Court Opinion

ID: 178038
Source: CourtListenerOpinion
Date Created: 2010-10-27 00:00:29+00
Date Added: 2024-06-11T17:25:43.792968
License: Public Domain

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

                             AMENDED 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 26th day of October, two thousand ten.
 5
 6       PRESENT: DENNIS JACOBS,
 7                              Chief Judge,
 8                RALPH K. WINTER,
 9                JOSEPH M. McLAUGHLIN,
10                              Circuit Judges.
11
12       - - - - - - - - - - - - - - - - - - - -X
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.
23       - - - - - - - - - - - - - - - - - - - -X
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
29                                       LLP, Los Angeles, CA, for Defendant-
30                                       Appellant Robert Pfaff.

                                                  1
 1                          STUART E. ABRAMS, Frankel & Abrams,
 2                          New York, NY, Jack S. Hoffinger,
 3                          Susan Hoffinger, Hoffinger, Stern &
 4                          Ross, LLP, New York, NY, for
 5                          Defendant-Appellant Raymond Ruble.
 6
 7                          J. SCOTT BALLENGER, Lori Alvino
 8                          McGill, Latham & Watkins LLP (Steven
 9                          M. Bauer, Margaret A. Tough, San
10                          Francisco, CA), Washington, DC, for
11                          Defendant-Appellant John Larson.
12
13   FOR APPELLEE:          JOHN M. HILLEBRECHT, Margaret
14                          Garnett, Justin Anderson, Katherine
15                          Polk Failla, Assistant United States
16                          Attorneys, of counsel, for Preet
17                          Bharara, United States Attorney for
18                          the Southern District of New York.
19
20        Appeal from a judgment of the United States District
21   Court for the Southern District of New York (Kaplan, J.).

22        UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
23   AND DECREED that Appellants’ convictions and Larson’s term
24   of imprisonment be AFFIRMED.

25        Raymond Ruble, Robert Pfaff, and John Larson appeal
26   from judgments of conviction and a sentence entered April
27   15, April 21, and April 24, 2009, respectively, in the
28   United States District Court for the Southern District of
29   New York (Kaplan, J.). Appellants were convicted of tax
30   evasion, and sentenced principally to terms of imprisonment
31   and fines. In a separate per curiam opinion filed today, we
32   decide the challenge to Larson’s fine, imposed under 18
33   U.S.C. § 3571(d). We assume the parties’ familiarity with
34   the underlying facts and the case’s procedural history.
35        Appellants raise five issues here: [1] whether the jury
36   instructions were flawed; [2] whether the evidence was
37   sufficient to support their convictions; [3] whether the
38   government’s case at trial constructively amended the
39   indictment; [4] whether they are entitled to have their
40   indictments dismissed pursuant to United States v. Stein,
41   541 F.3d 130 (2d Cir. 2008); and [5] whether the district
42   court erred in imposing Larson’s sentence. The issues are
43   considered seriatim.

                                  2
 1        [1] We find no error in the district court’s jury
 2   instructions. “We review jury instructions de novo, and
 3   reverse only when the charge, viewed as a whole, constitutes
 4   prejudicial error.” United States v. Amato, 540 F.3d 153,
 5   164 (2d Cir. 2008). The district court charged the jury
 6   that a transaction lacks non-tax economic effect when there
 7   is “no reasonable possibility that the transaction would
 8   result in a profit.” On the facts of this case (where the
 9   non-tax economic effect proffered by the defense was the
10   possibility of profit), that was a correct statement of the
11   law. See, e.g., Goldstein v. Commissioner, 364 F.2d 734,
12   740 (2d Cir. 1966) (disallowing “deduction for
13   [transactions] that can not with reason be said to have
14   purpose, substance, or utility apart from their anticipated
15   tax consequences,” in case where taxpayer could have
16   realized a $22,875 profit given favorable market changes
17   (emphasis added)). We have in the past affirmed jury
18   instructions stating a narrower definition. See, e.g.,
19   United States v. Atkins, 869 F.2d 135, 140 (2d Cir. 1989)
20   (approving instruction that transaction has no non-tax
21   economic effect if it is “subject to no market risk”). But
22   we have not held that those instructions state the outer
23   limits of the economic substance doctrine. Nor do we find
24   any error in the district court’s circumstantial evidence
25   examples, which were, if anything, favorable to the defense.
26        [2] The evidence was sufficient to support the
27   convictions. When reviewing a conviction for sufficiency of
28   evidentiary support, “the trial evidence is viewed most
29   favorably for the Government” and “all reasonable inferences
30   a jury may have drawn favoring the Government must be
31   credited.” United States v. Wexler, 522 F.3d 194, 206-07
32   (2d Cir. 2008). We affirm “‘if any rational trier of fact
33   could have found the essential elements of [the] crime
34   beyond a reasonable doubt.’” Id. at 207 (emphasis omitted)
35   (quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979)).
36        There is sufficient evidence that the transaction
37   lacked any non-tax economic effect. Testimony described the
38   chances of profiting from the investments as “basically
39   zero.”
40        Sufficient evidence also supports the jury’s finding
41   that the transactions were entirely motivated by tax
42   purposes. Clients testified that the transactions were
43   marketed solely as tax-avoidance schemes, and that, as
44   clients, they had no non-tax business purpose in executing
45   them. Evidently, that is why, at the outset of the

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1    purportedly seven-year scheme, a good number of BLIPS
2    clients attempted to limit their commitment to sixty days,
3    even though exiting so early would significantly limit their
4    (already nugatory) chances of profiting on the currency
5    forwards. BLIPS was designed, marketed, and executed as a
6    tax shelter; and the jury was warranted in concluding that
7    all parties knew BLIPS’s profit potential to be nothing more
8    than a pretext.
 9        In a challenge to the finding of willfulness,
10   Appellants argue that “economic substance” law was too vague
11   to support their convictions. Citing United States v.
12   Pirro, 212 F.3d 86, 91 (2d Cir. 2000), Appellants contend
13   that economic substance law was not sufficiently “knowable.”
14   But “knowability,” except perhaps as probative of a
15   defendant’s subjective belief in the lawfulness of his
16   conduct, is only relevant insofar as it bears on
17   constitutional vagueness. Vagueness of the law does not
18   ipso facto negate a jury finding of willfulness. See United
19   States v. Ingredient Tech. Corp., 698 F.2d 88, 97 (2d Cir.
20   1983). And economic substance law is not unconstitutionally
21   vague: It has been applied in criminal cases before, and (as
22   discussed) is not unsettled in the way Appellants contend.
23   Cf. Pirro, 212 F.3d at 91 (affirming partial dismissal of an
24   indictment insofar as it charged a violation of a purported
25   legal duty the existence of which was an open question).
26        In addition, sufficient evidence was presented to the
27   jury to support its finding that Ruble either knew or
28   consciously avoided knowing that the taxpayers lacked a non-
29   tax business purpose for engaging in the transaction, and
30   that there was no reasonable possibility that the
31   transaction would yield a profit. As discussed above, Ruble
32   was aware that the investors had no reasonable expectation
33   of a profit unless they remained invested for the long term,
34   and that most of the investors had exited the deals within
35   sixty days. Moreover, the jury was free to infer that Ruble
36   knew that the transaction had no business purpose based on
37   his close relationship with Pfaff and Larson.

38        Finally, we disagree that Appellants’ actions fall
39   outside the ambit of the tax evasion statute, 26 U.S.C.
40   § 7201. Section 7201 provides, in relevant part:
41            Any person who willfully attempts in any manner to
42            evade or defeat any tax imposed by this title or

                                       4
1             the payment thereof shall, in addition to other
2             penalties provided by law, be guilty of a felony.
 3   The statute’s expansive language is not susceptible to a
 4   limitation that would exclude Appellants. No case
 5   interpreting § 7201 appears to have adopted any limit to its
 6   reach; those cases that have considered § 7201's scope have
 7   rather expressed it expansively, see, e.g., United States v.
 8   Townsend, 31 F.3d 262, 267 (5th Cir. 1994) (“[Section] 7201
 9   is not limited to prosecutions of those who evade taxes that
10   they may owe themselves, but rather it encompasses
11   prosecutions of any person who attempts to evade the tax of
12   anyone.”). Appellants involved themselves, with the
13   requisite intent, in a scheme to avoid taxes, and we see no
14   statutory basis for excluding them from liability under
15   § 7201.
16        [3] Appellants’ argument concerning constructive
17   amendment is reviewed de novo. United States v. Rigas, 490
18   F.3d 208, 225 (2d Cir. 2007). They argue that the
19   government undertook to prove at trial a conspiracy of the
20   Appellants against KPMG, rather than the charged conspiracy
21   with KPMG. But Appellants were acquitted of conspiracy.
22   Constructive amendment of the conspiracy charge would have
23   warranted vacatur of that charge only; the remainder of the
24   indictment would have stood. See United States v. Milstein,
25   401 F.3d 53, 64-66 (2d Cir. 2005) (per curiam) (vacating
26   conviction on one count for constructive amendment of
27   indictment with respect to that count, and rejecting
28   argument that the constructive amendment warranted vacatur
29   of convictions on other counts). Because no Appellant was
30   convicted of conspiracy, we would be unable to afford relief
31   even if we were to find error.

32        [4] The district court found that KPMG would not have
33   paid Pfaff’s and Larson’s legal fees in this case, and that
34   dismissal under our decision in Stein was therefore
35   unwarranted. We review this finding for clear error.
36   Stein, 541 F.3d at 142, 146. Pfaff and Larson point to a
37   number of facts that they claim demonstrate the clear error
38   of the district court’s finding, none persuasive. Most
39   strongly emphasized are three pieces of evidence.

40        First is a 2004 statement by KPMG then-CEO Gene O’Kelly
41   that “[a]ny present or former members of the firm asked to
42   appear will be represented by competent coun[se]l at the
43   firm’s expense.” United States v. Stein, 495 F. Supp. 2d
44   390, 407 (S.D.N.Y. 2007) (first emphasis added). But this

                                  5
 1   statement speaks not at all to what conduct the promise
 2   covers, and is therefore of limited independent value.
 3   Pfaff and Larson note that some of their indicted conduct
 4   occurred while they were at KPMG; but that conduct was
 5   minimal relative to the indicted conduct after they left.
 6   There is no direct evidence that KPMG considered such a
 7   small proportion to be enough, and it was reasonable for the
 8   district court to infer in the circumstances that KPMG would
 9   not have paid Pfaff’s and Larson’s fees, given the
10   incentives driving fee payment in the first place, see
11   Stein, 541 F.3d at 144 (“[A] firm may have potent incentives
12   to advance fees, such as the ability to recruit and retain
13   skilled professionals in a profession fraught with legal
14   risk.”).

15        Second, Pfaff and Larson compare their situation to
16   that of Gregg Richie, whose attorney’s fees, the district
17   court found, would have been paid by KPMG. However, in
18   contrast to Pfaff and Larson, Ritchie had little involvement
19   with BLIPS after leaving KPMG. Ritchie’s relevant conduct
20   post-KPMG appears to constitute only a small part of his
21   involvement with BLIPS, as compared with his role as head of
22   KPMG’s CaTs (“Capital Transaction Strategies”) group--“[t]he
23   KPMG group focused on designing, marketing, and implementing
24   tax shelters for individual clients.”
25        Finally, Pfaff and Larson point to KPMG’s payment of
26   their legal fees in the Perez v. KPMG civil case, which they
27   contend demonstrated KPMG’s willingness to pay their legal
28   fees in connection with legal proceedings arising from
29   BLIPS. But the Perez case involved conduct undertaken
30   entirely during Pfaff’s and Larson’s employment at KPMG, see
31   Notice of Removal at 25-37, Perez v. KPMG, No. 7:03-cv-00026
32   (S.D. Tex. Jan. 24, 2003); and is therefore distinguishable
33   on the lines discussed.
34        [5] Larson argues that his term of imprisonment is
35   impermissibly longer than the sentences imposed on other
36   defendants. We review sentencing decisions for
37   “reasonableness,” employing “the familiar abuse-of-
38   discretion standard.” Gall v. United States, 552 U.S. 38,
39   46 (2007). As Larson contends, the district court relied on
40   the defendants’ ages, observing that any lengthy sentence
41   “would be a life sentence without parole for all these men.”
42   Since Larson is just 13 months younger than Pfaff, it would
43   have been questionable to rely on this factor alone to
44   justify a sentence disparity. But the district court stated
45   that age was merely one of the factors justifying the

                                  6
1    difference. The district court properly relied on the fact
2    that Larson moved assets abroad in order to protect them
3    from creditors and from the government. See 18 U.S.C.
4    § 3661 (“No limitation shall be placed on the information
5    concerning the background, character, and conduct of a
6    person convicted of an offense which a court of the United
7    States may receive and consider for the purpose of imposing
8    an appropriate sentence.”).
 9        In a separate per curiam opinion filed today, we decide
10   the challenge to Larson’s fine, imposed under 18 U.S.C.
11   § 3571(d). Finding no merit in Appellants’ remaining
12   arguments, we accordingly AFFIRM Appellants’ convictions and
13   Larson’s term of imprisonment.

14
15
16                              FOR THE COURT:
17                              CATHERINE O’HAGAN WOLFE, CLERK
18
19
20
21

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