Court Opinion

ID: 1024730
Source: CourtListenerOpinion
Date Created: 2013-07-05 06:38:11.56953+00
Date Added: 2024-06-11T12:27:27.834833
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                               No. 05-4273

UNITED STATES OF AMERICA,

                                                 Plaintiff - Appellee,

           versus

SAID KARIM HAYEZ,

                                                Defendant - Appellant.

                             No. 05-4407

UNITED STATES OF AMERICA,

                                                Plaintiff - Appellant,

           versus

SAID KARIM HAYEZ,

                                                 Defendant - Appellee.

Appeals from the United States District Court for the Eastern
District of North Carolina, at Raleigh. Louise W. Flanagan, Chief
District Judge. (CR-03-296)

Argued:   September 27, 2007                 Decided:   January 8, 2008
Before NIEMEYER and MICHAEL, Circuit Judges, and T. S. ELLIS, III,
Senior United States District Judge for the Eastern District of
Virginia, sitting by designation.

Affirmed by unpublished opinion. Judge Niemeyer wrote the opinion,
in which Judge Michael and Senior Judge Ellis joined.

ARGUED: George Alan DuBois, Assistant Federal Public Defender,
OFFICE OF THE FEDERAL PUBLIC DEFENDER, Raleigh, North Carolina, for
Appellant/Cross-Appellee. Clay Campbell Wheeler, Assistant United
States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Raleigh,
North Carolina, for Appellee/Cross-Appellant. ON BRIEF: Thomas P.
McNamara, Federal Public Defender, Raleigh, North Carolina, for
Appellant/Cross-Appellee.    George E. B. Holding, United States
Attorney, Anne M. Hayes, Assistant United States Attorney, OFFICE
OF THE UNITED STATES ATTORNEY, Raleigh, North Carolina, for
Appellee/Cross-Appellant.

Unpublished opinions are not binding precedent in this circuit.

                                2
NIEMEYER, Circuit Judge:

     A jury convicted Said Karim Hayez on two counts of filing

false Form 1040 U.S. Individual Income Tax Returns for calendar

years 1997 and 1998, by failing to report as income $1,375,696 that

he diverted to himself from a company that he owned, in violation

of 26 U.S.C. § 7206(1).    The district court sentenced Hayez to 36

months’ imprisonment on each count, to run concurrently.

     Appealing his conviction, Hayez contends that the district

court abused its discretion in denying him permission to present

expert psychiatric evidence to prove that he, as a pathological

gambler, was only borrowing the money from his company in order to

gamble, win big, and pay it all back.        He asserts that this

evidence would have supported his theory that he considered the

diverted funds to be loans rather than income and therefore did not

“willfully” file false tax returns.        He also challenges the

district court’s exclusion of expert testimony identifying “seven

primary indicators” of tax fraud, the absence of which would also

have purportedly demonstrated that the diverted funds were loans.

     In   its   cross-appeal,    the   government   challenged   the

reasonableness of the district court’s variance sentence, which was

43% below the 63-72 month range recommended by the Sentencing

Guidelines. Following the Supreme Court’s recent decisions in Gall

v. United States, 552 U.S. __, No. 06-7949 (Dec. 10, 2007), and

Kimbrough v. United States, 552 U.S. __, No. 06-6330 (Dec. 10,

                                  3
2007),    however, the government voluntarily dismissed its cross-

appeal, and we approve its dismissal request.

       With respect to the evidentiary rulings, we conclude that they

fell   well   within   the   district   court’s   broad   discretion   in

regulating the admission of evidence at trial and accordingly

affirm.

                                    I

       After Hayez, an immigrant from Afghanistan who became a

naturalized citizen in 1987, earned a doctorate in psychometrics,

he formed Columbia Assessment Services, Inc. (“CAS”), a corporation

located in Raleigh, North Carolina, to carry on as a professional

testing service specializing in conducting and certifying licensure

examinations.    Among other things, CAS designed and administered

certification tests for alcohol and substance abuse counselors,

athletic trainers, and others. As the company’s sole shareholder,

Hayez designated himself as the president of the corporation.

       Some time prior to 1995, Hayez embarked on a scheme to divert

funds from CAS for his personal use.        He did this primarily by

directing a CAS employee to modify CAS invoices to show a lower

amount due than had been properly charged to and paid by the

client.    Hayez then pocketed the “overpayment” without accounting

for the money.    In 1995, the Internal Revenue Service audited CAS

and determined that Hayez had diverted more than $137,000 in

                                    4
corporate funds. Rather than prosecute Hayez, however, the IRS

assessed various civil penalties against him.

       About six months after the conclusion of the 1995 audit, Hayez

developed a new scheme to resume diverting money from CAS. Instead

of skimming from payments sent to CAS by clients, Hayez directed

a CAS employee to generate fake “fee summaries,” which purportedly

indicated that CAS owed refunds to clients, such as exam fees

collected    from   applicants.    These   documents   justified   CAS

employees’ preparation of checks payable to the clients, which

Hayez then took to his personal bank and converted.      As president

of CAS, he engaged in a complicated two-step process of conversion.

First, he exchanged the CAS checks for official bank checks that

were made payable to the same CAS clients. Then, on behalf of the

corporation, he endorsed “not used for purposes intended” on the

checks and exchanged them for official bank checks made payable to

himself, his creditors, or CAS itself. In this way, Hayez diverted

$485,416 from CAS to himself in 1997 and $890,280 in 1998.

       Hayez has stated that he used these funds primarily to pay

gambling debts, other consumer debt, and legitimate loans taken

from CAS.    He said that gambling has been a longtime problem for

him.    He began gambling at a young age and was a “compulsive

gambler” by 1980.     By his own estimate, Hayez states that he has

lost “millions of dollars” in gambling.      By 1990, he also began

abusing alcohol. He attributes his gambling addiction and alcohol

                                  5
abuse to post-traumatic stress disorder that was diagnosed in 2001.

He claims that the disorder resulted from the murder of his father,

when Hayez was in the first grade, and from subsequent abuse by his

older brother.

       In his Form 1040 Individual Income Tax Return for 1997, Hayez

failed to report as income the $485,416 obtained from CAS through

his check conversion scheme, and in his return for 1998, he again

failed to report as income the $890,280 similarly obtained from

CAS.

       Hayez was indicted in two counts of filing false tax returns,

one count for each calendar year. At trial, he sought to introduce

the testimony of an expert psychiatrist that because of his

gambling addiction, he did not have the requisite intent to violate

the law.    He also sought to introduce expert testimony about the

common indicators of fraud in an effort to demonstrate that the

diversions from his company were only loans.     The district court

excluded the testimony of both witnesses.

       After the jury convicted Hayez, the district court denied

Hayez’s motion for a downward departure under the Sentencing

Guidelines but nonetheless imposed a variance sentence of 36

months’ imprisonment on each count, to run concurrently.

       Hayez now appeals the two evidentiary rulings.

                                  6
                                 II

     Hayez contends first that the district court abused its

discretion in excluding the expert testimony of a psychiatrist who

would explain that Hayez was a pathological gambler and that

therefore he did not have the requisite intent to commit a crime

under 26 U.S.C. § 7206(1).1     He claims that as a pathological

gambler, he considered the diverted funds to be loans, which, by

definition, are not income, and thus he did not need to report the

money as income.   The expert proposed to testify that pathological

gamblers “chase their losses,” holding an honest but irrational

belief that they will win back all they have lost if they just

gamble one more time.

     In excluding the testimony, the district court ruled that the

evidence was not relevant to the specific intent element of the

offense with which Hayez was charged, and, even if there was some

marginal relevance, the likelihood of jury confusion substantially

outweighed the testimony’s probative value. See Fed. R. Evid. 403.

     Hayez’s principal argument on appeal is made on the assumption

that the   district court applied the Insanity Defense Reform Act

     1
      Section 7206(1) of Title 26 provides that any person who
“[w]illfully makes and subscribes any return, statement, or other
document, which contains or is verified by a written declaration
that it is made under the penalties of perjury, and which he does
not believe to be true and correct as to every material matter” has
committed a felony punishable by imprisonment of “not more than 3
years.” (Emphasis added).

                                 7
(“IDRA”),2 18 U.S.C. § 17, to exclude the testimony.                      As Hayez

stated in his brief:

      The government speculated that Mr. Hayez intended to
      offer the evidence in order to demonstrate either an
      insanity defense or “diminished capacity” short of
      insanity. This speculation was wrong. Unfortunately,
      this misunderstanding persisted throughout the pre-trial
      proceedings and ultimately caused the district court to
      commit legal error in refusing to allow Mr. Hayez to
      present this evidence.

Relying on United States v. Worrell, 313 F.3d 867, 874 (4th Cir.

2002), he maintains that the psychiatric evidence was admissible

to rebut the government’s evidence of mens rea, a use which should

not have been confused with its use under the IDRA.

      Our review of the record, however, does not support Hayez’s

assumption that the district court’s ruling was based on the IDRA.

The   district    court   repeatedly       stated    on    the   record   that   it

understood the nature of Hayez’s proffer.                 For example, the court

said, “Psychiatric evidence [can be] used to demonstrate lack of

specific intent, that is established.               Congress didn’t under the

[IDRA] bar -- the use of psychiatric evidence -- as argued by the

Defendant.”      The court also observed, “[T]he Defendant argues

evidence   that    merely    [aids]    the     trier       in    determining     the

Defendant’s specific state of mind with regard to . . . the time

      2
      The IDRA prohibits evidence of mental disease or defect as an
affirmative defense unless the defendant is offering a full-fledged
insanity defense in which he claims that, due to the disease or
defect, he “was unable to appreciate the nature and quality or the
wrongfulness of his acts.” 18 U.S.C. § 17.

                                       8
[the actions were] committed which [is] not an affirmative defense,

but is evidence that goes specifically to whether the Government

has carried its burden.” Accordingly, we reject Hayez’s principal

argument that the district court erred as a matter of law in

applying the IDRA to exclude his expert psychiatric testimony.

     On the merits of the evidentiary issue, the district court was

concerned about the relevance of the evidence and the possible

confusion that it might cause the jury.         As the court stated,

“There has to be a link . . . between the specific psychiatric

evidence and mens rea.”    “[T]he ground of this denial rests on the

speculativeness of the link between testimony and the mens rea.”

The court was also concerned that the psychiatric testimony would

“confuse   this   jury”   because   it   discussed   the   tendency   of

pathological gamblers to “commit[] illegal acts such as forgery

[or] fraud to finance gambling,” leading to the possibility of

“confusion as to whether such an issue [exists] here.”       “[E]ven if

relevant it’s so likely to confuse the jury. . . . [T]he mindset

would be such that testifying to say we should excuse this illegal

behavior because Dr. Hayez is a pathological gambler.         It seeds

their thought process with a consideration of [whether] they should

be excusing the illegal conduct.”

     In short, the district court determined that psychiatric

testimony about pathological gambling had little or no probative

value with respect to the question of whether Hayez possessed the

                                    9
specific intent willfully to file a false tax return, believing it

to be false, and that any probative value it may have had was

substantially outweighed by the likelihood that the jury would be

confused by the ancillary issue raised.                This ruling was not

arbitrary or irrational, but fell well within the broad discretion

of the court to regulate the admissibility of evidence at trial.

See United States v. Iskander, 407 F.3d 232, 236 (4th Cir. 2005);

United States v. Weaver, 282 F.3d 302, 313 (4th Cir. 2002).

                                    III

       Hayez   also   contends   that    the   district    court   abused   its

discretion in excluding expert testimony that would identify the

“seven primary indicators” of tax fraud.                  Hayez attempted to

introduce the evidence to rebut testimony by a government witness

(Hayez’s former accountant) who characterized Hayez’s transactions

as “diversions” and “misappropriations.”               The district court

excluded this testimony based on relevance and confusion, as well

as Hayez’s lack of notice to the government that he planned to

introduce the testimony, as required by Federal Rule of Criminal

Procedure      16(b)(1)(C).

       Hayez claims that he did not give notice of his intent to use

the expert witness because he did not recognize that he needed the

testimony until he heard the testimony of his former accountant

that     the     transactions     involved      were      “diversions”      and

“misappropriations.”       Hayez maintains that he should have been

                                        10
allowed to respond to that testimony with the testimony of a

forensic      accountant,    who   would    have      cast     doubt   on   the

characterizations by pointing out that the transactions bore none

of the “seven primary indicators” of fraud.

       Having reviewed the record carefully, we conclude that the

district court did not abuse its discretion in excluding the

testimony of the forensic accountant.         First, Hayez was not caught

off guard by his former accountant’s testimony.              He knew that the

government’s case against him involved his failure to report

diverted funds as income on his individual income tax returns.               It

is inconceivable that Hayez could later claim that he was surprised

that    the    government    presented     evidence     characterizing      his

transactions as diversions or misappropriations.                  The lack of

notice under Rule 16(b)(1)(C) alone was sufficient to justify the

district court’s ruling.

       In addition, however, Hayez had the opportunity to cross-

examine       his   former    accountant      about      the     accountant’s

characterizations of the transactions as statements of fact.                To

have allowed an expert to give an opinion that the factual

characterizations were wrong would have yielded nothing probative.

It would only have been an effort to supplant the court’s function

in describing for the jury the elements of tax fraud and the jury’s

function in finding the facts.

                                    11
     Finally, no government witness testified about the “primary

indicators” of tax fraud so as to require rebuttal.   The district

court concluded that Hayez’s proposed evidence was too    abstract

and would take the case “too far afield,” observing that the jury

was “not going to know what this case is about.”   We conclude that

the court acted well within its discretion in excluding the

testimony.

     Accordingly, we affirm the judgment of the district court.

                                                          AFFIRMED

                               12