Opinion ID: 24438
Heading Depth: 1
Heading Rank: 5

Heading: loe's highport, inc.

Text: LHI argues that the money laundering convictions for counts 22-24 must be reversed. LHI contends, first, that the evidence can not establish that at least $10,000 of the traced money was fraudulently obtained dirty money.73 LHI also argues that the district court's jury instructions were erroneous. The court told the jury that you may find, but are not required to find, that in a [transaction from a commingled fund], as the language of Section 1957 permits, that the transacted funds, at least up to the full amount originally derived from the crime, were the proceeds of the criminal activity or derived from that activity. As this Court has noted, money is fungible.74 The commingling of assets has placed courts in the difficult position of separating clean from dirty funds. Although any accounting method employed 72 We note that Babo Loe never filed a request for a modified subpoena. 73 See 18 U.S.C.A. § 1957 (2000). 74 See United States v. Davis, 226 F.3d 346, 357 (5th Cir. 2000). 29 to this end inevitably exhibits certain arbitrary characteristics,75 a rule of decision is necessary. In United States v. Davis,76 we stated the following rule for section 1957 cases involving commingled accounts: [W]hen the aggregate amount withdrawn from an account containing commingled funds exceeds the clean funds, individual withdrawals may be said to be of tainted money, even if a particular withdrawal was less than the amount of clean money in the account.77 Davis also implies the converse—that where an account contains clean funds sufficient to cover a withdrawal, the Government can not prove beyond a reasonable doubt that the withdrawal contained dirty money.78 In this case, counts 22-24 were based on transactions originating in a $776,742 transfer from an account containing $2,205,000 paid by Lexington to the Loes. Of the $2,205,000, only $470,790.22 was fraudulently obtained. Since there was enough clean 75 See United States v. Moore, 27 F.3d 969, 976-77 (4th Cir. 1994). 76 226 F.3d 346 (5th Cir. 2000). 77 Davis, 226 F.3d at 357; see also United States v. Rutgard, 116 F.3d 1270, 1291-92 (9th Cir. 1997) (holding that money from a commingled account is presumed to be clean). But cf. United States v. Tencer, 107 F.3d 1120, 1131 (5th Cir. 1997) (holding that, for a conviction under section 1956, it is sufficient if the government proves at least part of the money represents [proceeds of mail fraud]). We note that the Fourth and Third Circuits employ a presumption contrary to that which we applied in Davis. See United States v. Sokolow, 91 F.3d 396, 409 (3d Cir. 1996) (articulating presumption that money from commingled account is dirty); Moore, 27 F.3d at 976-77 (same). The presumption employed in Sokolow and Moore may be constitutionally infirm. Cf. Sandstrom v. Montana, 442 U.S. 510 (1979) (holding that jury instructions creating a conclusive presumption against the defendant as to an element of a crime violates the Fourteenth Amendment). 78 Cf. United States v. Poole, 557 F.2d 531, 535-36 (5th Cir. 1977). 30 money in the account to cover the $776,742 transfer, the rule of Davis mandates reversal of counts 22-24. No reasonable juror could conclude that these money laundering convictions were warranted beyond a reasonable doubt.79 Moreover, the jury instructions were also plainly inconsistent with Davis. As Babo Loe adopts LHI's arguments with respect to counts 22-24,80 her convictions under these counts must also be reversed.81 79 See United States v. Giraldi, 86 F.3d 1368, 1371 (5th Cir. 1996). 80 Neither party appeals its money laundering convictions under counts 25, 29, 30, and 31. As discussed in a preceding section of this opinion, Babo Loe's sufficiency of the evidence challenge to count 25 is without merit. She did not adopt LHI's arguments for purposes of count 25. However, we note that application of the Davis rule would not change the outcome of her conviction on this count. 81 There is much to be said in favor of a proportionality rule. Under such a rule, courts would treat any withdrawal from an account as containing proportional fractions of clean and dirty money. Applying the facts of the instant case, dirty funds ($470,790.22) comprised approximately 21 per cent of the total amount in the account ($2,205,00). Applying this same proportion to the withdrawal in question ($776,742), $165,842.42 of the funds withdrawn would be dirty. As this amount exceeds the $10,000 threshold articulated in section 1957, LHI's conviction would be justified. A proportionality rule would avoid some of the oddities associated with the Davis approach. Under Davis, if aggregate withdrawals are less than the amount of clean funds in the account, the statute is not violated. However, once withdrawals exceed the clean funds in the account, all subsequent transactions (including the transaction by which the defendant exceeds the clean-funds threshold) are transformed into dirty transfers warranting conviction. A proportionality rule avoids this somewhat mechanistic result. Moreover, a proportionality rule is more sensitive to the fungible nature of money. Whereas the Davis rule engages in a presumption that clean money is spent before dirty money, a proportionality rule recognizes that a withdrawal mirrors the sources of the money in the account. If the account is the product of clean and dirty money, a withdrawal should reflect this arrangement in equal proportions. Finally, this rule would be more faithful to the plain language of the statute. The Davis rule allows a court to look at the total number of withdrawals from an account, aggregating a series of transactions. See United States v. Davis, 226 F.3d 346, 357 (5th Cir. 2000); see also United States v. Heath, 970 F.2d 1397, 1404 (5th Cir. 1992). However, section 1957 imposes liability on a transaction-by-transaction basis. See 18 U.S.C.A. § 1957 (Whoever . . . knowingly engages . . . in a monetary transaction in [dirty money] of a value greater than $10,000 . . . shall be punished.). A proportionality rule would avoid the aggregation mechanism condoned in Davis and more accurately reflect the 31
LHI also argues that the indictments for money laundering were defective because they failed to list a specified unlawful activity that was the source of the laundered money. Section 1957 requires that the defendant (1) knowingly (2) use criminally derived property of a value greater than $10,000 (3) in a monetary transaction, and (4) that the property must be derived from specified unlawful activity.82 Each of the money laundering counts referred to one of the counts alleging conspiracy to commit mail and wire fraud. The conspiracy counts listed several alleged acts of mail and wire fraud. LHI notes that the money laundering counts of the indictment did not specify which act of mail or wire fraud was the source of the funds. Consequently, LHI argues that the indictment allowed for a non-unanimous jury verdict regarding which act of fraud was the source of the money. This argument misinterprets the term, specified unlawful activity. This term does not imply that the indictment must list a specific unlawful act that is the source of the money. Instead, the statute proposes specified unlawful activity as a term of language and purpose of the statute. However, as the Davis rule is binding on this panel, see Broussard v. Southern Pac. Transp. Co., 665 F.2d 1387, 1389 (5th Cir. 1982) (en banc), we must apply it to the case at bar, leaving change to a case appropriately before the en banc court. 82 18 U.S.C.A. § 1957 (2000). 32 art.83 A specified unlawful activity is one of a set of federal crimes listed in 18 U.S.C.A. § 1956(c)(7). Section 1957 merely requires money to be derived from a particular set of federal crimes. It does not require the indictment to specify which unlawful activity generated the funds in question. In any case, we note that the money laundering counts of the indictment included allegations sufficient to (1) enumerate each element of the offense; (2) provide Appellants with notice of the precise transactions for which they were being prosecuted; and (3) prevent future prosecutions for the same offense.84 Thus, the indictment was sufficient. Nor is jury unanimity regarding the specified unlawful activity required. Our holding in United States v. Short85 affirms this conclusion. In Short, we upheld the conviction of a defendant as a supervisor of a continuing criminal enterprise.86 We found that the jury need not unanimously agree on the identities of the five subordinates required to make the defendant a supervisor.87 Short indicates that contextual, predicate information need not be as precisely proven as the defendant's acts. In this case, LHI was 83 See 18 U.S.C.A. § 1957(f)(3) (2000). 84 See United States v. Flores, 63 F.3d 1342, 1360-61 (5th Cir. 1995). 85 181 F.3d 620 (5th Cir. 1999). 86 See 21 U.S.C.A. § 848 (2000); Short, 181 F.3d at 623-24. 87 See Short, 181 F.3d at 623-24. 33 indicted for the commission of a single act, engaging in a monetary transaction. This act was clearly identified to the jury.88
LHI further argues that the district court erred in excluding the testimony of an expert witness during the trial of counts 7-10. These counts accused LHI of having made false statements on a tax return, in violation of 26 U.S.C. § 7206(1). The defense expert would have testified that LHI overpaid, rather than underpaid, its taxes. LHI contends that the district court abused its discretion and deprived LHI of its Sixth Amendment right to call witnesses in its favor. The district court offered three reasons for excluding the testimony. First, the court found that the evidence was irrelevant. Second, the court expressed serious doubts as to whether tax liability could be accurately calculated given the poor condition of LHI's books. Finally, the court found that the defense provided the Government with inadequate notice that Appellants intended to offer the expert's testimony. 88 LHI's reliance on United States v. Gipson, 553 F.2d 453 (5th Cir. 1977), is misplaced. In that case, we held that jury instructions that did not require unanimity regarding the defendant's actus reus violated his Sixth Amendment rights. See id. at 458-59. The jurors in Gipson could have disagreed as to whether the defendant received or sold stolen property. Consequently, the verdict could not be deemed unanimous. See id. at 458. In contrast, the conduct of the defendant in the instant case was identified to the jury. 34 LHI challenges each of the preceding bases for the court's decision. LHI contends that evidence of tax liability is relevant to its motive to make a false statement.89 LHI argues that proof of motive tends to prove knowledge and intent. Therefore, if LHI had overpaid its taxes, it is less likely that it would have intended to make the false statement. Although we recognize the intuitive appeal of this syllogism, we are unpersuaded by LHI's reasoning. This Court has specifically held that evidence of tax liability is irrelevant in false statement cases.90 Although reliance on a qualified tax preparer is an affirmative defense in such cases,91 LHI does not contend that the expert's testimony would have established reliance. Even if we found this testimony to be logically relevant to LHI's intent, a court could reasonably find that other factors outweighed its probative value. The court could have determined that evidence of tax liability would confuse the jury, misleading it into believing that tax liability is an element of the offense. Moreover, the court could have found that such proof would waste time on collateral issues.92 Nothing prevented Appellants or their 89 Violation of 26 U.S.C. § 7206(1) requires the Government to prove, inter alia, that a defendant willfully made and subscribed to false tax returns and that it did not believe the returns to be true as to every material matter. See United States v. Wilson, 887 F.2d 69, 72 (5th Cir. 1989). 90 See United States v. Johnson, 558 F.2d 744, 745 (5th Cir. 1977). 91 See Wilson, 887 F.3d at 73. 92 See Fed. R. Evid. 403 (2000); Johnson, 558 F.2d at 747. 35 tax preparers from testifying that they were unaware of their tax liability or that they did not intend to make a false statement. We find that the court did not abuse its discretion in excluding the testimony.93 We therefore need not address the adequacy of the court's additional reasons for excluding the testimony.94
LHI further contends that the district court erred in computing restitution for the fraudulent invoices submitted to the insurers. The district court ordered restitution of the entire value of the invoices with no reduction to reflect the actual costs that LHI incurred in mitigating losses. It is undisputed that LHI expended substantial sums in mitigating damage from the 1990 flood. On the basis of evidence submitted to the district court, LHI contends that court abused its discretion in failing to offset LHI's expenses from the restitution amount.95 LHI's argument is meritless. The court found that neither the fraudulent invoices nor other evidence credibly reflected the actual expenses incurred by LHI. LHI was unable to provide reliable evidence supporting its claims. Although a defendant in LHI's 93 See United States v. Willis, 38 F.3d 170, 174 (5th Cir. 1994) (stating that a court's decision to exclude expert testimony is reviewed for abuse of discretion). 94 Babo Loe adopts the preceding argument, which fails for the reasons given above. 95 See United States v. Chaney, 964 F.2d 437, 451-52 (5th Cir. 1992) (articulating an abuse-of-discretion standard for restitution calculations). 36 position would normally be entitled to a reduction in the restitution award,96 the absence of credible evidence to support a claim of mitigation loss would preclude such an offset. We find that the court's decision did not constitute an abuse of discretion.97