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09-1702-cr(L), 09-1707-cr(CON), 09-1790-cr(CON)

United States v. Pfaff

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED

ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE

PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A

DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN

ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST

SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

1 At a stated term of the United States Court of Appeals

2 for the Second Circuit, held at the Daniel Patrick Moynihan

3 United States Courthouse, 500 Pearl Street, in the City of

4 New York, on the 27 day of August, two thousand ten. th

5

6 PRESENT: DENNIS JACOBS,

7 Chief Judge,

8 RALPH K. WINTER,

9 JOSEPH M. McLAUGHLIN,

10 Circuit Judges.

11

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13 United States of America, 

14 Appellee,

15

16 -v.- 09-1702-cr(L)

17 09-1707-cr(CON)

18 09-1790-cr(CON)

19

20 Robert Pfaff, Raymond J. Ruble, also

21 known as R.J. Ruble, John Larson, 

22 Defendants-Appellants.

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24

25 FOR APPELLANTS: ALEXANDRA A.E. SHAPIRO, Marc E.

26 Isserles, Macht, Shapiro, Arato &

27 Isserles LLP, New York, NY, David C.

28 Scheper, Scheper, Kim & Overland
2

1 LLP, Los Angeles, CA, for Defendant2 Appellant Robert Pfaff.

3

4 STUART E. ABRAMS, Frankel & Abrams,

5 New York, NY, Jack S. Hoffinger,

6 Susan Hoffinger, Hoffinger, Stern &

7 Ross, LLP, New York, NY, for

8 Defendant-Appellant Raymond Ruble.

9

10 J. SCOTT BALLENGER, Lori Alvino

11 McGill, Latham & Watkins LLP (Steven

12 M. Bauer, Margaret A. Tough, San

13 Francisco, CA), Washington, DC, for

14 Defendant-Appellant John Larson.

15

16 FOR APPELLEE: JOHN M. HILLEBRECHT, Margaret

17 Garnett, Justin Anderson, Katherine

18 Polk Failla, Assistant United States

19 Attorneys, of counsel, for Preet

20 Bharara, United States Attorney for

21 the Southern District of New York.

22

23 Appeal from a judgment of the United States District

24 Court for the Southern District of New York (Kaplan, J.).

25 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED

26 AND DECREED that Appellants’ convictions and Larson’s term

27 of imprisonment be AFFIRMED.

28 Raymond Ruble, Robert Pfaff, and John Larson appeal

29 from judgments of conviction and a sentence entered April

30 15, April 21, and April 24, 2009, respectively, in the

31 United States District Court for the Southern District of

32 New York (Kaplan, J.). Appellants were convicted of tax

33 evasion, and sentenced principally to terms of imprisonment

34 and fines. In a separate per curiam opinion filed today, we

35 decide the challenge to Larson’s fine, imposed under 18

36 U.S.C. § 3571(d). We assume the parties’ familiarity with

37 the underlying facts and the case’s procedural history.

38 Appellants raise five issues here: [1] whether the jury

39 instructions were flawed; [2] whether the evidence was

40 sufficient to support their convictions; [3] whether the

41 government’s case at trial constructively amended the

42 indictment; [4] whether they are entitled to have their
3

1 indictments dismissed pursuant to United States v. Stein,

2 541 F.3d 130 (2d Cir. 2008); and [5] whether the district

3 court erred in imposing Larson’s sentence. The issues are

4 considered seriatim.

5 [1] We find no error in the district court’s jury

6 instructions. “We review jury instructions de novo, and

7 reverse only when the charge, viewed as a whole, constitutes

8 prejudicial error.” United States v. Amato, 540 F.3d 153,

9 164 (2d Cir. 2008). The district court charged the jury

10 that a transaction lacks non-tax economic effect when there

11 is “no reasonable possibility that the transaction would

12 result in a profit.” On the facts of this case (where the

13 non-tax economic effect proffered by the defense was the

14 possibility of profit), that was a correct statement of the

15 law. See, e.g., Goldstein v. Commissioner, 364 F.2d 734,

16 740 (2d Cir. 1966) (disallowing “deduction for

17 [transactions] that can not with reason be said to have

18 purpose, substance, or utility apart from their anticipated

19 tax consequences,” in case where taxpayer could have

20 realized a $22,875 profit given favorable market changes

21 (emphasis added)). We have in the past affirmed jury

22 instructions stating a narrower definition. See, e.g.,

23 United States v. Atkins, 869 F.2d 135, 140 (2d Cir. 1989)

24 (approving instruction that transaction has no non-tax

25 economic effect if it is “subject to no market risk”). But

26 we have not held that those instructions state the outer

27 limits of the economic substance doctrine. Nor do we find

28 any error in the district court’s circumstantial evidence

29 examples, which were, if anything, favorable to the defense.

30 [2] The evidence was sufficient to support the

31 convictions. When reviewing a conviction for sufficiency of

32 evidentiary support, “the trial evidence is viewed most

33 favorably for the Government” and “all reasonable inferences

34 a jury may have drawn favoring the Government must be

35 credited.” United States v. Wexler, 522 F.3d 194, 206-07

36 (2d Cir. 2008). We affirm “‘if any rational trier of fact

37 could have found the essential elements of [the] crime

38 beyond a reasonable doubt.’” Id. at 207 (emphasis omitted)

39 (quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979)).
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1 There is sufficient evidence that the transaction

2 lacked any non-tax economic effect. Testimony described the

3 chances of profiting from the investments as “basically

4 zero.”

5 Sufficient evidence also supports the jury’s finding

6 that the transactions were entirely motivated by tax

7 purposes. Clients testified that the transactions were

8 marketed solely as tax-avoidance schemes, and that, as

9 clients, they had no non-tax business purpose in executing

10 them. Evidently, that is why, at the outset of the

11 purportedly seven-year scheme, a good number of BLIPS

12 clients attempted to limit their commitment to sixty days,

13 even though exiting so early would significantly limit their

14 (already nugatory) chances of profiting on the currency

15 forwards. BLIPS was designed, marketed, and executed as a

16 tax shelter; and the jury was warranted in concluding that

17 all parties knew BLIPS’s profit potential to be nothing more

18 than a pretext.

19 In a challenge to the finding of willfulness,

20 Appellants argue that “economic substance” law was too vague

21 to support their convictions. Citing United States v.

22 Pirro, 212 F.3d 86, 91 (2d Cir. 2000), Appellants contend

23 that economic substance law was not sufficiently “knowable.” 

24 But “knowability,” except perhaps as probative of a

25 defendant’s subjective belief in the lawfulness of his

26 conduct, is only relevant insofar as it bears on

27 constitutional vagueness. Vagueness of the law does not

28 ipso facto negate a jury finding of willfulness. See United

29 States v. Ingredient Tech. Corp., 698 F.2d 88, 97 (2d Cir.

30 1983). And economic substance law is not unconstitutionally

31 vague: It has been applied in criminal cases before, and (as

32 discussed) is not unsettled in the way Appellants contend. 

33 Cf. Pirro, 212 F.3d at 91 (affirming partial dismissal of an

34 indictment insofar as it charged a violation of a purported

35 legal duty the existence of which was an open question).

36 Finally, we disagree that Appellants’ actions fall

37 outside the ambit of the tax evasion statute, 26 U.S.C.

38 § 7201. Section 7201 provides, in relevant part:
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1 Any person who willfully attempts in any manner to

2 evade or defeat any tax imposed by this title or

3 the payment thereof shall, in addition to other

4 penalties provided by law, be guilty of a felony.

5 The statute’s expansive language is not susceptible to a

6 limitation that would exclude Appellants. No case

7 interpreting § 7201 appears to have adopted any limit to its

8 reach; those cases that have considered § 7201's scope have

9 rather expressed it expansively, see, e.g., United States v.

10 Townsend, 31 F.3d 262, 267 (5th Cir. 1994) (“[Section] 7201

11 is not limited to prosecutions of those who evade taxes that

12 they may owe themselves, but rather it encompasses

13 prosecutions of any person who attempts to evade the tax of

14 anyone.”). Appellants involved themselves, with the

15 requisite intent, in a scheme to avoid taxes, and we see no

16 statutory basis for excluding them from liability under

17 § 7201.

18 [3] Appellants’ argument concerning constructive

19 amendment is reviewed de novo. United States v. Rigas, 490

20 F.3d 208, 225 (2d Cir. 2007). They argue that the

21 government undertook to prove at trial a conspiracy of the

22 Appellants against KPMG, rather than the charged conspiracy

23 with KPMG. But Appellants were acquitted of conspiracy. 

24 Constructive amendment of the conspiracy charge would have

25 warranted vacatur of that charge only; the remainder of the

26 indictment would have stood. See United States v. Milstein,

27 401 F.3d 53, 64-66 (2d Cir. 2005) (per curiam) (vacating

28 conviction on one count for constructive amendment of

29 indictment with respect to that count, and rejecting

30 argument that the constructive amendment warranted vacatur

31 of convictions on other counts). Because no Appellant was

32 convicted of conspiracy, we would be unable to afford relief

33 even if we were to find error.

34 [4] The district court found that KPMG would not have

35 paid Pfaff’s and Larson’s legal fees in this case, and that

36 dismissal under our decision in Stein was therefore

37 unwarranted. We review this finding for clear error. 

38 Stein, 541 F.3d at 142, 146. Pfaff and Larson point to a

39 number of facts that they claim demonstrate the clear error
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1 of the district court’s finding, none persuasive. Most

2 strongly emphasized are three pieces of evidence.

3 First is a 2004 statement by KPMG then-CEO Gene O’Kelly

4 that “[a]ny present or former members of the firm asked to

5 appear will be represented by competent coun[se]l at the

6 firm’s expense.” United States v. Stein, 495 F. Supp. 2d

7 390, 407 (S.D.N.Y. 2007) (first emphasis added). But this

8 statement speaks not at all to what conduct the promise

9 covers, and is therefore of limited independent value. 

10 Pfaff and Larson note that some of their indicted conduct

11 occurred while they were at KPMG; but that conduct was

12 minimal relative to the indicted conduct after they left. 

13 There is no direct evidence that KPMG considered such a

14 small proportion to be enough, and it was reasonable for the

15 district court to infer in the circumstances that KPMG would

16 not have paid Pfaff’s and Larson’s fees, given the

17 incentives driving fee payment in the first place, see

18 Stein, 541 F.3d at 144 (“[A] firm may have potent incentives

19 to advance fees, such as the ability to recruit and retain

20 skilled professionals in a profession fraught with legal

21 risk.”).

22 Second, Pfaff and Larson compare their situation to

23 that of Gregg Richie, whose attorney’s fees, the district

24 court found, would have been paid by KPMG. However, in

25 contrast to Pfaff and Larson, Ritchie had little involvement

26 with BLIPS after leaving KPMG. Ritchie’s relevant conduct

27 post-KPMG appears to constitute only a small part of his

28 involvement with BLIPS, as compared with his role as head of

29 KPMG’s CaTs (“Capital Transaction Strategies”) group--“[t]he

30 KPMG group focused on designing, marketing, and implementing

31 tax shelters for individual clients.”

32 Finally, Pfaff and Larson point to KPMG’s payment of

33 their legal fees in the Perez v. KPMG civil case, which they

34 contend demonstrated KPMG’s willingness to pay their legal

35 fees in connection with legal proceedings arising from

36 BLIPS. But the Perez case involved conduct undertaken

37 entirely during Pfaff’s and Larson’s employment at KPMG, see

38 Notice of Removal at 25-37, Perez v. KPMG, No. 7:03-cv-00026
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1 (S.D. Tex. Jan. 24, 2003); and is therefore distinguishable

2 on the lines discussed.

3 [5] Larson argues that his term of imprisonment is

4 impermissibly longer than the sentences imposed on other

5 defendants. We review sentencing decisions for

6 “reasonableness,” employing “the familiar abuse-of7 discretion standard.” Gall v. United States, 552 U.S. 38,

8 46 (2007). As Larson contends, the district court relied on

9 the defendants’ ages, observing that any lengthy sentence

10 “would be a life sentence without parole for all these men.” 

11 Since Larson is just 13 months younger than Pfaff, it would

12 have been questionable to rely on this factor alone to

13 justify a sentence disparity. But the district court stated

14 that age was merely one of the factors justifying the

15 difference. The district court properly relied on the fact

16 that Larson moved assets abroad in order to protect them

17 from creditors and from the government. See 18 U.S.C.

18 § 3661 (“No limitation shall be placed on the information

19 concerning the background, character, and conduct of a

20 person convicted of an offense which a court of the United

21 States may receive and consider for the purpose of imposing

22 an appropriate sentence.”).

23 In a separate per curiam opinion filed today, we decide

24 the challenge to Larson’s fine, imposed under 18 U.S.C.

25 § 3571(d). Finding no merit in Appellants’ remaining

26 arguments, we accordingly AFFIRM Appellants’ convictions and

27 Larson’s term of imprisonment.

28

29

30 FOR THE COURT:

31 CATHERINE O’HAGAN WOLFE, CLERK

32 By:

33

34

35 ___________________________