections the for the our opinion generally by reasons but cannot expressed colleague II, the accept rationale or result found in section that portion discussing reasons, Smith’s theft conviction. For sub following the we find stantial evidence that verdict and affirm the theft supports conviction.
Embezzlement, instructed, as the was is defined jury Penal Code section 506 as with essentially Every person follows: entrusted having or his control for another the use of who fraud property person, ulently it to use or not in the appropriates any due and lawful purpose execution his trust is embezzlement.1 guilty 1973, 17,
Smith on transaction between argues appeal, July $8.9 himself and a sale of the was and million to Smith Sovereign payment the sales because, was and his conviction be overturned even price, must though have Sovereign may not received the it the theft purchased, property (if any) was false not by embezzlement. pretenses,
The prosecution solely relied on an embezzlement theory argued evidence a proved beyond reasonable doubt that no sale was intended and Smith directed $8.9 the disbursement of million himself with the However, intent to specific defraud and steal the Sovereign, money. 17, prosecution gave the an alternative: find the jurors they July should 1973, sale, assets, Smith, transaction to be a then of Sovereign control recently (1983) People Cal.App.3d 49As stated in v. page Alexander 140 666 [189 Cal.Rptr. appellate affirming “An court is not remedies of 906]: restricted to the or revers ing judgment. prejudicial goes only degree Where the which error to the of the offense for convicted, appellate the defendant was may degree court the conviction to reduce a lesser modified, (See the judgment thereby necessity and affirm obviating as for a retrial. Pen. Code, 1260; (1968) 423.) People Cal.App.2d Cal.Rptr. § v. Harris 266 434-435 [72 Such modification of is judgment appropriate failing where there was error in to instruct included clearly guilt degree lesser offenses the evidence of a but establishes lesser (1974) (People Bailey Cal.App.3d the offense which he was convicted. 514].)” Cal.Rptr. embezzlement, constitute possession custody 1To one need not or of anoth physical have property; right manage disposition er’s direct those assets is all that 1367], {People required. v. Knott P.2d Cal.2d A.L.R. the sur- evidenced debts would be the Padre Sovereign’s fiduciary Thus, he received partial when and unsecured advances. certificates plus have embezzled Smith would February debts in on those payment as his them fiduciary using by breaching relationship those funds the 1973 of either could find Smith guilty The was instructed it jury own. theft, or the but both. sale,” and convicted finding “no resolved these alternatives jury The lead concedes for the 1973 embezzlement. July opinion
Smith and the conviction. that conclusion supports sham sale. Substantial evidence him Sovereign give he ordered Smith’s state of mind at the time steal, intent was to $8.9 for the It found his million was a fact question jury. *77 sell, substantial evidence to and the record read as a whole lacks unless doubt, it is con reasonable to so find reasonable beyond allow a person 1, 55 (1980) Cal.Rptr. clusive on v. Green Cal.3d appeal. (People 658, 661-662 468]; P.2d v. Norris People Cal.App.2d 283].) P.2d defense, evi- overwhelming It and by is conceded corroborated by controlled, dence, all managed Sovereign that Smith directed and totally Neither Phillip Toft. figureheads, mainly activities or directly, through director, shareholder, of Sover- nor Toft officer employee Smith was a would thus their far as the record eign, public further role as obscuring appear. that Smith reviewing jury finding
In the relevant evidence supporting we look Sovereign, never intended to sell his Padre receivables to evidence, by relevant of similar Smith history presented transactions in- entity and with business to evidence of the “Smith connection” each volved. were structured of Smith-owned and controlled entities myriad sub- numerous nominally controlling
tier with several system, corporations entities, From at least 1963 and assets. sidiary holding others primarily labyrinthine in his (when entwined entity Smith and each May through stock), USNB from further dealings business were empire prohibited massive required and business domain maintenance of Smith’s expansion infusions borrowed monies. USNB, also con- and controlling
Because Smith was the shareholder activities, borrowing from personally he was prohibited trolled its lending USNB However, amount of of a substantial from the bank. as the holder family and by held his and in control of blocks of shares stock substantial entities, other Smith was able to borrow millions dollars from third party institutions, lending these the same shares as collateral. At time pledging controlled, he also borrowed from monies he after corporations secretly had they borrowed the from monies third These included funds parties. borrowed directly from or from third leveraged USNB lenders party USNB Smith’s letters credit were loans guaranteeing repayment. duly and, listed on the books of from bore interest time to lending entity, time, auditor, Thus, were repaid. casual these were arm’s-length transactions between and Smith lenders. facially independent his
Structuring business entities in this tier Smith system gave certain First, he could hide as the advantages. actually his control- identity person subsidiary ling entities his and as directors by listing agents employees officers. In this manner Smith borrowed funds passed through supposedly entities, other independent corporations into Smith-controlled Sovereign which then were distributed to him in the form of loans. These personally USNB, monies from flow-through were obtained large borrowing part Further, which Smith and his could directly. not do because of bank- family ing regulations, USNB could not loan more than 10 any single entity percent (A of USNB’s and all its subsidiaries are unimpaired corporation capital. However, treated as a single for this Smith maneuvered entity purpose.) USNB loans directly individual without disclos- *78 subsidiary corporations its so ing that each to obtain loans to parent, subsidiary was able up (Thus, limit. a single subsidiaries could theoretically, corporation having limit.) Smith, obtain funds of totaling legal lending USNB’s percent USNB, avoid directly managing banking regulations. thus skirted To detec- tion he ordered funds be subsidiary, transferred between parent corporation, himself and lenders in fact a manner to the it was the same disguise money moved. being
According (Schroeder), to Smith Toft and made Sovereign’s comptroller all decisions for In listed 15 Sovereign subsidiary Sovereign. all was By it divested of but one and companies. primarily had itself an borrowed asset-holding which millions of dollars corporation through other for Smith-controlled were funneled distribution. subsidiaries above,
In of context the we the of the stated address background specifics cash, embezzlement but ability scheme: 1965 Smith needed his By personal essentially transactions—was foreclosed borrow—through arm’s-length because all USNB stock controlled outstanding he secure pledged loans. He devised a embezzlement which so suc- scenario simple proved thereafter, including July cessful he employed at least three times Smith of theft of which ordered the comptrollers he stands convicted: he owned dollars to him under corporations guise to disburse millions of books of the listed sales. disbursements were of fictitious These (usu- of stock for blocks USNB as the disbursing corporation purchase price However, worth). in excess its actual at a value considerably ally disbursing were transferred to the never supposedly shares “purchased” for security to third as totally parties were either pledged corporation, which consisted of shares loans which or outstanding, Smith’s were still (One supposed did not transaction involved a “purchase” Smith own. owned.) Thus: “purchaser” already shares $1.85 from of his secretly December obtained million one
In Smith US of California.2 United States corporations, Holding Company controlled 50,000 No USNB shares. recorded the as Holding purchase transaction own, them pledg- were delivered Smith continued to treat as his shares which them to secure for additional debts once ing obligations, personal time money Holding, were secured he from US they obtained (In 8,500 fact of these shares to were he transferred paid. ownership 1971.) his Holding money other entities Smith used the US to repay $104,000 which he it, loan to interest outstanding including payment deduction, a tax This was not liability. took his tax transaction reducing to the would have been had necessary as reported currency comptroller there been an actual of USNB sale shares. $2.3
In March in a million by obtaining Smith similar scam engaged which con- Western he through corporation secretly known Missouri (On attorneys March Smith had written a letter a firm of trolled.3 control, interest or “ownership neither he nor his had certifying family any However, later one month in Missouri Western. directly indirectly” one told a that Missouri Western was Smith Chemical Bank representative $2 to borrow million Missouri Western’s of his and he wished companies with own, which he collateralize
name rather than would personally his *79 stock.) USNB event, (with himself) to sell Smith facially agreed
In March any $2.3 for the 79,000 of to Western exchange shares USNB stock Missouri million, $2.3 which was funneled through he received the Although million. Sovereign State’s changed its name to Holding Company 2 United States California later Holding Company of which separate entity a United of Delaware Capital. This is from States family Smith and his were record owners. he had who admitted “owner” Western M. J. Coen later 3 Thelisted of Missouri was one corporation supposedly the no idea he was listed an owner on that date nor that Security Exchange Commission any from the purchasing shares of USNB stock Smith. When dealings, investigation suspicious stock subpoenaed during Coen later an of Smith’s USNB running the questions him on as “who is asking Coen wrote to Smith he advise such basic books, “destroy.” “Per He this SOS letter with company, where are etc.” concluded (Ex. 37-23.) Destroy purposes.” it has sonal and Confidential. when served its Missouri Western from on Sovereign (Sovereign listed transaction its books), no 13,000 shares were ever transferred. Again, these shares were not even owned Smith and or all by most were to secure other pledged Smith loans or those entities controlled him. Smith used the by money interest, to loan and repay personal this time Sovereign, to again taking tax deduction on the interest paid. (at
In June $5.3 Sovereign direction) Smith’s disbursed million to Smith and 161,000 recorded the disbursement as the purchase price shares his $25 $26 USNB stock a market value of to having share. per (The share, purported price $33 “sale” to inflated Sovereign was an per Smith price arbitrarily set and ordered to disburse in order to Sovereign obtain enough need.) cash to satisfy $2.59 his immediate Smith used million to reduce his outstanding loan to interest for Sovereign obligation pay he which took a tax deduction. the transaction was not Again reported the comptroller of currency, no shares were and Smith transferred continued instance, 24,000 to deal with them (For .as his already own. shares were and, pledged Crocker Bank when that loan was December paid used Smith them to collateralize his loan with the Bank of Califor- personal nia. In 1973 when Bank of California was Smith them to paid, pledged loan.) Franklin National Bank for another personal July
In $9 Smith needed tax another deduction owed Sovereign loans, million various but now the cease and order May 1973 desist him precluded from with USNB stock. had remarkable suc- dealing Having $9 cess with the (more sham-sale than ploy million income unreported date) Smith Padres, retained the but to the same turned his script only other large unencumbered asset to “sell.”
Smith was the sole beneficial of the Diego owner San Padres Baseball Team and had advanced millions of dollars to the franchise. Some loans were evidenced by six documents entitled certificates” and others “surplus were unsecured shareholder Those debts evidenced advances. surplus certificates could the net of the only from Padres after paid equity liq- all uidating other secured and Although unsecured debts. subordinate all creditors, other had over all surplus certificates shareholder priority From at least 1969 had a equity. through very Padres questionable and, terms, net worth to their no debts evidenced according surplus *80 certificates could have been legally paid. $7.9
The total covered advances six certificates was by approximately Smith, Padres, million. of the was not or although director its officer however, his total control is reflected the employee, corporate in resolutions 13, 1972, minutes of and November when Smith the told Padres’ directors of $3,775,000 to retire some of that he had obtained previously repayment the Padres’ prom- these violated Although payments the certificates. surplus to those it owed all other to its to Smith to ise subordinate obligations creditors, act.4 already directors “ratified” this accomplished the the by $4.12 million “secured”
As of Padres owed Smith July advances. $4.75 and million certificates another shareholder surplus one- the Padres of more than from obtaining Smith’s chances payment Padres for a total nil he to sell the half of this debt was because had agreed Bank, $3,204,417 to Chemical $12 million claims of subject priority $3.75 $345,000 million other obliga- on the baseball sale accounts and Thus, knew to be Smith at best by buyer. tions which had assumed $4 over million to himself. future Padre sale could only generate slightly directors, treasurer and assistant As chairman of the board of vice president, Padres, secretary of the Toft also knew this fact.
Undeterred, years, his Smith dealings though consistent with course of an amount ordered Toft to have issue Smith a check for Sovereign equal direction, him, total Toft’s Padres’ indebtedness to interest. At plus Smith Toft $8.9 Schroeder issued check to Smith for million. Neither nor director, officer, discussed the transaction with share- any Schroeder5 holder or Smith’s memorandum to Sovereign. Although representative 9, 1973, the Padre Toft dated “We can then write to July organi- stated: I State and Sovereign zation and tell them have sold these notes Capital endorse them over so can the records this they change accordingly,” certificates or his interest never done. Smith never transferred the surplus Padre advances to Sovereign. with Therefore, 17, 1973, assets of day started July Sovereign million; cash, $8.9 receivables from $18 than million at least more $9 $8.9 Smith Smith in When it million to reduced excess million. gave $9 held accounts receivable. its cash that amount but still million his $8.9 his checks for personal Later that same Smith day, Sovereign gave million, him accordingly. receivable from reducing accounts Sovereign’s Thus, cash position the end of was in same day Sovereign deliver when the held day alleged promise but now Smith’s began, only tax deduction from obtained a sizeable receivables the Padres. Smith paper family were of the Padres Smith’s surprising 4 This is in that directors and officers all instance, Toft, figurehead enterprises, was chairman employees. Smith’s various For directors, secretary. In an president, vice treasurer and assistant of the Padres’ board of chairman, 13, 1972, signed by Toft as refer minutes apparent slip, freudian the November to “Chairman Smith.” time, president and a vice only comptroller at this but Sovereign’s was not 5 Schroeder director as well. *81 because the interest to which he used to payment Sovereign offset $8.9 substantial tax million liability, and he his real by reduced indebtedness without any income or to showing having borrow.
That Smith never intended to sell transfer his interest in the surplus certificates or other him indebtednesses owed the Padres is evident. On 22, $9 June he wrote Bank he would million City stating receive from the sale of the Padres which he use to would his indebted- satisfy personal to ness On (Wolt- bank. one of July Smith’s representatives man) wrote effect, First National same Bank of New to the Jersey except accurately $4 Smith On only would to million. stating get August 1973, a month million, $8.9 after told the taking Smith Bank Sovereign’s of Wichita he was the and would the to selling proceeds satisfy use Padres his 20, 1973, obligation to that bank. On Smith made the same August 8, 1973, to the National and on he promise Valley Bank December told Massachusetts Mutual he would his account use these funds to with it. pay Further, 9, 1974, on February Smith an with the Internal signed agreement Service, Revenue the owned Padres and others he still the Padre certifying obligations the as those “secured” certificates as well incurred surplus certification, through shareholder advances. this Smith was Based upon Padres, credited with the the monies received from sale of the and they were used to his satisfy personal obligations. sum,
In substantial evidence Smith never intended to sell shows his inter inest the certificates or other he held. surplus Padres’ receivables letters both 17, 1973, before and immediately after state his clear intent July them retain and to use the for monies received his personal obligations, and Further, he did that. ultimately just was entitled jury transaction, consider the two 1971 transactions and where he ob tained money through similar sham without exchanging sales anything received, monies evidence his common scheme and competent Code, (Evid. intent. (b).) subd. It is he did not apparent § intend to sell the Padres receivables to No testified Smith Sovereign. person intended to sell the Padre or that obligations Sovereign Sovereign intend- trial, ed to buy them. On Smith only as at entries in appeal, points Sovereign’s accounting books a sale occurred or was intended. On stating facts, these we are we hold could reasonably when understating jury find reasonable doubt did beyond these entries not reflect truth. Correctly Jury
The Trial Court Instructed on Ele ments Embezzlement
Smith failed “there is meritlessly argues jury the trial court to tell difference between a mere a trust and fraudulent violation of appropri- *82 “The theft instructed: The court which constitutes embezzlement.” ation of the fraudulent appropriation consists which is known as embezzlement it has been entrusted. to whom of or other money by person property who be may other person trustee or or agent “The law that says every in his another, who have may or such person entrusted with the of property or it to use another, any fraudulently who appropriates control property of theft by trust is guilty execution of his the due and lawful purpose embezzlement. the fraudulent appropriation
“Theft known as embezzlement consists of been entrusted. or other to whom it has money by property person entrusted or other person “The law that trustee or prescribes every agent another, of anoth- with the or in his control having property property er, not in the due who it to or any purpose use fraudulently appropriates and lawful of theft embezzlement. execution of trust is guilty [The wanted to be sure the were twice because the court foregoing stated points had sufficient to take jurors opportunity notes.]
“The essential elements of embezzlement are: relation—Well, where one arising person
“The relation fiduciary fiduciary remember, now, another—and, you entrusts his property parenthetically, I I as the same meaning said and use ‘person’ ‘corporation,’ going the latter. Those fraudulent of the thing—and property appropriation are the essential elements. instance, a breach of
“In this define fraud act that involves any we as confidence, injurious and which is or breach of trust or breach of duty another. occurs a case
“Such a breach of trust to another injury person and who is or an of a agent corporation which an officer of a corporation, money uses the of that corporation entrusted with money property in violation own purposes, for his knowingly intentionally or property trust. held in trust or property fraudulent of funds such “Any appropriation not, embezzlement, benefit or there is a personal constitutes whether direct his money property. as the owner long wrongfully deprived embezzlement, “To constitute it is not necessary show actual physical *83 of the the possession or is sufficient that money It to show while property. the defendant was not in of actual the it was under possession money, his the control in sense that it was under his direction management. “One the of essential elements of embezzlement that I to you spoke about two or three minutes is fraudulent intent. ago of
“Evidence secrecy or concealment evidence may considered fraudulent intent. Lack of secrecy concealment be considered to may However, negate tending any fraudulent intent. there bemay embezzle- and, ment where the is made without appropriation openly consequently, ” (Italics added.) concealment. the five, instance, Earlier court had advised the “in count jurors: the that is on or charge July about C. Arnholt Smith did unlawfully take and steal personal State . . Sovereign . .” This property Capital hammers home that the of the gist charge stealing Sovereign’s property, an not in a requiring appropriation, just an civil injury sense.
When the embezzlement read to they instructions were the were jurors, related to specifically the theft The court dealt with the charges. separately tax counts identified those to those counts. The relating instructions court again later instructed the the theft separately jurors regarding charges as follows: “Count five charges Sovereign Capital from State theft 1973; . . . “So, five count from State charges Sovereign Capital theft (Italics . . . .” added.)
While instructing relation the theft the court jury solely charges, discussed specific intent. After CALJIC giving general preamble, stated, embezzlement, “In the of theft by necessary crime specific court intent that we have about talked is the intent fraudulently appropriate Thus, of another in court property violation the trust.” the trial scrupu- lously any avoided instructional between the trustee overlapping type breach of trust which result in noncriminal obligation some might and that to criminal beneficiary, subjects fiduciary which sanctions. The there had trial court stated to be a and that Smith repeatedly property theft money. was with The term Sovereign’s fraudulent charged stealing appro- used in could not jurors that context. have been misled as priation cites, People Whitney(1953) in the case Smith happened Cal.App.2d in instructions which 449], found error P.2d where this court establish a criminal would conversion of trust implied any property embezzlement, court here. the trial avoided language carefully Jury Support Instruction That
The Evidence Does Not Dealing Personally With His Controlled Smith’s Good Faith When Corporations Was a Defense to Theft jury to instruct could Smith trial court was argues obligated He did not request find him of embezzlement if he acted faith. guilty good and, tax con- insofar as the such an instruction to the theft counts relating *84 theft, the was jury victions are be generated through on income predicated he all the income taxes owed instructed that his faith belief had good paid would a defense to tax fraud. counts, to instruct on duty
On the theft court had no sua sponte trial evidence. defenses not raised substantial by defense or by supported 518 P.2d Cal.Rptr. Sedeno (People v. Cal.3d 913].) embezzlement on charge Smith did not defend the 1973 Sovereign Stewart People he Unlike the defendant v. acted in faith. ground good 1317], no one testified (1976) 16 544 P.2d Cal.3d Cal.Rptr. Smith the transaction to fact which acted in faith any good would imply if it was a sale. not to be a His sole defense was that sale. found Further, to a defense support there is no substantial evidence in the record he had the ability faith. We Smith’s claim that evidence good reject im- control, Sovereign and from and direct the flow of assets into manage In faith. good spite that when he withdrew funds he acted plies openly of his efforts to his conduct with the acts committed equate Stewart, do he cannot so. with People embezzlement charged Stewart, he withdrew his In Court held that one who testified Supreme he had from time to time because funds for his use employer’s personal so, no do and made attempt been told his he was permitted employer use, put and that were for his they personal to conceal these withdrawals to instruct duty the trial on notice of facts sufficient to its trigger court Here, no evidence defense, in the absence of a request. faith even good withdraw as- Sovereign believed he had permission Smith ever suggests He, fact, use, he claim such authority. for nor does sets his personal he orchestrated each disburse- carefully the contrary, denies he did so. To were would believe the transactions cursory that a auditor ment to insure Stewart, C. Arnholt Smith took great pains Mr. sales. Unlike legitimate rather than a withdrawal for per- to be a sale the transaction appear make instruction on the defense of faith. good to an use. He was not entitled sonal We affirm the conviction for theft in count five as charged concurring with the lead as to the manner of treatment of the tax fraud convic- opinion tions.6 J.,
Cologne, P. concurred. Acting A 12, 1984, petition was denied June rehearing appellant’s petition for a Court was denied 1984. hearing by Supreme August *85 first, probation 6 Smithclaims the grounds: order must be set aside on several because it improper impose one-year jail felony was to pro three consecutive terms as conditions of bation. We do not eliminates, disposition address this contention because our of the tax fraud convictions least, present jail for the may the issue of whether consecutive terms in be imposed any for reason other than as a for If the “sentence” misdemeanor convictions. misdemeanors, People allow the tax resentencing required fraud counts to remain will be counts, and the trial deny probation grant probation court will be free to on those or to on counts, People retry other terms. In the event the those the issue is moot. For the same reasons, any we need not address his claim there was need for the trial court to state reasons imposing probation jail for terms. Second, Smith probation claims the entire order is void because the trial court failed to Court, orally (Cal. 405(f), Code, state its for granting probation. reasons Rules of rule Pen. (c).) duty, Assuming prejudice. argued subd. there is such a Smith shows no He § probation. probation prison for The alternative a is denial sentence. Third, jail Smith claims the trial court its discretion because a term abused rea- sonably Facially, one-year jail related to the crimes he committed. is absurd to contend a million, matter, $8.9 term is an impose stealing unreasonable condition to or for that However, terms, imposed years ago, for each of the tax five frauds. Smith states these eighty years age poor amounted to a “death” sentence because he was then and in health. These factors and others cited defendant were considered the trial court and no abuse life-threatening of discretion is shown on this record. Smith is free to submit current medical by way modify probation, appropriate. factors to the trial of motion to if court Finally, general probation requiring pay we note the court’s condition of Smith trial $681,000 reparation liability on account of the State of California for taxes he failed pay proper probation granted is not condition to be attached to the the theft unnecessary At conviction. this time it is decide whether it is a reasonable condition to imposed on the counts. tax fraud notes State and endorse Sovereign Capital them so over they can their change accordingly.” records Schroeder, memo was Toft to who an and presented by officer director of as well as or for of Sovereign, many accountant comptroller defendant’s other Based on in- corporations. the memorandum other Toft, structions from Schroeder worked out the form of the transaction and caused check to Sovereign’s issue defendant a voucher through request. Based Schroeder, Kurz, from instructions an officer and Mrs. director of Sovereign, defendant, as well as a for recorded the transac- bookkeeper tion as a sale to Sovereign by defendant of the Padres’ on various obligations for ledgers are false Sovereign. Arguably, Sovereign records also tokens, but this need not be tes- determined. There was also corroborating Annotation, Pretenses, Extortion, 15 See Liability Corporation Criminal False or Offenses, Similar 49 A.L.R.Sd 820. Schroeder, from timony who made notes on a conversation with Toft which clarified defendant’s intent to sell the certificates to Sovereign. surplus statements, the memorandum and Through Toft’s through repre- sented to officers of that he would deliver to it the Sovereign proceeds certificates and a surplus promissory note. Corroboration the false pretense required by Penal Code section 1110 can be found in the memo- randum, Schroeder, Toft’s statements as an defendant to agent Kurz, Schroeder’s instructions as an of defendant to agent Mrs. records of Sovereign the transaction. recording The fraudulent intent of the defendant has been described as the essence of the offense of (Ashley, false obtaining money property by pretenses supra, 265). Cal.2d “It is well established that criminal intent may be inferred from the circumstances general surrounding transactions, and that other similar transactions carried on a defendant are sufficient to prove guilty and criminal intent.” v. knowledge (People Robinson, Ingles (1931) accord, 341]; P.2d Cal.App. 211, 224; 107 Cal.App. People Cal.2d