Court Opinion

ID: 2972037
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:43:33.673137+00
Date Added: 2024-06-11T11:43:39.020263
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 05a0202n.06
                            Filed: March 22, 2005

                                           No. 03-2414

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

UNITED STATES OF AMERICA,                                )
                                                         )
       Plaintiff-Appellee,                               )
                                                         )
V.                                                       )   On Appeal from the United States
                                                         )   District Court for the Eastern
TIMOTHY KOSINSKI,                                        )   District of Michigan
                                                         )
       Defendant-Appellant.                              )

Before: BOGGS, Chief Judge; MARTIN, Circuit Judge; and WEBER, District Judge.*

       PER CURIAM. Timothy Kosinski appeals from his criminal convictions stemming from tax

fraud. He argues that 1) prejudicial testimony was introduced at trial, 2) the indictment was

constructively amended, 3) the jury was improperly instructed, 4) Count One (Conspiracy) of the

indictment was legally insufficient, 5) his motion for acquittal on Count One (Conspiracy) was

erroneously denied, 6) his sentence was miscalculated under the Guidelines, and 7) he was sentenced

in violation of the Sixth Amendment. For the following reasons, we affirm his conviction, but

vacate his sentence and remand for resentencing.

                                                 I

       On June 20, 2002, a grand jury returned a nine-count indictment against Timothy Kosinski:

       *
        The Honorable Herman J. Weber, United States District Judge for the Southern District
of Ohio, sitting by designation.
one count of conspiracy to defraud the IRS and to structure currency transactions to evade reporting

requirements, five counts of subscribing a false federal tax return, and three counts of structuring

a currency transaction to evade reporting requirements. A jury found Kosinski guilty on seven

counts, and not guilty on two of the three structuring counts. The district court sentenced Kosinski

pursuant to the Sentencing Guidelines. The court found an offense level of nineteen, which

corresponds to a range of thirty to thirty-seven months of imprisonment for offenders with no

criminal history. The district court then sentenced Kosinski to thirty months of imprisonment for

Counts One and Seven and thirty months of imprisonment for Counts Two through Six, to run

concurrently. Kosinski was also ordered to pay an assessment of $7,000, a fine of $60,000, and the

costs of incarceration.

       Kosinski is a dentist, who founded T.J. Construction (“T.J.”) in 1992, after the death of his

father. His father was a carpenter and independent contractor, and he had done work with Thyssen

Steel Incorporated (“Thyssen”). Thyssen manufactures steel wire, steel coil, and other steel

products. Under Kosinski, T.J. picked up where his father had left off, and continued to do work

for Thyssen. Thyssen was in the midst of a multi-million dollar expansion of its warehouse system,

in which T.J. had considerable involvement. Specifically, T.J. acted as a “quasi-general contractor”

for major aspects of a warehouse expansion project in Detroit, Michigan, and as a true general

contractor for the construction of a new warehouse in Richburg, South Carolina.

       Phillips Contracting Company, which was run by Melvin Phillips, served as a subcontractor

for T.J. on the Thyssen projects, doing most of the concrete, excavation, and underground utility

work. T.J. handled paperwork for Phillips, and, at Melvin Phillips’s request, paid in cash for work

performed. Kosinski and Melvin Phillips worked together for several years and were friends. Their

                                                -2-
relationship as business associates was particularly close, so much so that two of Phillips’s

employees testified that they believed Kosinski and Phillips were partners.

       Between 1996 and 1998, checks totaling $8,143,625 were drawn on T.J.’s business account

and made payable to Melvin Phillips or Phillips Contracting, but were deposited in Kosinski’s

personal bank accounts. Kosinski and his associates withdrew most of the money in cash, and used

much of the cash to make payments to Phillips. Kosinski concealed the flow of this money by

making numerous withdrawals of $9,500 – below the $10,000 reporting threshold. Kosinski, his

wife, and his employee, Nina Spratt, often engaged in multiple transactions on a single day.

Between January 1995 and May 1999, Kosinski and his associates withdrew $7,676,000 in cash

from his various personal accounts. Although Kosinski claimed tax deductions for the full amount

of $8,143,625, at least $1,400,000, and possibly more, was never paid to Phillips Contracting.

       Melvin Phillips paid his employees with a combination of checks and cash. Neither the

checks nor the cash payments reflected any withholding. Phillips Contracting did not file any

employment tax returns with the IRS between 1995 and 1999. Testimony was introduced that

Phillips had agreed with employees to pay them less in return for not withholding any taxes, with

the awareness that the employees would not pay those taxes. Melvin Phillips claimed that he used

cash to pay suppliers in order to get a better deal; for instance, he claimed to have spent over

$1,000,000 in cash on concrete. The project’s concrete suppliers, however, denied having ever

received a cash payment, and the defense produced no witness or document that confirmed any cash

payments for supplies.

       Kosinski also claimed a business deduction for work done between 1996 and 1998 at his

primary home, his vacation home, and his mother’s home. Kosinski paid for the work out of T.J.’s

                                               -3-
business account, and then claimed deduction for the work on T.J.’s income tax. Contractors are

not permitted to take business deductions for work performed at their home or the home of a relative.

       Al Paas, the architect overseeing the project for Thyssen, acted as the owner’s construction

manager. On at least three occasions, he received an envelope from Kosinski containing $5,000 in

cash. Although the record is somewhat unclear about the date of these payments, there was at least

some testimony that the payments were made during the period of the conspiracy: 1995 to 1999.

Kosinski told Paas to “use” the money and never asked for receipts, nor was the money reported to

the IRS by any party. In mid-1996, Paas recommended to Thyssen that Kosinski receive an

additional $400,000 in performance bonuses. Paas did not inform Thyssen of the $5,000 payments

he recieved, but he testified that they did not influence his handling of the project in any way.

                                                  II

       Kosinski makes five claims seeking reversal of some or all of his convictions. He also

argues that his sentence was calculated incorrectly and that applying the Sentencing Guidelines

violated his Sixth Amendment rights.

                                     A. Prejudicial Testimony

       Kosinski argues that the testimony of Paas about the $5,000 payments and their purpose was

improperly admitted and prejudicial. He claims that the government elicited the testimony to show

that he bribed Paas and received favorable contracts and an increase in the performance bonus. He

argues that in a trial for conspiracy to defraud the IRS, this testimony had no probative value and

was prejudicial. Kosinski also argues that the testimony showed that the $5,000 payments took

place in 1991 or 1992, before the conspiracy occurred. Kosinski’s counsel objected to the testimony

at trial and subsequently moved for a mistrial.

                                                  -4-
       We review for abuse of discretion the district court's denial of a motion for mistrial. United

States v. Rigsby, 45 F.3d 120, 125 (6th Cir. 1995). Although Kosinski never cites it, presumably he

is arguing that the evidence was inadmissible under Federal Rule of Evidence 404(b), which

provides in relevant part that “[e]vidence of other crimes, wrongs, or acts is not admissible to prove

the character of a person in order to show action in conformity therewith.” Such evidence is

admissible, however, if it is offered to show “motive, opportunity, intent, preparation, plan,

knowledge, identity, or absence of mistake or accident.” Ibid. Finally, even if relevant, “evidence

may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice,

confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time,

or needless presentation of cumulative evidence.” Fed. R. Evid. 403.

       It is clear from the record that the government elicited extensive testimony suggesting that

Paas was paid bribes to secure favorable contracts and bonuses for T.J. The prosecutor’s questions

clearly intimated a link between the payments to Paas and T.J.’s increased performance bonus.

From the testimony elicited on direct examination, the jury probably could infer a link between the

payments/bribes and the favorable contracts T.J. was awarded without competitive bidding.

       Kosinski is simply wrong, however, to assert that the payments were clearly outside the

time-frame of the conspiracy. Although the testimony is somewhat conflicting, at one point Paas

was asked if he knew where the money from the $7,600,000 in cash generated during 1995 to 1999

was spent. He eventually conceded that some of it went to pay him. There is apparently

contradictory testimony elsewhere, but the jury reasonably could have concluded that the payments

occurred during the relevant time-frame.

       The testimony was probative because the $5,000 cash payments themselves were tax

                                                 -5-
evasions. Kosinski paid the $5,000 without witholdings, and Paas never reported the payments.

Paas testified that the money was used for expenses or given to charity, but there is no evidence to

support this and the jury could conclude the $5,000 payments were unreported income. This would

make Paas a participant, if a minor one, in the conspiracy to avoid reporting income and paying

taxes. The favorable treatment from Paas, such as the increased performance bonus, is thus relevant

to showing why the bribes were paid and why the jury should disbelieve the claim that the money

was for expenses and charity.

          The bribery testimony was not unduly prejudicial. Obviously, evidence that Kosinski paid

bribes casts his general moral character in an unfavorable light. But the testimony showed both that

Paas was participating in the conspiracy by personally evading taxes and by facilitating or

acquiescing to the rest of the scheme. Therefore, we conclude the district court did not abuse its

discretion in admitting the testimony.

                           B. Constructive Amendment of the Indictment

          Kosinski claims that the indictment was constructively amended so that it was possible that

the jury convicted him of bribery, rather than the charges on which he was indicted. He argues that

the evidence of bribery was improperly introduced, and the jury instructions on Count One

(Conspiracy) permitted a guilty verdict even if the jury found that defrauding the IRS was only a

collateral or incidental effect of the conspiracy. This claim is without merit.

          The Fifth Amendment guarantees that an accused be tried only on those offenses presented

in an indictment and returned by a grand jury. Stirone v. United States, 361 U.S. 212, 217-19

(1960).     “[A]n amendment involves a change, whether literal or in effect, in the terms of the

indictment.” United States v. Barrow, 118 F.3d 482, 488 (6th Cir. 1997). “This Circuit has held that

                                                  -6-
a variance rises to the level of a constructive amendment when the terms of an indictment are in

effect altered by the presentation of evidence and jury instructions that so modify essential elements

of the offense charged that there is a substantial likelihood that the defendant may have been

convicted of an offense other than that charged in the indictment.” United States v. Chilingirian,

280 F.3d 704, 711 (6th Cir. 2002). We review the question of whether there was an amendment to

the indictment de novo. Id. at 709.

        As we concluded above, the evidence of bribery was properly admitted. Even though

properly admitted, however, it may still have created the possibility of conviction on an uncharged

count. To determine whether this could have occurred, we look to the jury instructions. See United

States v. Campbell, 317 F.3d 597, 607 (6th Cir. 2004) (juries are presumed to follow instructions

of the trial judge).

        Kosinski’s claim here is without merit because the jury instructions make clear that the jury

must find intent and agreement to defraud the IRS. The district court started its jury instructions by

reading from the indictment, which stated that the jury must find it was “an object of the conspiracy

that [the conspirators] would and did defraud the United States for the purpose of impeding,

impairing, obstructing, and defeating the lawful functions of the Internal Revenue Service . . . .”

(emphasis added). The court drove the point home by repeating several times during the instructions

that the jury must find that Kosinski was part of a conspiracy that intended to defraud the IRS:

        A conspiracy to defraud the United States reaches any conspiracy for the purpose of
        impeding, impairing, obstructing or defeating the lawful function of the government. I
        instruct you that the Internal Revenue Service is an agency of the Department of Treasury
        of the United States.
                ....
        [You must find] that two or more persons conspired, or agreed, to defraud the United States,
        or one of its agencies or departments, by dishonest means.
                ....

                                                 -7-
         [T]he Government must prove beyond a reasonable doubt that there was a mutual
         understanding . . . between two or more people, to cooperate with each other to defraud the
         United States . . . . This is essential.

(emphasis added). The district court also reiterated that to convict Kosinski the jury must find that

he knowingly and purposefully joined the conspiracy and acted to further its aim of defrauding the

IRS:

         [T]he Government must prove that the Defendant knew and agreed to the purposes of the
         conspiracy and knowingly and voluntarily joined the conspiracy.
                 ....
         [J]ust because the Defendant may have done something that happened to help a conspiracy
         does not make him a conspirator.
                 ....
         What the Government must prove beyond a reasonable doubt is that the Defendant knew the
         conspiracies [sic] main purpose, and that he voluntarily joined it intending to help advance
         or achieve its goals.

Finally, the jury form itself made clear that purpose was a necessary element of the Conspiracy

Count:

         As to the first object other conspiracy charged in Count One, that the defendant conspired
         to defraud the United States for the purpose of impeding and impairing the lawful functions
         of the Internal Revenue Service, we the jury unanimously find the defendant Timothy
         Kosinski: Guilty.

(emphasis added). Consistent with these instructions, the jury could convict only if it found that the

purpose of the conspiracy was to defraud the IRS.

                                          C. Jury Instruction

         Kosinski argues that the district court erroneously rejected his proposed jury instruction with

respect to Count One (Conspiracy). Kosinski had asked the district court to include the following

instruction: “the Government must prove that Dr. Kosinski had the actual intent to frustrate or

impede the IRS, not merely that impeding the IRS was a foreseeable consequence of the

                                                  -8-
conspiracy.” He argues that in the absence of this instruction, the jury may have convicted even

if defrauding the IRS was only a collateral or incidental effect of the conspiracy. This claim has the

same basis as the constructive amendment claim, and we reject it for the same reason.

        This court reviews jury instructions as a whole to determine whether they fairly and

adequately inform the jury of relevant considerations and explain the applicable law to assist the jury

in reaching its decision. United States v. Layne, 192 F.3d 556, 574 (6th Cir. 1999). “Trial courts

have broad discretion in drafting jury instructions, and we reverse only for abuse of discretion.”

United States v. Prince, 214 F.3d 740, 761 (6th Cir. 2000) (citations omitted). “A district court’s

refusal to deliver a requested jury instruction amounts to reversible error only if the instruction (1)

is a correct statement of the law, (2) was not substantially covered by the charge actually delivered

to the jury, and (3) concerns a point so important in the trial that the failure to give it substantially

impairs the defendant's defense.” United States v. Jackson, 347 F.3d 598, 606 (6th Cir. 2003)

(citations omitted).

        The district court did not err because Kosinski’s requested instruction was “substantially

covered by the charge actually delivered to the jury.” As the discussion of jury instructions in the

previous section indicates, the district court not only covered this point, but did so in a highly

repetitive fashion. The court then repeated that purpose requirement – by a conservative count – at

least three times while giving jury instructions. Finally, the jury form also stated that the jury must

find purpose to convict on Count One.

                                 D. Legal Sufficiency of Count One

        Kosinski argues that Count One (Conspiracy) of the indictment is insufficient as a matter of

law and the district court erred by denying his motion to dismiss the Count. Kosinski asserts that

                                                  -9-
“[a]llegations of failure to report income are not sufficient to make out a conspiracy to impair and

impede the IRS.” Kosinski is vague as to which elements of the conspiracy charge are left out, but

he states that the indictment “allege[s] only consequences of cash transactions and structuring.”

From this we infer that he is making an allegation that the indictment does not allege either purpose

to defraud the IRS or an agreement to defraud the IRS.

       We review de novo the sufficiency of an indictment. United States v. DeZarn, 157 F.3d
1042, 1046 (6th Cir. 1998). An indictment is legally sufficient “if it, first, contains the elements of

the offense charged and fairly informs a defendant of the charge against which he must defend, and

second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same

offense.” United States v. Superior Growers Supply, Inc., 982 F.2d 173, 176 (6th Cir. 1992).

       The essential elements of a conspiracy are:

       (1) the conspiracy described in the indictment was wilfully formed, and was existing at or
       about the time alleged; (2) that the accused willfully became a member of the conspiracy;
       (3) that one of the conspirators thereafter knowingly committed at least one overt act charged
       in the indictment at or about the time and place alleged; and (4) that such overt act was
       knowingly done in furtherance of some object or purpose of the conspiracy as charged.

United States v. Kraig, 99 F.3d 1361, 1368 (6th Cir. 1996) (citations omitted).

       The indictment states all of these elements. It alleges that Kosinski willfully and knowingly

joined with others to defraud the IRS. It names several other individuals and alleges that they

committed a number of acts with the purpose of defrauding the IRS. The indictment also lists

hundreds of overt acts that it alleges were in furtherance of the conspiracy – mostly bank

transactions, but also payments to workers and others. Although the indictment does not charge any

substantive offense, that is unnecessary for a conspiracy to defraud under 18 U.S.C. § 371. United

States v. Khalife, 106 F.3d 1300, 1303 (6th Cir. 1997) (because there is no substantive offense

                                                 -10-
underlying a conspiracy to defraud under 18 U.S.C. § 371, an indictment need not refer to any

substantive offense). We therefore reject this claim.

                      E. Judgment of Acquittal on Count One (Conspiracy)

       Kosinski claims that denial of his motion for acquittal with respect to Count One

(Conspiracy) was in error. He argues that the evidence, viewed in the light most favorable to the

prosecution, failed to establish that impeding and impairing the IRS was an object of the conspiracy.

After two pages summarizing case law, the entirety of Kosinski’s argument is the following two

sentences:

       In this case, evidence that Mr. Phillips did not pay taxes for his employees or provide 1099's
       for his subcontractors did not establish evidence of Mr. Phillips [sic] conspiracy with Dr.
       Kosinski. A conclusion that an agreement was proved is contrary to the jury instruction that
       a general contractor has no legal obligation for taxes of his subcontractors.

This argument is without merit.

       We must uphold a jury verdict if there is substantial evidence, viewed in the light most

favorable to the government, to support it. United States v. Wells, 211 F.3d 988, 1000 (6th Cir.

2000). We allow the government to benefit from all reasonable inferences. Ibid.

       The evidence did not show merely that Phillips did not pay taxes or withholding for his

employees. It showed that he conspired with Kosinski to do this. Kosinski was not free to conspire

with Phillips to avoid paying Phillips’s employees’ taxes merely because he was not responsible for

those taxes in the first instance. Moreover, evading withholding and taxes for employees was only

one part of the conspiracy. Evidence was introduced showing that Kosinski conspired with others

to claim illegal deductions for T.J., to conceal revenue from the project, to structure financial

transactions so as to avoid reporting, and many other illegal acts. If the jury found credible the

evidence on any one of these allegations, it would have been sufficient to convict on Count One

                                                -11-
even if the jury completely discounted the evidence that Kosinski and Phillips conspired to avoid

paying their employees’ taxes.

                             F. Tax Loss Calculations in Sentencing

       Kosinski argues he was sentenced incorrectly. He argues that his offense level should be

determined by U.S.S.G. §2S1.3 instead of U.S.S.G. §2T1.9. He also argues that the calculation of

tax loss was erroneous.

       Although we review interpretations of the Guidelines de novo, the determination of the

amount of loss is a finding of fact that we will not disturb unless clearly erroneous. United States

v. Guthrie, 144 F.3d 1006, 1011 (6th Cir. 1998). “When a district court calculates the amount of

loss caused by a crime involving fraud or deceit, the court need not determine the amount of loss

with precision. The guidelines require a district court to make a reasonable estimate . . . .” United

States v. Kohlbach, 38 F.3d 832, 835 (6th Cir. 1994).

       The district court correctly applied U.S.S.G. §2T1.9 to the conspiracy charge in Count One.

The guideline applicable to structuring, U.S.S.G. §2S1.3(c)(1), states that “if the offense was

committed for the purpose of violating the Internal Revenue laws, apply the most appropriate

guideline from Chapter 2, Part T (Offenses Involving Taxation) if the resulting offense level is

greater than that determined above.” The offense level under U.S.S.G. §2S1.3 is 6; whereas under

U.S.S.G. §2T1.9 the minimum offense level is 10. Thus, U.S.S.G. §2T1.9 applies.

       The defendant argues that we cannot be sure the offense was committed for the “purpose

of violating” tax laws, noting that Count One identified two aims of the conspiracy (to structure and

to defraud the IRS), and asserting that the jury was not asked to return a verdict on whether the

conspiracy was to structure or to defraud the IRS (or both). This is simply a misrepresentation; the

                                                -12-
jury form breaks out the two purposes of the conspiracy in Count One and the jury found defendant

guilty with respect to both.

       The district court did not commit clear error in calculating the amount of tax loss. The

district court began with the $5,635,000 in cash between 1996 and 1998 that was paid to Melvin

Phillips. At Phillips’s (separate) sentencing, it was estimated that 40% of the cash payment Phillips

received was used for the cash payroll, and the district court used the same assumption here. That

put the unreported payroll at $2,254,000; the district court then took 28% of that figure as an

estimate of tax loss, pursuant to U.S.S.G. §2T1.1. This produced a tax loss of $631,176, which was

used to calculate Kosinski’s offense level. Kosinski argues that because he was not legally

responsible for the taxes of Phillips’s subcontractors, he should be assessed only the unreported

wages of Phillips’s direct employees, excluding subcontractors. However, even if Kosinski was not

responsible for the subcontractors’ taxes, he was part of a conspiracy to avoid payment of taxes for

Phillips’s employees and subcontractors alike. Thus, it was reasonable for the district court to

include the unpaid taxes of the subcontractors as part of the tax loss associated with the conspiracy.

       Finally, Kosinski challenges the tax loss calculations of the district court with respect to

Counts Two through Six (Subscribing a False Tax Return). Kosinski argues that the checks made

out to Phillips, but deposited in Kosinski’s personal account, are loan repayments and should not

be included as unreported income. But since there is no evidence of this loan agreement, the district

court did not commit clear error by concluding otherwise. Kosinski also claims that the court erred

because $342,000 of the amount considered as tax loss was really diverted income, and should be

multiplied by 28% to get tax loss. Kosinski does not explain why this is so, except by citation to

motions filed below, and therefore waives this claim.

                                                -13-
                                 G. Sentencing under the Guidelines

        Kosinski also argues that the district court erroneously sentenced him based on facts not

found by the jury, in contravention of United States v. Booker, 125 S. Ct. 738 (2005). He argues that

this case should be remanded for resentencing. We agree.

        In Booker, the Supreme Court concluded that judicial fact-finding which led to a sentence

under the Guidelines greater than that authorized by the jury verdict alone violated the Sixth

Amendment. Id. at 755-56. The Court’s solution was to strike 18 U.S.C. § 3553(b)(1), which is the

provision making the Guidelines mandatory. Id. at 756-57. The Court left intact the remainder of

the Guidelines, instructing that they must be consulted by a sentencing court but are no longer

binding. Ibid. The Supreme Court has instructed us to apply Booker to cases on direct review using

“ordinary prudential doctrines, determining, for example, whether the issue was raised below and

whether it fails the ‘plain-error’ test.” Id. at 769.

        Although Kosinski did not raise a Sixth Amendment objection in the sentencing court, he

did object to the factual determinations made by the judge. Before this court, he filed briefs with

Sixth Amendment arguments based first on Blakely v. Washington, 124 S. Ct. 2531 (2004), and then

on Booker, as those cases were decided. We are satisfied that the objection below to judicial fact-

finding preserved the Sixth Amendment issue for review.

        This case is factually indistinguishable from Booker itself and thus resentencing is required.

Booker was convicted by a jury of possessing at least 50 grams of cocaine. 125 S. Ct. at 746. At

sentencing, the district court determined that Booker possessed at least 616 grams of cocaine and

sentenced him accordingly. Ibid. Had Booker been sentenced on the jury’s finding alone, the

Guideline range would have been 210 to 262 months. Ibid. Instead, based on the district court’s

                                                  -14-
finding that Booker possessed more cocaine, Booker received a sentence of 360 months. Ibid. The

Supreme Court concluded that because only 50 grams was argued to the jury, the sentence exceeded

that authorized by the jury verdict and thus violated the Sixth Amendment. Id. at 756. In this case,

Kosinski was sentenced based on the amount of tax loss determined by the district court. The jury

was never asked to determine tax loss. Without the district court’s factual determination of tax loss,

the offense level would be 10, corresponding to a sentence of 6 to 12 month. U.S.S.G. §2T1.9.

Applying the reasoning of Booker, the 30-month sentence Kosinski received plainly went beyond

that authorized by the jury. We therefore conclude that Kosinski was sentenced in violation of the

Sixth Amendment.

                                                 III

       For the reasons set forth above, we AFFIRM Kosinski’s convictions, but VACATE his

sentence and REMAND for resentencing consistent with Booker and this opinion.

                                                -15-