United States v. Russell McLaughlin Jr., in No. 96-1982. United States of America v. Mark McLaughlin in No. 96-2000

130 purpose unwilling gation guess calling to rele- to at Walker’s in state the was inmate proposed testimony and of- witnesses. their

vance of charges him. fered no defense Conclusion hearings, disciplinary At Walker asserted of the district af- judgment court is no presented theory on which defense firmed. testimony helpful be to could the witnesses’ Fox, contrast, had him. The inmate theory

explained of defense to which the guards obviously prison was

testimony of the

relevant. prior cases to De- decided

Supreme Court that an inmate’s established

cember disciplinary in a hear-

right call witnesses to by the limitation that exer- ing qualified UNITED of America STATES permitted would not be to right cise of the goals. See v. impinge on correctional Wolff v. 539, 566, 2963, McDonnell, 418 U.S. 94 S.Ct. McLAUGHLIN, Jr., Appellant Russell (1974); Real, 2979, L.Ed.2d Ponte in No. 96-1982. 2192, 2195, 105 S.Ct. Supreme had Court

L.Ed.2d UNITED STATES America hearing that a explained officer also permitted exclude irrelevant or unneces- Real, testimony. See at sary McLAUGHLIN, Appellant Although 2195. this circuit had in No. 96-2000. issue, precise at least one not considered prior had held to 1990 that an 96-1982, circuit other Nos. 96-2000. required to prison inform could inmate Appeals, United States Court expected relevance of wit- officials Third Circuit. testimony, an inmate’s fail- nesses’ justify a hearing do so would officer’s ure to Argued June 1997. testimony. to allow See Bostic v. refusal Sept. Decided (9th Cir.1989). Carlson, to explain refusal the rele- Given Walker’s testimony, requested witnesses’

vance of of the absence defense of-

coupled testimony which the of the wit-

fered for confirmation, provided might have

nesses hearing say officer’s refusal

cannot call witnesses violated a Walker

to allow principle of constitutional

clearly established immunity ap- Qualified was therefore

law.

propriate. in an affidavit submitted contended

Walker that he ques- court wanted to district the other proposed wit-

tion Youmans weapon about whether contraband

nesses hidden his locker

might have been cell,

previous occupant of the and whether an area accessible other inmates.

inwas thing at disciplinary no such

But he said hearing no obli-

hearing. The officer had Welsh, Jr., (Argued) E. Catherine

Robert P.C., Recker, Recker, M. Welsh & Philadel- PA, phia, Appellants McLaughlin, Russell McLaughlin. Jr. and Barden, Maureen Assistant United States Jr., Batty, Attorney (Argued), S. As- Walter Attorney, Philadelphia, States sistant United PA, Appellee United States America. BECKER, SCIRICA, Before: Circuit SCHWARZER,* Judges, Senior District and Judge. THE COURT

OPINION OF SCHWARZER, Judge. Senior District (the Russell and Mark “McLaughlins”) appeal from their convictions tax and sentences for income evasion. The McLaughlins and their relatives own Build- (“BIU”), ing Inspection a close Underwriters building corporation inspec- that conducts Jersey Pennsylva- tions for various New municipalities. president nia Russell was BIU, corpora- was an officer opened In two bank ac- tion. BIU counts, Jersey one with New National Bank (“NJNB”) Fidelity First and the other with (“First Fidelity”). During Bank over $700,000 corporate receipts deposited in each of those accounts. Neither BIU nor McLaughlins roughly declared $1,400,000 deposited in the as in- accounts on BIU’s tax come 1988federal returns. McLaughlins Both were of at- convicted tempting to evade assessment of BIU’s § taxes in of 26 U.S.C. 7201. income violation subscribing Russell was also convicted of filing a false 1988 income tax return on be- of 26 half of BIU violation U.S.C. 7206(1). They acquitted conspir- § were ing to defraud the United States. See § McLaughlins 371. The sen- U.S.C. were adjusted tenced on the of an offense basis level of 17. The district court sentenced custody twenty-four months them both years supervised three release and fined $100,000. each * California, Schwarzer, by designation. sitting W Senior United William Honorable Judge District District for the Northern Stales jurisdiction The district court had 18 Fifth Amendment’s Self-Incrimination jurisdiction § U.S.C. and we have un- Clause barred the from offering der 28 U.S.C. evidence of personal his comply failure to adequately subpoena. with the Russell I. THE FIFTH APPLICATION OF objection limine, raised the in a motion in AMENDMENT PRIVILEGE TO NON- which the district court denied “a defini PRODUCTION OF SUBPOENAED ruling tive suggestion ‘with no that it would DOCUMENTS reconsider the matter at trial.’” Govern the IRS served summons Joseph, V.I. v. Russell, capacity corporate (3d in his Cir.1992) as BIU’s (citing American Home Assur. custodian, requesting production of certain Inc., Co. v. Supermarket, Sunshine trial, government financial records. At (3d 321, Cir.1985)). Thus, 325 the issue is permitted produced to show that Russell us, properly before see United States v. Me production records and that the did not in- (10th jia-Alarcon, 982, 986 Cir. clude record of the NJNB account. The 1993) Home, (citing American 753 at government was also argue allowed to 324-25), and we exercise plenary review. this omission was evidence of intentional eva- Jury See In re Subpoena, Grand sion of tax assessment.1 (11th 807, Cir.1992). 809 Russell contends that admission of this privi evidence violated his Fifth Amendment A. Existence a Testimonial Privilege of lege against Relying self-incrimination. on “[B]ecause the act complying of States, 99, Braswell v. United 487 U.S. 108 government [subpoena] with [a] testifies to 2284, (1988), 101 argues S.Ct. L.Ed.2d 98 he existence, possession, or authenticity of produced corporate that because he records things produced,” production such may compulsion subpoena of a directed to implicate Fifth rights. Amendment Bouk custodian, corporate him as see Baltimore v. 555, night, 905; 493 U.S. at 110 S.Ct. at 549,

Bouknight, 555-56, 493 U.S. 110 S.Ct. Fisher, 410, 1580-81; 425 at (1990) U.S. 96 S.Ct. at 900, 905-06, 107 (quoting L.Ed.2d 992 States, 118, 125, Curcio v. States, United 354 391, 411, U.S. 77 Fisher v. United 425 U.S. 96 1145, 1150, 1569, 1581, S.Ct. (1976)); L.Ed.2d 1225 S.Ct. 48 L.Ed.2d 39 Bel corporate States, 85, produces Since custodian lis v. United docu U.S. 94 S.Ct. 2179, (1974); in representative ments his 40 L.Ed.2d 678 rather than Wilson Unit his States, personal capacity, may ed he U.S. 31 S.Ct. not invoke his (1911); Henkel, right against L.Ed. Hale v. 201 U.S. self-incrimination in order to (1906), 26 S.Ct. 50 L.Ed. 652 subpoena corporate resist a for records.2 (the conspiracy particular 1. Count One of the respect, indictment some the custodian was not count) specifically acting corporate agent. referred to Russell’s failure in as If the custodian acts responding negligently, dishonestly, summons to disclose to the or even he is no less provide acting IRS the NJNB account and to books and agency, in the course of that even if a concerning inferenlially may records it. Count Two claim could, lie him for malfeasance. It course, nonproduction by charging referred to person Russell’s of be that a served with a "concealing subpoena documents, him with ... from the produce corporate Internal Rev- is not authorized to enue Service the ... [of location BIU acting income].” in which case he is not as off; corporate custodian and all bets are a for- Judge expresses appli- employee, Becker example, produces pur- concern over the mer who agency principles cation of corporate to situations such obviously as loined documents is not However, government scope this case. when within the of the Braswell rule. But we do subpoena person corporate go serves a custodian, on a as behind the assertion of the Fifth Amend- designates person it to serve as in other situations to ensure that Braswell, corporation’s agent. legitimate See obviously U.S. the claim is do so would —to ("[A] at 118 n. 108 S.Ct. privilege. at 2295 n. 11 undermine the The attack "de- corporate agent custodian acts as an and not an "non-producing vious custodian" or the custodi- produces corporate by individual way contempt proceedings, when an” is of an response subpoena in to a "agency” legitimacy addressed to him in examination into his representative capacity.”). personal his privilege. of his Fifth Amendment contend, sum, hardly could perfectly symmetrical after it has received a the outcome is —the Braswell, response corporate qua comply to circumvent custodian custodian must 69-70, aspect production is not Hale, testimonial limited at 26 S.Ct. at 376-77. Braswell, handing material over Thus, the act the Court wrote that: may the custodi- also include concede[d], must, it —it [T]he which materi- an’s exercise of discretion over evidentiary may use of the make no Incomplete al to and which to omit. produce act” individual.... “individual production may therefore be as communica- into not introduce Government [T]he complete production. tive as ... was served evidence producing act of documents in “[t]he While corporation’s upon and the documents response ... has communica- particular one individu- were delivered custodian____ own, wholly from aspects tive of its aside al, Because the papers produced[,] ... contents produced the not told that the defendant taxpayer the tacit averments of the whether records, any nexus between defendant ‘incriminating’ for are ‘testimonial’ and both solely the documents results purposes applying the Fifth Amendment corporation’s and other act ... facts depend on the and circumstances evidence the case. cases____” Braswell, 487 U.S. particular 118, 108 at 2295. 487 U.S. at (quoting at 2287 Fisher v. 108 S.Ct. government contends that Braswell 391, 410, apply Braswell con- does not here because (1976)). 1569, 1580-81, In 48 L.Ed.2d 39 than production of documents rather cerned case, government’s find that the use at nonproduction. The distinction is their nonpro- concerning trial Russell’s of evidence government’s The con- without a difference. plain duction makes both its testimonial and may no in make cession Braswell Fisher, incriminating qualities. its 425 Cf. evidentiary against use of the “individual act” 410-11, (resolving 96 U.S. at S.Ct. at 1580-81 restricted to material the individual is not though appellate the even case on the record is actually produced but instead broad factual). govern- the The determination implications pro- enough encompass of nonproduction ment introduced evidence of duction, incompleteness. including As its an overt act in of as furtherance Kennedy has noted: Justice assessment, conspiracy to evade see Su- produces An individual who documents 8-9, perseding Indictment at also as tes- but sat- asserting [the be documents] mind, guilty see timonial evidence of Su- description subpoe- isfy general Tr., 9; at Trial perseding Indictment Mar. na, possession in his they or that were 12, 1996, (government’s closing ar- at 142-43 his either [In those] control. Tr., 1996, 82, 1, gument); Trial at Mar. 88 convey information about assertions can (direct testimony investigating agent of re- knowledge individual’s and state of receipt corporate garding spoken effectively as state- mind Russell); Tr., 27, meeting with Trial Feb. .... ments 1996, (government’s opening state- at 15 ment).3 J., 122, repeated (Kennedy, government’s at 2297 The refer- at S.Ct. Id. 108 added); Fisher, incomplete production ence Russell’s dissenting) (emphasis see act 1580-81; 410, culpability in the S.Ct. at as evidence of his flies face 425 U.S. 96 Curcio 118, States, 125, Fifth 354 U.S. 77 S.Ct. Braswell vitiated Russell’s v. United (1957). 1150, Thus, 1145, privilege.4 1 1225 L.Ed.2d Amendment government leged exceptions While with a records offense. such certain offering (e.g., exception the testimonial and incrimi- privileges barred nating aspects do exist or fraud crime production (including non- attorney-client privilege, In re Sealed see production) him. Case, (D.C.Cir.1997)), F.3d 46 the Fifth 107 (except Amendment admits such limitation only Count also on It thus bore not Two but privilege one where the narrow circumstance ("willfully” making subscribing Three Count the Mi- embedded in self-incrimination return). 7206(1). a false 26 U.S.C. warning public’s inter- randa is overcome Quarles, safety, 467 est see New v. 2626, U.S. York excep- government us 4. The would have make an 2632-34, 649, 657-60, 104 S.Ct. 81 where the custodi- tion Fifth Amendment (1984)). Indeed, government’s nonproduction al- L.Ed.2d 550 an’s is in furtherance of his

135 B. Waiver L.Ed.2d 705 The bears the “burden of showing the preju absence of contends that Rus Olano, dice.” 725, United States v. 507 U.S. sell waived the Fifth Amendment 741, 1770, 1781, 113 S.Ct. 123 L.Ed.2d 508 when he to claim it at failed the time when (1993). Although did not produced subpoenaed documents. See argue error, harmless we have discretion to 367, 370, Rogers v. 340 United Giovannetti, consider it. United States v. (1951) (“The 438, 440, 95 L.Ed. 344 (7th 225, Cir.1991); 928 F.2d see United invoked.”). privilege is deemed waived unless Rose, 1408, (1st Cir.) States v. 104 F.3d government’s argument privi (adopting discretionary standard for over lege may by making voluntary waived harmlessness), looking government failure to raise apposite statement is not to the issue before — denied, U.S.-, rt. 117 S.Ct. ce us, which concerns evidentiary use of a (1997); 138 L.Ed.2d Horsley v. response to a for the Alabama, (11th 45 F.3d 1492 n. 10 documents. While the Fifth Amendment is — Cir.1995) (same), denied, U.S.-, cert. generally self-executing, where a testimo (1995); 116 S.Ct. 133 L.Ed.2d 328 Unit is, case, compelled, nial act as in this Langston, ed States 704 n. 9 defendant does not privilege by waive the (10th Cir.1992) (same); Leapley, Lufkins failing to invoke it. Maryland, See Adams v. (8th Cir.1992) (same); 179, 179-83, 442, 444-45, v. Pryce, States (1954) (holding L.Ed. 608 the Fifth Amend (D.C.Cir.1991) (same). self-executing testimony where compelled by congressional grant of use deciding whether to exercise that dis- immunity). cretion, controlling considerations are the congressional testimony As with elic length complexity record, and pursuant promises ited to a summons that whether the harmlessness of the error or id., immunity, use see to the debatable, errors found certain or and corporate corporate custodian for whether a protract- reversal will result in personal cannot be refused. The privilege ed, costly, ultimately proceed- and futile against being identified as the individual who “ ings in the district court. complied with the ‘necessary is a corporate, concomitant’ of the fact or Giovannetti, 928 F.2d at 227. Here the rec- government, representa custodian acts in a complex, certainty ord is “[t]he and of harm- personal tive rather capacity.” than a Unit appear lessness does not clarity with such Dean, ed States v. 989 F.2d 1210 unguided from an search of the record (D.C.Cir.1993).5 we should raise the issue on our own mo- Although may tion.” Id. a reversal be cost- Analysis

C. Harmless Error ly, we must vacate Russell’s convictions. The district court’s erroneous ad ADEQUACY II. THE OF INDICTMENT concerning mission of evidence pro Russell’s duction of documents McLaughlin complains mandates reversal of Mark that because his conviction beyond unless it was “harmless charged the indictment him with evasion of Chapman a reasonable payment doubt.” v. of taxes rather than with evasion of Califor nia, 18, 24, 824, 828, taxes, 386 U.S. assessment of see 26 U.S.C. exception requested would swallow the in its voluntary en- documents amounted to a tirety. thereby rights against statement and waived all self-incrimination described in Braswell. Review voluntarily given 5. A govern- statement testimony government's of the trial belies by may a custodian be admissible investigating contention. The officer conceded proceeding. him a later criminal See United meeting at trial that the an “was not interview of 181, 186-87, Washington, States v. 431 U.S. only Russell" and that Russell’s testimonial act 1818-19, (1977). S.Ct. 52 L.Ed.2d 238 produce a list of the alleges by documents made statements conjunction Russell in handing with his over had delivered. sufficiently language of the indictment proof at trial. Because was a failure

there McLaughlins on notice that put not raise this claim broad McLaughlins did court, proceed analysis government would plain error the district before 52(b). theory. Section 7201 evasion-of-assessment applies. Fed.R.Crim.P. states, part: “Any person who in relevant respect amendment of the With attempts any manner to evade or

willfully indictment, types of amendments are two imposed by this title or the any tax defeat “First, ... impermissible: amendment guilty ... of a shall payment thereof from one that that transforms an indictment § 7201. Two felony....” 26 U.S.C. Count into one that does not state an offense does charged McLaugh- that the the indictment second,] any charge that tends to ... [and lins burden at trial.” increase the defendant’s defeat the willfully attempted to evade and Milestone, v. 626 F.2d States large part of the income tax payment of a Cir.1980). (3d vagueness, Despite its concealing ... owing [BIU] due clearly an And states offense. indictment attempting to conceal from BIU’s ac- poorly have been artic though the count Revenue countant and the Internal Service ulated, McLaughlins’ it did not increase income and nature and extent of BIU’s Thus, imper no at trial. there was burden thereof, by making false the location indictment. missible amendment accountant with re- statements to BIU’s spect to the nature and extent of BIU’s whether there We next consider income. [between was a “variance the indictment 7201 includes two distinct offenses: Section proved] actually prejudiced] [that] the crime evading payment. evading assessment and Somers, v. the defendant.” United States States, 343, 354, v. United Sansone (3d Cir.1974). 723, 744 Variances 496 F.2d 1004, 1011-12, 13 L.Ed.2d case-by-case on a basis and “are examined require These offenses different ele error if the defen constitute reversible proof, compare v. ments of United States prejudiced.” dant was United States (3d Cir.1992) (list McGill, 964 F.2d (3d Cir.1986). Smith, 196, 200 ing payment”) “evasion of elements of (1) prejudice occurred: a read Cohen United makes clear that ing of the entire indictment Cir.1962) (9th (listing means to evade various proceed on a government the intended to assessment), “they overlap.” frequently but (2) assessment; theory Mark’s of evasion of (9th Mal, 682, v. 942 F.2d 688 United States attorney the evasion-of-as own addressed Dunkel, Cir.1991); 900 see United States (3) trial; theory at Two sessment Count Cir.1990) (7th (stating that F.2d 107 only specified relevant to an itself conduct say although it is convenient to “[s]ometimes theory (e.g., conceal evasion-of-assessment ‘crimes’ that different methods are different accountants). ing income from BIU’s own § nothing history ... in the text or 7201 Waldeck, As in States v. 909 F.2d 555 § if requires an indictment to treat 7201 as it (1st Cir.1990), “it was clear at the start of were two sections of the United States government proceeding trial that the on Code”), grounds vacated other 498 theory.” Id. at an evasion-of-assessment 112 768 L.Ed.2d charged the Had III. FAILURE TO ISSUE SUMMONSES McLaughlins payment, with evasion AND GIVE NOTICE UNDER prove would have had to a valid assessment 7609(a) 7602(a)(2), §§ U.S.C. McLaughlins assets. from which the hid The IRS interviewed BIU’s former England, 347 F.2d United States (7th Cir.1965). from him accountant and received records did summons, Thus, issuing without first see prove that element. the conviction 7602(a), giving McLaugh § proof if at U.S.C. government’s stand request its trial did if lins concomitant notice of not amend the indictment and 7609(a). § records. See 26 U.S.C. investigation. ated It was entitled McLaughlins’ suppress motion to the evi to do so notifying without Mark. dence so obtained was denied the district Mark McLaughlin court. contends that the IV. ADMONITION TO DEFENSE give IRS’s failure to issue the summons and COUNSEL IN PRESENCE OF JURY 7609(a). § notice violated 26 U.S.C. Our re During the defense’s recross plenary. Emanuele, view is United States v. (3d Cir.1995). 1123, 1127 accountant, BIU’s who appeared gov subpoena, ernment interrupted the court If the IRS had issued a summons to a questioned propriety of defense counsel’s third-party record-keeper and the summons asking leading questions of the witness whom “require[d] production any portion had McLaughlins were compensating for his kept records made or of the business time at trial. Defense argued counsel BIU, transactions affairs of’ subpoenaed witness had been by the McLaughlins would have been entitled to compensation and that his receive notice of the summons. 26 U.S.C. 7609(a)(1). In this judge IRS issued no irrelevant. The later conceded that he gave summons and therefore no notice of the rough had been with defense counsel and informal voluntary interview and document gave a curative jury, instruction to the delivery. (stating id. See that notice is re- praised which he integrity of counsel.6 quired ... summons ... “[i]f Mark now seeks a new trial on ground served____” added)). (emphasis the district court’s intervention questioning was reversible error.

The IRS has broad discretion on how it investigations. conducts its See 26 U.S.C. Though the court’s comments reflected un- § 7602. As the Ninth Circuit has said: favorably counsel, on defense the court did provides separate Section 7602 three neutrality its color of “lose[ ] [or] tend[ ] 7602(a)(1) inquiry. means of ... Section emphasize accentuate and prosecu- provides informal, for an noncompulsory Bland, tion’s case.” United States v. inquiry. means of If inquiry an informal (8th Cir.1983). The court’s 7602(a)(2) proves inadequate, Sections comments neither McLaugh- undermined the 7602(a)(3) provide mechanisms for the for- lins’ government’s defense nor buttressed the compulsion mal of docu- They case. implied at most frustration with testimony. ments and questions the form of counsel’s and some (9th Speck v. United discomfort with the witness’ relationship with Cir.1995). “Nothing ... in the text of Sec- defendants. The inferences that a could (a)(2) suggests tion 7602 that subsection have drawn from the court’s comments are should be read to exclude informal or non- not “of such a serious nature as to constitute attempts coereive to obtain information about error, reversible particularly in view of the possible report failures income.” Id. Sec- court’s [curative instruction].” Sleek v. J.C. 7602(a) permits tion to con- Co., (3d Penney 467, Cir.1963); 324 F.2d investigation duct a formal and issue sum- Price, 711, see United States 13 F.3d proceed informally. monses or to In this (3d Cir.1994); Stayback, United States v. proceed chose to infor- (3d mally, Cir.1954). cooper- and BIU’s former accountant gave following 6. The lawyers court curative guys. instruc- attest that these are all swell I jury: tion to the personally, they like them and are ethical as [Sjome place morning matters took this and I day long. is perhaps got grumpy a little with counsel. I you any And should not draw adverse infer- you you way want to tell in no should They they ence whatsoever. are fine fellows and any against lawyers draw adverse inference doing jobs they doing very are their are it against the defendants in case. can particular is essarily issue IS- determined GUIDELINE V. SENTENCING difficult.”). extremely SUES7 McLaughlin was sentenced on the Mark jury Where the does determine 17. The adjusted offense level of basis of an evaded, the determination amount of tax (“PSR”), Report which the Pre-Sentence judge. must made the trial assigned Mark a base offense adopted, court (1st Cir.1996). Olbres, States v. 99 F.3d Sentencing Guidelines see U.S. level of briefing extensive The district court received (1988) (“U.S.S.G.”), and rec- § 2T1.1 Manual loss, hearing, question of conducted a on the upward adjustment two-point ommended a finding made a that: justice. U.S.S.G. obstruction See for respect accountability for the appeals § Mark the sentence on With 3C1.1. (1) upon account], $770,000 the tax loss which grounds: Fidelity three the First [in artificially whole, inflated view, he was sentenced my viewing the record as were al- including income on which taxes clearly accounta- makes these defendants (2) Sentencing ready being paid; Com- for of the accounts in the criminal ble both authority by including mission exceeded its context.8 loss; computation in the of tax interest court’s determina- We review district (3) adjustment for obstruction of upward tion of the amount of loss for clear error. justice warranted. The district was not Colletti, United States rejected arguments. these court (3d Cir.1992). Loss Amount A. Determination Fidelity ac- Mark contends that the First Sentencing Purposes warranty count a reserve future contended at both balance therefore was claims and that its sentencing argues again here trial and being income over ten treated as accrued paid income in being taxes were on the another years. He claims that BIU or Fidelity First account and therefore that McLaughlin-related affiliate treated a has tax loss was attributable to the income prorated portion of the account as income on court deposited that account. The district every return since before BIU was sentencing rejected argument and at government investigation. The aware of the deposited in both took into account all funds response government argues in accounts, Fidelity bank the NJNB and First McLaughlins’ extended fraudulent activities $1,400,000 in in roughly

which amounted to that, jury’s accounts and even if the both come. account, the court verdict rested on one brief, trial evidence In his Mark recites fraudulent conduct could have considered bearing on the issue of whether the First respect to the other as relevant conduct. Fidelity account was a reserve future lB1.3(a). See U.S.S.G. jury may argues that have claims and points indicating that moreover to evidence solely on the nonre rendered verdict based Fidelity funds in the First account were used porting of the NJNB account. capitalize other ventures. general guilty that does returned a verdict complex and the facts were The record distinguish between the accounts. Cf. us, hotly disputed. the record before On Bailin, United States v. (7th Cir.1992) (“When say finding cannot that the district court’s gen a a case involves verdict, clearly nee- was erroneous.9 establishing eral that the verdict ably. up you the inclusion of four smaller A little matter came and shouldn’t 9.Mark also contests $200,000 yourselves compu- at all. totaling roughly concern with that in the amounts argument rejected tation of tax loss. That Sentencing parties agree 7. the 1988 All disposition court in its of this the district apply. Guidelines clearly findings court’s were not matter. The McLaughlins challenge did not the inclu- erroneous. account in the calculation. sion of the NJNB Including B. in looking Interest Loss Amount But at what the Government has pages brief, said on of its which Sentencing Mark contends clearly are made out the record statutory authority Commission exceeded its basis, find them to have my view, factual in unpaid when included interest taxes that does going constitute that extra step, computation of tax loss. See U.S.S.G. required which is in the United States app. provision § 2T1.1 n. 2. The the Code Dunnigan versus ... demonstrating a will- authority of describes the Commis impediment, ful seeking to establish a will- “pro sion states the Guidelines should impediment ful to justice, obstruction of or certainty in sentencing and fairness vide] attempt an to do the perjuriously. same dispari reduc[e] unwarranted sentence 994(f). § argues ties.” 28 U.S.C. Mark example, For when including accumulated interest in that, the calcula testified ... in order to add addition- tion of tax loss sentencing exacerbates dis money reserve,” al to “the “we formed a parities by causing defendants’ sentences to bank account in Jersey South into which depend largely on when the deposited cash we into that account.” The (and brings its case therefore in how much defense concedes that convicted accumulates) terest rather than on the failing report Defendants of to income____ amount of income from hidden assessment. Including in computing interest tax loss sufficiency We review the of the district government merely recognizes the time findings supporting court’s imposition of money. value of Far being beyond a sentence enhancement for clear error. See authority, Commission’s it is a rational calcu- Maurello, (3d lation of the real loss sustained as conse- Cir.1996) (“If ‘essentially a decision is factu- quence taxpayer’s illegally of a concealing his al,’ standard.”). apply clearly erroneous income from capacity assessment. Whatever Section Sentencing 3C1.1 of the Guidelines has magnitude affect authorizes two level increase in the offense by choosing of a defendant’s sentence strate- level willfully “[i]f the defendant obstructed gically allegedly wayward when to an indict impeded or ... justice the administration of taxpayer, allegation any impropriety during investigation, prosecution or sen- the. Furthermore, made here. always it is within offense____” tencing of the instant U.S.S.G. taxpayer’s power pay deficiency 3(a) § Application 3C1.1. Note lists as an stop short, accruing. and to interest from In example of conduct to which the enhance- general “we fail to see how statutory th[e] applies “threatening, intimidating, or provision, outlining purpose guide- unlawfully influencing otherwise a ... wit- lines, supports [Mark’s] contention.” United directly indirectly, ness ... or attempting Sanchez, (3d States v. 3(a). app. do so.” U.S.S.G. n. 3C1.1 Cir.1993). The conduct to which the court re C. Two-level Enhancement Obstruc- part ferred in the first findings, of its tion Justice brief, government’s described consist imposing a two-level enhancement for McLaughlins’ ed of the sending investigators justice obstruction of McLaughlins, on the tape-recorded to obtain statements from wit the district court found: nesses in an effort to demonstrate that the Finally, respect investigating to obstruction of agent IRS had violated the justice, in McLaughlins’ addition to what was related to rights. constitutional The in taping garnering me as the alleged vestigators evidently did not disclose their preparation evidence or effort so to indo recordings identities and made secret of their [pretrial] for the hearing ... it seems to interviews. tape-recording While the secret going mighty me that was stretching far by persons of statements who concealed their envelope advocacy, frankly, identity may prohibited in an under the laws (as up effort to come with some observed), evidence to some states the district court try prosecution. to derail this encompassed it does not amount to conduct assuming that Mark’s conviction for There is no conten- Even Application Note. the

by evidence, implies tax” that the McLaughlins the “willful evasion of tion, any that nor rejected for “threaten[ed], explanations or un- all of Mark’s the otherwise intimidat[ed] “at- as any witness or to declare either account’s balance failure lawfully influene[ed]” income,11that alone not be sufficient to to do so.” See id. would tempt[ed] support finding a that Mark testified “with ground im second for The court’s provide testimony.” to false the willful intent was the the enhancement posing Colletti, As held United States we testimony. Ap gave perjured McLaughlins (3d Cir.1992): F.2d 1339 perjury as one of 3 includes plication Note point two to warrant the en- [I]n order for which the enhance types of the conduct justice, for obstruction of hancement imposed. In United States be perjury of the must be defendant 87, 113 S.Ct. Dunnigan, established, by supported clearly evi- (1993), that a the Court held L.Ed.2d having jury’s than dence other disbe- purposes guide of the finding perjury him, sufficiently also lieved but must be proof that false requires line enhancement far-reaching impose some incremen- testimony given the willful intent was “with upon government, tal either in burdens testimony, a false rather than as provide proof, or which would not investigation confusion, faulty memo mistake result necessary perjury. have been but for 1116. ry.” Id. at The Court added). (emphasis 984 F.2d at 1348 added: imposition Accordingly, we conclude evi- district court must review the [A] section 3C1.1 enhancement clear findings independent nec- dence and make McLaughlin’s vacate Mark sen- error. We impediment to essary to a willful establish tence. ... justice under the or obstruction of ... set out perjury [above]. definition VI. CONCLUSION 95, 113 at 1117. Here the district Id. at McLaughlin, Russell Jr.’s We VACATE finding principally its on Mark’s court based and REMAND for a new trial. convictions Fidelity testimony that First account was McLaughlin’s We sentence VACATE “reserve,” i.e., respect with to which he a one resentencing and REMAND for consistent paid claimed income was accrued taxes opinion. with this Application Note 1 directs when earned.10 testimony “alleged by ... that the false BECKER, concurring. Judge, Circuit in a most light ... evaluated defendant many U.S.S.G. This is a close and difficult favorable the defendant.” note, complications. app. Relying § n. on that I believe that the result that 3C1.1 correct, requires Judge I note Schwarzer reaches is but have held imposing separately I come to that re- sentencing court refrain write because route, I giving perjurious by sult a more tortuous which feel enhancement for 3C1.1 compelled explain. explanation testimony satisfies its That will unless the many convincing identify also I have “clearly court] concerns about burden area, hope likely not that the the law in this can be it is more than defendant which v. Ar dealt with in future eases. These concerns has been untruthful.” United States (3d Cir.1997). Here, add, nold, arise, I hasten to not because deficiency Judge opinion failed to its Schwarzer’s but the court to hold by proof. created Braswell burden of because tensions substantial amounts of BIU in- 10. The in its brief referred to in the return omitted finding made come. court’s also mentions statement McLaughlins agent during the in- reserve, earlier, vestigation claiming account to be a supra p. 11. As we noted see agent testimony jury’s general that he had told the Russell verdict does not disclose whether account, warranty jury rejected only part all or of Mark’s an account and testimo- testi- mony. ny by know him that he did not BIU's v. United In this at least as I understand the (1988) record, application 101 L.Ed.2d 98 and the findings there were no in the district go beyond respect Braswell cases Braswell’s court with to whether Russell facts. McLaughlin, Jr. acted within agency his

when comply he failed to adequately with the relevant however, IRS I suppose, summons. I. agency that such could be inferred. Building Inspections Underwriters, (“BIU”) Supreme Court held Braswell that Inc. closely corporate may a its related custodian not invoke businesses were owned and operated by privilege against his Fifth Amendment the McLaughlin family, self- three of incrimination to whom were resist a sum- indicted for tax evasion. It subpoena corporate mons or for would not be records even unreasonable to conclude that producing corporation if the act of entity such records as an would directed its agent Jr., relate information Russell McLaughlin, that would incriminate the President However, company, him. of the production because the act of to withhold certain docu- act, i.e., However, corporate is a ments. produces the custodian it inappropri- would seem ate for agent corpora- documents as an for the us to draw that inference on this tion, the Court also held that record without investigation further into the may governing not use that act the custodian in structure of the interlocking com- prosecution panies. words, a personally. him In other straightfor- application principles ward of hornbook part opinion, In I.A. Judge of his Schwar- law, agency we cannot say now for certain implicitly zer assumes that all acts of non- within agency. acted his production subpoe- related to a summons or To conclude that McLaughlin acted within acts, corporate na are govern- and that the (as agency his ultimately do), I we must ment therefore cannot introduce evidence of beyond therefore look agency hornbook law. non-production against the custodian. I If McLaughlin agency, acted outside his believe this to be an assumption. uncritical then protections the Braswell likely do not non-production Whether an act of corpo- is a apply. Braswell, See 118 n. rate act turns principles agency law. A (“[T]he 108 S.Ct. at 2295 n. 11 limitation good by faith decision a records custodian to [against introducing the act of withhold documents he believes to be irrele- against a personally] custodian necessary is a vant subpoena to summons or a corpo- is a concomitant of the notion corporate that a But, act. rate what if the custodian fails to custodian agent acts as an not an individ- turn sought by govern- over documents produces ual when he corporate records in gross negligence, ment because of deliberate response to a addressed to him in indifference, Or, or recklessness? what if Still, representative capacity.”). his gov- willfully the custodian unlawfully chooses may prohibited ernment be from introducing (as comply may not to happened well have non-production his act of prosecution at a here)? Are these acts of non-production For, against him. if McLaughlin acted his within agency? the custodian’s Hornbook personal capacity enjoy does agency questions law answers these with a protections Braswell, afforded (Second) “maybe.” See Restatement enjoy privi- nevertheless a Fifth Amendment (1957) Agency § g 34 cmt. (“Authority to do lege against compelled, incriminating tes- acts, illegal or tortious whether or not crimi- timony summons, effected if the ele- nal, inferred.”).1 readily short, is not it is ments of a claim are met. not clear to me records custodian will always acting representative capaci- his compulsion arguably elements of were ty respond here, when he fails to present to a summons the summons or subpoena. compelled McLaughlin itself to turn potential complication (which does), determining 1. A further applies suspect determining applies whether state or federal common law apply. which state law to and, scope agency, define the if state law McLaughlin implied that may have further records, his to exercise discre- but also over report the con- willfully failed to fall had earlier whether certain documents as to tion BIU) (income to from subpoe- tents of the documents or scope of the summons the within impli- used these in set forth the IRS. Subject to the reservations na. trial, arguing at McLaughlin against cations he therefore margin, I reason that the the documents non-production of that the to make a choice.2 compelled evade fed- McLaughlin’s intent to evidenced incrimi- testimonial and an act is Whether then, non-production, The act of eral taxes. given facts of a case. depends on the nating Thus, incriminating. to been appears have States, 425 U.S. v. United Fisher See ease, acting McLaughlin if were even 1580-81, 48 L.Ed.2d 96 S.Ct. govern- that the agency, believe within his (1976). potential of are a number There non-production of not use his act ment could production. of an act of aspects testimonial would have him to do so against because following: that the aspects include the Those But, if rights. his Fifth Amendment violated existed; that the custodian produced hold, undermining Bras- we be so would records; control over possession had non-producing by permitting a custodian well the records to be believed that the custodian rights? claim his Fifth Amendment to summons; subpoena subject or An act records are authentic. II. similarly has numerous testi- non-production following: that including the aspects, monial complexities and that the point It is at this exist; requested do not the documents crystallize. begin to problems of the case control the possess or the custodian did forward, apply this case how are we to Going documents; did not be- the custodian McLaughlins? to future Russell and Braswell subject to be to lieve documents grand issues Assume that summons; and that the custodi- subpoena or (as happened in Bras- custodian to a records withheld documents an believed that well). to comply, and seeks He refuses to or the that their contents were relevant and invoking his Fifth subpoena, quash the incriminating. were producing them act of op- privileges. The Amendment quash. What is poses the motion to very non-produc- act In this step, court should As a first court to do? compelled choice— tion —the result of pro- applies and whether Braswell Doe v. determine information. See related certain invoking per- 201, 211, his hibits the custodian rights. But Fifth Amendment 2341, 2348, That sonal L.Ed.2d 184 wheth- require the court determine comply fully with the would failed to planned to act outside er the custodian implied that he believed arguably summons responding to the scope agency his documents were relevant that the withheld effectively question could subpoena. Such a produc- the act of that their contents or imply that he fil- require the custodian incriminating. That failure ing them were assumed that ing It seems to have entirely records. clear that a records custodian complies It is not otherwise, present; compulsion inadequately personal with a summons or who subpoena and, course, compelled, evidentiary if has been limi- to create not have needed would compulsion, the act of non- then there is introducing production be- the act of tations on the cus- could be introduced concerns at all about there would be no cause scope (assuming was outside the that act todian privi- violating Fifth Amendment the individual's ways two agency). There are at least of his describing Second, govern- that the leges. it could he said way scenario in such the factual -production, compel the act of non ment did not (neither compulsion that there is no to conclude only production; at least in the act of but First, satisfying). wholly it could be of which is willfully, may who acted case of the custodian corpo- any compulsion at the is directed said that disregard voluntarily chosen said to have represen- at individual in his or at least an ration voluntary subpoena. Yet the summons personal capacity, in his not the individual tative capacity. non-compliance occurred after act of Although discus- I am unaware of engage compelled the custodian to Court, Supreme point, precise sion on this place. process in the first See in the decisional Braswell, has focused on the testi- cases such as infra. produc- aspects custodian’s monial of a records withholding unlawfully by comply act rele- provid- with a without tends first claiming aAs condition of ing statutory vant documents. him immunity, immunity use an self-incrimination, then, his any prosecution stymie that could directed him- custodian would need to incriminate him.3 Perhaps prohibit the court self. could only way to avoid this morass alto- government using that admission it, gether, as I at least see is to all assume in prosecu- custodian some future (as do) Judge cases Schwarzer seems to that tion, prohibition complicates further but a will always records custodian act within his already complicated problem. an agency responds when he to a undertaking analysis an to wheth- Even subpoena Working or summons. from that applies may By it. er Braswell undermine assumption, hypothetical this case our undertaking analysis, such an court Braswell, case are easy; under neither might signal to the there is a custodian that our hypothetical nor Braswell, way way around and a around com- personal custodian can invoke his Fifth subpoena. plying with the If the custodian to rights Amendment resist a a summons or compliance subpoena knows with the subpoena entity represents, served on the he him to turn over would force documents but the cannot any use act of personally contents which are incrimina- production non-production prosecu- or in a ting production the act of which is or However, personally incriminating, then he claim tion him. as I noted plans above, to act agency that he outside his when I that such assumption believe an (and subpoena responds to the risk that agency willing stretches hornbook law. I am might support his admission lead to or some accept to such a stretch because the alterna- case, a prosecution). future In that devious tive is to either undermine Braswell or Fifth can custodian invoke his Fifth Amendment jurisprudence generally. Amendment more very subpoena, and resist the However, problems I think that the I sought Braswell outcome to avoid. exploration have need identified future above, suggested might at cases. As the court tempt to limit the use of of com the results way pie here, I Whichever sliced i.e., subpoena, with the

plying the act of use of McLaughlin’s believe that the act of non-production, to ensure non-production against personally him would aspects compelled being testimonial join Judge be unlawful. I therefore Schwar- respond to the used to are not opinion. zer’s Doe, incriminate. Under United States 605, 616-17, 104 1237, 1244-45, (1984), L.Ed.2d the court cannot prospectively itself limit the use of testimoni compelled.

al that have been The court acts however,

can, suggest that if compel response

wants to to the might so testimonial it must do statutory grant immunity

resort of use

pursuant §§ to 18 U.S.C. 6002 and

But, a suggestion such least the violates at

spirit of Braswell. The Court in Braswell mightily govern

strove to ensure that compel

ment could records custodian to might appoint respond entity, adequately subpoena? court 3. The also choose to an to a (for assumes, example, legal believe, alternate custodian counsel) correctly outside re- Court respond subpoena. Braswell all sort to an alternate custodian but ensures that How, strongly discourages the Su- this course. entity not turn over the will documents asks, custodian, preme Court un- is an alternate government seeks. machinery record-keeping familiar

Case Details

Case Name: United States v. Russell McLaughlin Jr., in No. 96-1982. United States of America v. Mark McLaughlin in No. 96-2000

Court Name: Court of Appeals for the Third Circuit

Date Published: Sep 11, 1997

Citation: 126 F.3d 130

Docket Number: 96-1982, 96-2000

Court Abbreviation: 3rd Cir.