# U ni te d S ta te s Co ur t of A pp ea ls For the Eig hth Circu it

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No. 1 4- 36 05

__ __ __ __ __ __ __ __ __ __ __ __ __ _ Uni te d S ta te s o f Am eri ca

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff - App el le e

v.

Pat ric ia Ann McQu arry

ll ll ll ll ll ll ll ll ll ll l Defe nd

an t - Ap pe ll an t

__ __ __ __ __ __ App eal fro m

Uni te d S ta te s Di st ric t Co ur t fo r th e Dis tri ct of M in ne so ta - St. Pa ul

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Su bm it te d: Octo be r 23 , 20 15 Fil ed : M arch 22 , 20 16

__ __ __ __ __ __ Befo re RI LEY, Chi ef J ud ge , SMITH an d S HEPHERD, Circ ui t J ud ge s.

__ __ __ __ __ __ RILEY, Chi ef J ud ge

. A jury fou nd Pat ric ia McQu arry gui lt y of o ne co un t o f co ns pi racy to d efra ud th e Uni te d St at es in vi ol at io n o f 18 U.S.C. § 2 86 , and two co un ts of m ak in g a fal se cl ai m ag ai ns t th e Uni te d St at es in vi ol at io n of 18 U.S.C. § 28 7. McQu arry ap pe al s,arg ui ng th e di st ric t co ur t rev ers ib ly erre d whe n it ex cl ud ed fro m e v i de nc e a vi de o 1
M c Q u a r r y cl ai m s su pp or te d he r go od -fai th de fen se

. W it h juri sd ic ti on on ap pe a l

un de r 28 U.S.C. § 1 29 1, we af fir m

.

I. BACKGRO UND
W e reci te th e fact s “ ‘in th e li gh t m os t f a v or ab le to th e jury’ s ve rd ic t[].’ ” Uni te d St at es v. McKa nr y , 62 8 F.3 d 10 10
, 10 14 n.2 (8 th Ci r. 20 11 ) (q uo ti ng Uni te d
St at es v. Van Ngu y en , 6 02 F.3 d 8 86 , 89 0 (8 th Cir . 20 10 )). In th e su m m er of 20 07
, McQu arry an d he r hu sb an d, Mar k Garci a, were be hi nd on m or tg ag e pa y m en ts fo r th ei r no rth eas t Mi nn eap ol is
, Mi nn es ot a, ho m e. Seek in g fin an ci al ad vi ce, McQu arry

an d Garci a be ga n at te nd in g a week ly “ pr iv at e st ud y gr ou p” un ti l th ey m ov ed in 20 08

. The pr iv at e st ud y gr ou p, le d by a man who m McQu arry de sc rib es as “ ve ry y ou ng ”

an d “ ch ari sm at ic ,” st ud ie d abs tra ct th eo rie s of fin an ce and de bt rel ie f

. Thro ug h th e
gr ou p, McQu arry sp en t “ hu nd red s,” “ if no t th ou sa nd s,” of ho ur s st ud y in g vi de os of fin an ci al se m in ars

. Acco rd in g to McQu arry, on e of th e vi de os ex pl ai ne d ho w to us e Uni te d St at es Dep art m en t of the T re as ur y In te rn al Rev en ue Serv ic e (IRS ) Fo rm 10 99

- OID. Ano th er vi de o, cal le d th e “ The Mo ne y Mat rix
, ” by a cert ifi ed pu bl ic 2

acco un ta nt (CPA) na m ed Al W ag ne r (Wagn er vi de o)
, di sc us se d f r a ct io na l-r es erv e ba nk in g— th e pr act ic e whe reb y ba nk s acce pt de po si ts an d ho ld res erv es eq ua l to on ly a fra ct io n o f th ei r li ab il it ie s t o d ep os it ers

.

The Hon or ab le Pat ric k J. Sch il tz , Uni te d St at es Dis tri ct Ju dg e fo r th e Dis tri ct 1 of Mi nn es ot a.

IRS Fo rm 10 99 -OID is us ed to rep or t or ig i n a l i s su e di sc ou nt (OID), th at is
, 2

am ou nt s tre at ed as in te r e s t f ro m a de bt in st ru m en t is su ed fo r le ss th an it s pr ic e at

m at ur it y wit h th e ex ces s be in g a fo rm of in te res t in co m e. See ge ne ral ly 26 U.S.C. § 12 7 3 ( a ) (1 ). Gen eral ly, th e is su er of th e de bt in st ru m en t (o r an in te rm ed ia ry ) ge ne rat es Fo rm 10 99 -OID an d se nd s it to th e own er of th e de bt in st ru m en t an d th e IRS. See 20 15 IRS Pu b. 12 12
, “ Gui de to Orig in al Is su e Dis co un t (OID) In st ru m en ts ,” at 6.

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-In Decem be r 20 08
, McQu arry fil ed a 20 07 fed eral pe rs on al in co m e ta x ret ur n, cl ai m in g a $9 7,6 24 r e f

u n d

. McQu arry rep or te d $2 ,76 5 in wag es an d $1 27 ,48 3 in
OID in co m e pu r p o rte dl y wit hh el d by two fin an ci al in st it ut io ns , at ta ch in g ei gh t

co rres po nd in g Fo rm s 10 99 -OID to he r ret ur n. The IRS id en ti fie d McQu arry’ s ret ur n

an d su bm it te d it to th e fri vo lo us -ret ur n pr og ram

. In Apr il 20 09
, McQu arry fil ed a 20 08 fed eral pe rs on al in co m e ta x r et ur n. Fo r 20 08
, McQu arry cl ai m ed sh e earn ed $1 ,13 8 in wag es an d cl ai m ed on e fin an ci a l in st it ut io n wit hh el d $3 0,8 83 in in te res t in co m e. McQu arry req ue st e d a $ 2 8,4 98 refu nd
, bu t th e IRS ag ai n su bm it te d McQu arry’ s re tu rn to th e fri vo lo us -ret ur n p ro gr am

.

On Ju ne 18 , 2 01 3, a fed eral g r a n d ju ry ch arg ed McQu arry wit h on e co un t of

co ns pi racy to de frau d th e Uni te d St at es an d two co un ts of m ak in g a fal se cl ai m
ag ai ns t t he Uni te d S ta te s. See 18 U.S.C. §§ 28 6, 2 87

.

Dur in g a pr et ria l con fere nc e, th e di st ric t co ur t he ard arg um en t ab ou t whe th er
two vi de os in fo rm in g McQu arry’ s be li efs
, in cl ud in g th e Wa g n e r vi de o, sh ou ld be ad m it te d in to ev id en ce an d pl ay ed fo r th e jury. The di st ric t co ur t st at ed th e W ag ne r vi de o m ig ht be ad m is si bl e if McQu arry te st ifi ed an d la id a pr op er fo un da ti on

. Bas ed

on th is pr et ria l ru li ng , McQu arry’ s co un se l, in hi s op en in g st at em en t at tri al
, refe ren ced to pi cs co ve red in th e W ag ne r vi de o, su c h as frac ti on al -res erv e ba nk in g.

Afte r vi ewin g th e two vi de os , an d sh or tl y be fo re McQu arry to ok th e st an d, th e di st ric t co ur t is su ed it s fin al ev id en ti ary ru li ng on th e vi de os

. The di st ric t co ur t

ex pl ai ne d it wou ld al lo w th e jury to w a t c h th e vi de o th at in st ru ct ed ho w to fil l ou t Fo rm 10 99 -OID “as a n e xa m pl e of on e of th es e sa le sm en tryin g to pr om ot e a

sc he m e.” Howev er, th e di st ric t co ur t, ci ti ng Fed eral Ru le of Evi de nc e 40 3, wou ld no t ad m it th e Wagn er v id eo to pl ay to th e jury, exp la in in g,

I ha ve no id ea wha t [th e W ag ne r vi de o] h as to do wit h th is cas e

. O I D is n’t m en ti on ed

. I m ean , ou r cas e is ab ou t m ak in g a fal se cl ai m fo r ta x

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-refu nd s to th e go ve rn m en t.

. . . I di dn ’t se ns e an y co nn ect io n at al l

be twee n wh at W ag ne r sa id an d o ur cas e.

So
, . . . I wil l le t Ms

. McQu arry te st ify th at sh e watc he d a le ct ur e by CP A W ag ne r. I wil l l et he r ex pl ai n wh at it is he sai d th at m ad e he r th in k wha t sh e was do in g was la wfu l an d th at sh e was n’t m ak in g a fal se cl ai m

. Bu t I’m jus t no t go in g to pl ay th is ho ur an d fiv e m in ut es [v id eo ]. The re is so m

uc h he re th at ha s no th in g to do wit h ou r cas e. It lo ok ed to

m e li ke al m os t al l of it

- - I a s s um e [Mc Qua rry ] wil l po in t ou t so m e
co nn ect io n, b ut I th in k u nd er [Fede ral Ru le of Evi de nc e] 40 3 th ere are

m ul ti pl e p ro bl em s wi th th e Wagn er [v id eo ].

. . . .

. . . [F]or ex am

pl e, th e CPA’s ran t ab ou t th e [Fai r Deb t Co ll ect io n Prac ti ce s A c t], whi ch
, be si de s be in g wro ng ab ou t vi rtu al ly ev erythi ng he di sc us se d,

. . . I do wor ry th at th at ’s go in g to co nf us e t h e ju r y an d

m is le ad th em

.
The di st ric t co ur t al so op in ed W ag ne r to ok “ 45 m in ut es to m ak e [th e] sa m e p oi nt ” ab ou t frac ti on al -res erv e ba nk in g th at McQu arry’ s co un se l ex pl ai ne d “ m or e cl earl y in ab ou t two m in ut es in hi s op en in g st at em en t.” McQu arry ob jecte d th at th e op en in g
st at em en t was no t ev id en ce. The di st ric t co ur t to ld co un s e l h is ob jecti on was

un de rs to od
, bu t em

ph as iz ed McQu arry c o u l d te st ify ab ou t th e W ag ne r vi de o an d

“ an y th in g an d ev erythi ng sh e wan ts th at sh e sa w at th at se m in ar th at le d he r to be li ev e th at wha t sh e was do in g was -- th at sh e was no t m ak in g a fal se cl ai m .” As pa rt of he r
te st im on y , McQu arry co nf irmed he r un de rs ta nd in g of frac ti on al -res erv e ba nk in g
ga in ed fro m th e W ag ne r vi de o was “ al on g th e li ne s” of he r co un se l’s des cri pt io n in th e o pe ni ng st at em en t.

To pr ov e a vi ol at io n of 18 U.S.C. § 28 7 an d 18 U.S.C. § 28 6, th e go ve rn m en t ha d to sh ow McQu arry kn owi ng ly pr es en te d a m at eri al fal se , frau du le nt , or fic ti ti ou s cl ai m a g ai ns t th e Uni te d St at es

. See Uni te d St at es v. Ji rak , 7 28 F.3 d 80 6, 81 1 (8 th Ci r. 20 13 ); Uni te d St at es v. Alef f, 77 2 F.3 d 50 8, 51 1 (8 th Ci r. 20 1 4 )

. M c Q u a r r y

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-m ai nt ai ne d sh e be li ev ed sh e was fil in g “ tru e an d co rrec t” ta x ret ur ns an d Fo rm s 10 99

-

OID.

The jury fo un d McQu arry g u i l t y o n al l co un ts

. The di st ric t co ur t se nt en ced McQu arry to co nc ur r e n t s en te nc es of 40 m on th s im pr is on m en t on each co un t an d

or de red he r to pa y , in joi nt an d se ve ral li ab il it y wit h Garci a, $2 26 ,00 0 in res ti tu ti on
to th e IRS . McQu arry app eal s, ch al le ng in g t he di st ric t cou rt’s ru li ng ex cl ud in g t he
W ag ne r vi de o fr om

ev id en ce at tri al

. 3

II

. DISCUSS IO N McQu arry arg ue s th e di st ric t co ur t erre d whe n it ex cl ud ed th e W ag ne r vi de o fro m ev id en ce an d th ereb y de pr iv ed McQu arry “ of he r fu nd am en ta l rig ht to pr es en t

a co m pl et e d efen se .” See C ran e v . Kent uc ky, 476 U.S. 68 3, 69 0 (19 86 ) (o bs erv in g th e ex cl us io n of “ co m

pe te nt , rel ia bl e ev id en ce” t h a t i s “cent ral to th e de fen da nt ’s cl ai m of in no cen ce” ris ks d e p riv in g a de fen da nt of rig ht s gu aran te ed by th e U.S.
Co ns t i tu ti on ). W e rev ie w ev id en ti ary ru li ng s “ fo r an ab us e of di sc ret io n,” se e Qui gl ey v. W in te r, 59 8 F.3 d 9 3 8
, 9 4 6 (8 th Ci r. 20 10 ), an d co ns ti tu ti on al an d le ga l cl ai m s de no vo , se e Han an v. Mu ka se y , 5 1 9 F

. 3 d 7 60
, 76 3 (8 th Ci r. 20 08 ). W e

“ ‘rever s[ e] on ly whe n an im pr op er ev id en ti ary ru li ng affe ct ed th e de fen da nt ’s

su bs ta nt ia l rig ht s or ha d m or e th an a sl ig ht in flu en ce on th e ve rd ic t.’” Uni te d St at es

v. And ers on , 78 3 F.3 d 72 7, 74 5 (8 th Ci r. 20 15 ) (q uo ti ng Uni te d St at es v. Hen le y , 76 6
F.3 d 8 93 , 91 4 (8 th Cir . 20 14 )).

Tho ug h rep res en te d by co un se l, McQu arry fil ed (1 ) wit h le av e, a ha nd writ te n 3
pr o se su pp le m en ta l br ie f as se rti ng ei gh te en ne w is su es , (2 ) a pe ti ti on fo r de cl arat or y jud gm en t, (3 ) th ree m ot io ns to su pp le m en t th e reco rd on ap pe al
, an d (4 ) a m ot io n fo r rel eas e an d m is cel la ne ou s ot he r rel ie f. W e typic al ly do no t ad dr es s a de fen da nt ’s pr o
se fil in gs when “ th e de fen da nt is rep res en te d b y co un se l.” Un it ed Sta te s v . Mo or e, 48 1 F .3d 11 13 , 11 14 n.2 (8 th Ci r. 20 07 ). After care fu l re vi ew, we se e n o re as on to al te r th at pr act ic e he re. W e de ny McQu arry’ s pe ti ti on fo r de c l a r a t or y jud gm en t,

m ot io ns to su pp le m en t th e reco rd
, an d m ot io n fo r rel eas e an d m is cel la ne ou s ot he r rel ie f.

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-McQu arry as se rts th e W ag ne r vi de o pr ov id ed th e “ so un d, rat io na l ba si s fo r th e

b e l i e f th at th e Fo rm 10 99 -OID co ul d be us ed in th [e] m an ne r” McQu arry us ed it

. W it ho ut th e Wa g n e r vi de o, sh e co nt en ds
, th e “ ba si s fo r th os e be li efs
, al l of th ei r th eo rie s .

. . so un d li ke m ere [he ars ay ] an d con du ct in co nf or m it y wit h th os e be li efs is well pr es um ed to be in vi ol at io n of la w.” Upo n ou r in de pe nd en t rev ie w o f t h e W ag ne r vi de o, we co nc lu de th e d is tri ct co ur t d id no t er r in ex cl ud in g t he vi de o.

Fed eral Ru le of Evi de nc e 40 3 pe rm it s th e ex cl us io n of “ rel ev an t ev id en ce if it s
pr ob at iv e va lu e is s u b s t a n t i a l ly ou twei gh ed by a da ng er of

. . . un fai r pr ejud ic e,

co nf us in g th e is su es , [o r] m is le ad in g th e jury.” “ W e gi ve gr eat de fere nc e to a di st ric t

co ur t’s ap pl ic at io n of th e Ru le 40 3 ba la nc in g te st .” Uni te d St at es v. Lup in o, 30 1 F.3 d
64 2, 64 6 (8 th Ci r. 20 02 ); acco rd Bu rri s v. Gul f Und erwri te rs In s. Co
., 78 7 F.3 d 87 5, 88 1 (8 th Ci r. 20 15 ) (“ A tri al co ur t ha s ‘bro ad di sc ret io n in de te rm in in g th e rel ev an cy

an d ad m is si bi li ty of ev id en ce.’” (q uo ti ng Uni te d St at es v. Ji m in ez, 48 7 F.3 d 11 40
, 11 45 (8t h C ir. 2 00 7) )).

Not on ly di d th e di st ric t co ur t reas on ab ly fear th e W ag ne r vi de o co ul d m is le ad

an d co nf us e th e jury, th e di st ric t co ur t qu es ti on ed th e vi de o’s rel ev an ce an d pr ob at iv e

va lu e. See Fed

. R. Evi d. 40 3. McQu arry “ was th e be st so ur ce o f [ h er] su bjec ti ve be li efs
, an d [s he ] te st ifi ed as to th os e be li efs .” Uni te d St at es v. Giam ba lv o, 81 0 F.3 d
10 86
, 10 95 (8 th Ci r. 20 16 ). McQu arry’ s own te st im on y ab ou t he r be li efs was “ ‘m or e
pr ob at iv e’” of he r go od -fai th d e f e n s e th an a le ng th y , co nf us in g, an d, at be st ,
m in im al ly rel ev an t vi de o sh e cl ai m s to be “ ‘the so ur ce or art i c u l a t io n of th os e be li efs .’ ” Id. (q uo ti ng Uni te d S ta te s v . Man n, 8 84 F.2d 53 2, 5 38 (10 th Cir . 19 89 )).

The di st ric t co ur t’s ex cl us io n of th e W ag ne r vi de o fro m th e jury’ s de li be rat io ns di d n ot affe ct McQu arry’ s s ub st an ti al rig ht s, an d we a re co nf id en t adm is si on of

th e W ag ne r vi de o wou ld no t ha ve ch an ge d th e ve rd ic t. The d i s t r ic t co ur t di d no t err whe n i t ex cl ud ed th e Wagn er v id eo fro m ev id en ce.

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-II I. CONCLUSI ON

The jud gm en t o f th e d is tri ct co ur t i s af fir m ed

.

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