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UNITED STATES v. COLE

November 26, 1971

UNITED STATES of America, Plaintiff,
v.
MARVIN R. COLE et al., Defendants


Pollack, District Judge.


The opinion of the court was delivered by: POLLACK

POLLACK, District Judge.

This is a criminal case charging income tax evasion and the filing of perjurious tax returns. A jury returned guilty verdicts against all three defendants on January 14, 1971. Post-trial hearings were held on March 24 through March 27, 1971, on a motion of defendants seeking to void the prosecution on the ground that the government's proceedings and proof were tainted by illegal electronic surveillance. However, the government established on the hearings by credible evidence beyond a reasonable doubt that the proof used at trial was free from any taint of illegality. United States v. Cole, 325 F. Supp. 763 (S.D.N.Y.1971).

 On June 3, 1971, the defendants made the present motion for an order setting aside their convictions and granting them a new trial. They assert this time that improper evidence was received at trial and that they have newly discovered evidence in the form of the invalidation on May 21, 1971, of the defendant Cole's 1963 California conviction for obstruction of justice and that this entitles them to a new trial. Imposition of sentence upon the defendants has been withheld pending the determination of the motion.

 The three defendants were convicted of income tax conspiracy and corporate income tax evasion in respect of tax liabilities for the fiscal years ending September 30, 1963 and September 30, 1964. The defendant Cole was convicted of evasion of his personal tax liabilities for the calendar years 1963 and 1964, and the defendant Fischer was convicted of perjury in wrongfully subscribing to the corporate defendant's income tax returns.

 One of the elements of the government's charges was deduction by the corporation on its income tax returns of the cost of defending an obstruction of justice prosecution brought against defendant Cole personally in the Central District of California. Cole contended that the California expenses were business-oriented expenses, properly charged to the company and hence properly deductible from corporate income, and that their payment by the corporation was not a constructive receipt of income by him. The government contended that the deductions were fraudulent and motivated by an intent to evade income taxes.

 As part of its proof, the government called as a witness, Joseph A. Ball, Cole's California counsel, in order to prove that Ball's fees charged to the corporation by Cole had been received for his professional services to Cole personally in 1963. On cross-examination, Ball was asked by defendants' counsel to describe what had transpired at the California trial, in an attempt to indicate that the litigation was business-oriented, and hence constituted a legitimate business expense rather than merely a personal expense of Cole. *fn1" On redirect examination, government counsel sought to offset Ball's testimony by questioning him about the testimony given at the California trial by Joel Benton, the chief prosecution witness, from which it could be inferred that Cole's illegal conduct stemmed from a personal and not a business concern. Benton's account put the California litigation in a far different light than the description of the underlying facts which had been given by Ball on cross-examination. Benton's evidence tended to show that the obstruction of justice charge had arisen from personal misconduct of Cole unrelated to Cole's business activities.

 On recross-examination defendants' counsel undertook to impugn the Benton account by introducing post-trial remarks made by the California trial judge (Harry C. Westover, U.S.D.J.) at the time of sentencing Cole. *fn2" This necessarily brought to the jury's attention that Cole had been convicted. The defendants showed that Judge Westover had said after the jury's verdict that he would not have relied on Benton's evidence if he had tried the case without a jury.

 The government promptly offered in evidence Cole's conviction of the California charge. Government counsel contended that in order to find Cole guilty, the California jury must have accepted Benton's evidence explaining the personal nature of the coercive acts on which the obstruction of justice charge had been based.

 The Court admitted the evidence, ruling that the California conviction was admissible under the circumstances. The evidence was easily within the well-settled principle that the jury should have before it all of the facts relating to a given aspect of proof, in order to avoid any distortion from an incomplete or one-sided presentation; this is usually referred to as the doctrine of Verbal Completeness. The subject matter in dispute so far as this case was concerned was whether Cole's coercive acts in seeking to protect himself from a charge of perjury before a grand jury had been motivated by and related to personal considerations or an intent to protect the business interests of his corporation. It was pertinent in this case to determine whether the expenses of the California litigation were properly attributable to the corporation or to Cole personally.

 In charging the jury herein, the Court made reference to the evidence which had been received concerning the charge against Cole in California. The jury was instructed that "evidence relating to that charge is not evidence of fraud with intent to evade the payment of taxes." The jury was additionally charged that Cole's motivation in the California situation was the key to the question of whether the costs of the California litigation were business-oriented and that it was left to the jury to decide what prompted him to act as he did, a corporate interest or the personal interest indicated by Benton's testimony.

 Cole did not testify during the trial of this case. His counsel now states that this was to preserve what he considered to be an error in the reception of the California conviction in evidence. His theory is that Cole might have been questioned about the conviction on cross-examination if he took the stand. Counsel also asserts that the other defendants were harmed by Cole's inability to take the stand to explain certain transactions at issue.

 The government's response to the motion to set aside the verdict and for a new trial is in substance that the fact of Cole's 1963 conviction in California was not inadmissible but came into the record properly, albeit on the government's case; that Cole's failure to testify was self-determined and is completely irrelevant to the questions raised by this motion; and that the reason now given for Cole's absence from the witness stand is nothing more than an afterthought, and immaterial at that under the facts of the record here.

 This case was tried from January 4th to 14th, 1971. In November, 1970, a coram nobis proceeding was initiated in California to set aside the 1963 obstruction of justice conviction on the ground that there was illegal bugging of Cole's office in California in 1961 and 1962 and that the indictment there was the product of illegality. However, as is discussed more fully below, this Court was not apprised and had no knowledge of the coram nobis proceeding at any time during the New York trial.

 On January 20, 1971, Judge Westover ordered a hearing on the coram nobis petition seeking to set aside the California conviction. In doing so, Judge Westover observed that

 
Almost 7 years have elapsed since Cole's trial; witnesses have dispersed and may be unavailable; and recollections may have dimmed. Whether it would be feasible to retry the case at this late date is problematical.

 Judge Westover's memorandum also adverted to the fact that Cole's counsel had initially sought an immediate ruling vacating Cole's 1963 conviction on the ground that "the immediate need for relief is to prevent the government from using this conviction to impeach Cole in the New York case." However, Cole's counsel abandoned this request; Judge Westover's memorandum went on to recite that

 
[At] oral argument the vehemence of the 'immediate need' assertion was moderated by Cole's counsel, and the petition was taken under submission.
 
At the hearing on December 30, 1970 in this [the California] Court, Cole's counsel indicated that the assertion of possible impeachment of Cole was not the crux of the coram nobis proceeding, thus obviating the necessity for immediate and spontaneous ruling.

 The initial response of the United States Attorney in California to the petition to vacate the judgment was:

 
The Respondent herein, respectfully submits that at an evidentiary hearing we will be able to establish that all of the evidence utilized in the obstruction of justice trial of Marvin Cole was obtained from legal sources, and that the conviction should remain undisturbed. In sustaining this burden, the United States will prove that all evidence used in the trial was ...

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