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United States v. Cunningham

decided: November 28, 1983.


Appeal by defendants from judgments of the Southern District of New York entered by Judge Charles L. Brieant, Jr. after a jury found Cunningham guilty of conspiracy, 18 U.S.C. § 371, income tax evasion, 26 U.S.C. § 7201, filing false income tax returns, 26 U.S.C. § 7206(1), inducing another to make false statements to Internal Revenue Service agents, 18 U.S.C. §§ 1001 and 2, making false statements to the agents and to the U.S. Attorney, 18 U.S.C. § 1001, and giving false testimony before a United States district court, 18 U.S.C. § 1623. Sweeney was found guilty of conspiracy, 18 U.S.C. § 371, giving false testimony before a federal grand jury, 18 Revenue Service agents and to the U.S. Attorney, 18 U.S.C. § 1001. The government cross-appeals from an order of the district court granting Cunningham's post-trial motion for a judgment vacating the jury's verdict on three counts (2, 4 and 5) and acquitting him on those counts.

Mansfield, Kearse and Winter, Circuit Judges.

Author: Mansfield

MANSFIELD, Circuit Judge:

Experience teaches that unlawful cover-up offenses are often more heinous than the crime sought to be concealed. This case falls squarely within that maxim. Patrick J. Cunningham and John J. Sweeney appeal from judgments of the Southern District of New York entered by Judge Charles L. Brieant, Jr. after a jury convicted them of offenses related to income tax evasion, obstruction of investigations by the Internal Revenue Service (IRS) and a grand jury, and making false statements to the IRS, the U.S. Attorney, a grand jury and a federal district court.*fn1 The jury found Cunningham guilty of conspiracy, 18 U.S.C. § 371 (Count 1), tax evasion for the years 1974 and 1975, 26 U.S.C. § 7201 (Counts 2 and 4), filing false returns for 1974 and 1975, 26 U.S.C. § 7206(1) (Counts 3 and 5), inducing John Spain to make false statements to IRS agents, 18 U.S.C. §§ 1001 and 2 (Counts 6 and 7), making false statements to agents of the IRS and the U.S. Attorney, 18 U.S.C. § 1001 (Count 11), and giving false testimony before a United States district court, 18 U.S.C. § 1623 (Count 13). Sweeney was found guilty of conspiracy, 18 U.S.C. § 371 (Count 1), making false statements in testimony before a federal grand jury on July 10, 1980, and July 17, 1980, 18 U.S.C. § 1623 (Counts 9 and 10), and making false statements to agents of the IRS and the U.S. Attorney, 18 U.S.C. § 1001 (Count 12).*fn2

Following the trial, Judge Brieant granted Cunningham's motion to set aside the guilty verdicts on Counts 2, 4 and 5 and enter a judgment of acquittal on those counts, from which the government appeals. We affirm the convictions, reverse the district court's order and judgments acquitting Cunningham on Counts 2, 4 and 5, and remand these counts for sentencing and entry of judgments of conviction.

The record, viewed as it must be in the light most favorable to the government, Glasser v. United States, 315 U.S. 60, 80, 86 L. Ed. 680, 62 S. Ct. 457 (1942), reveals the following. From 1964 to September 1971 Cunningham and Sweeney, his brother-in-law, practiced law under a loose partnership arrangement in New York City with James F. O'Donoghue. Thereafter until 1978 they ceased to be partners but practiced separately in the same office suite. From September 30, 1978 through September 1981 they resumed law practice together with Marc Krieg in a professional corporation.

In 1974 and 1975, when Cunningham and Sweeney were practicing law separately, Sweeney made a series of payments in an unusual manner to or for the benefit of Cunningham. The payments were made not by checks drawn on Sweeney's regular business checking account but by means of bank checks drawn on an Irving Trust Company escrow savings account into which Sweeney normally deposited funds belonging to his clients (e.g., settlement proceeds, tenants' funds, or payments toward closings). There was no requirement that the bank checks be reported to any authority. Nor were the payments, with one exception, recorded in Cunningham's ordinary personal or business records or bank accounts. In 1974, for instance, Sweeney drew four bank checks totalling $9,436 on the escrow account, one to Cunningham and three to schools attended by his children. In 1975 Cunningham received similar checks totalling $6,062 made out to schools in payment of his children's tuition bills. In addition, Sweeney paid $13,870 in connection with Cunningham's purchase of a new home.

There was evidence from which the jury could reasonably infer that the payments were made from the escrow account rather than from Sweeney's regular business account and not recorded on Cunningham's records in order to conceal the fact that Cunningham, who was at various times Chairman of the Bronx and New York State Democratic Committees and a member of the National Committee of the Democratic Party, was receiving a portion of fees resulting from state court appointments in probate and guardianship matters in which Cunningham did no work. Disclosure of the income or its source would have embarrassed him as a political leader by giving the appearance that the appointments were the result of his exercise of political influence with respect to the appointing judges and would also have required him to pay income taxes on the monies received.*fn3

Sweeney kept a careful private accounting of these payments through pencilled notations in his own handwriting on his copies of monthly escrow account statements received from Irving Trust Co. The pencilled notations showed that after deduction of certain expenses the amounts paid to or for the benefit of Cunningham represented roughly half of the sums Sweeney received from court-appointed matters. That Sweeney and Cunningham were trying to conceal these payments could further be inferred from Sweeney's efforts to avoid turning over his copies of the escrow account statements to a federal grand jury convened in January 1979 to investigate Cunningham's possible tax evasion. Sweeney initially advised the grand jury on April 5, 1979, that he was not producing the statements because IRS Agent Glenn Ripa had told him that they were not needed and he was later acquitted of the charge (Count 8) that this statement was perjurious. However, after it became clear that his copies of the statements were being subpoenaed he refused to comply. On July 10, 1980, when he appeared before the grand jury for a second time, he expressly refused to turn over the statements, now claiming that they were protected by the attorney-client privilege. After that hearing, when he was ordered to show cause why he should not be held in contempt, Sweeney agreed to produce the statements. Yet when he returned to the grand jury on July 17, he did not do so. The statements finally were turned over by his attorney while Sweeney was out of the country; by that time, the pencilled notations -- which were at the heart of the government's case -- had been erased. It was only through infrared enhancement that the FBI was able to restore the notations and uncover the secret accounting.

In October 1975 Cunningham filed his federal income tax return for the year 1974, which did not report as income $9,436 received in 1974 from the Sweeney escrow account. If disclosure had been made he would have had to pay an additional $5,057 in taxes over the $37,539 paid. In October 1976, by which time Cunningham knew he was under IRS investigation, Cunningham filed his federal tax return for income received in the year 1975, which reported the $6,062 received in 1975 from the escrow account but did not report the $13,870 received from Sweeney in April 1975. If reported as income the $13,870 would have increased his tax liability by $9,709.

There was additional evidence supporting the jury's verdict that Cunningham, acting in concert with Sweeney, attempted to evade reporting the $9,436 income received from Sweeney in 1974 and at least part of the $13,870 received from Sweeney in 1975. They engaged in conduct designed to obstruct government investigations into the nature and source of these payments and to cover up the evasion. In December, 1975, Cunningham learned that he was under IRS investigation. His 1974 return had been filed and little could be done to alter his failure to report the $9,436 of covert income he received that year from Sweeney. However, Sweeney's Irving Trust escrow account statements made it plain that Cunningham would in 1976 be obligated to report as income payments totalling $19,932 received in 1975 from Sweeney (including the $6,062 paid as tuition for Cunningham's children) as a division of legal fees. Instead of reporting this income and the sources on his federal income tax return for 1975, however, Cunningham decided to report only the $6,062 and to claim that $13,870 represented a non-taxable loan.

With respect to the $13,870, Sweeney corroborated Cunningham's account by advising Cunningham's tax lawyer, Barry London, that $10,000 of this sum represented part of a non-taxable $45,000 "gap" loan needed by Cunningham to purchase a new house, $35,000 of which had been borrowed from the Sterling National Bank, and that the balance of $3,870 constituted the portion of the non-taxable advance from Sweeney that had yet to be repaid. Recognizing that this story could be refuted by his pencilled notations on his copies of the Irving Trust escrow account statements, Sweeney made repeated efforts to avoid turning over his copies of these bank records. As noted above, his pencilled computations showing the actual nature of the payments to Cunningham were erased and his copies were not turned over to the government until he was threatened with contempt.

In the meantime Sweeney testified before the grand jury that he loaned Cunningham nearly $13,900 in 1975 whereas his obliterated notations together with other evidence showed that the payments represented a division of legal fees from 1974-75 court appointments.*fn4 In 1980 Sweeney also falsely advised the U.S. Attorney's office and testified before the grand jury that other payments made by him to or for Cunningham (e.g., tuition for the latter's children) were from legal fees due in connection with the 1971 dissolution of their former law firm whereas in fact they were from later state-court appointments.*fn5 Upon being interviewed by the U.S. Attorney's office in 1980 Cunningham conceded that the $9,436 received in 1974 from Sweeney (some directly and some to schools for his children) "probably" represented reportable income overlooked by him but that the $13,870 received in 1975 constituted non-taxable loans not yet repaid.

As another step designed to conceal the income received from Sweeney in 1975 Cunningham, after he learned in December, 1975, that he was under IRS investigation but before he filed his 1975 return, decided to create some fictitious cash receipts that he could report on his 1975 income tax return as received that year from other sources, which would serve to account for otherwise unexplained cash in his possession. His reporting of cash income from other sources could mislead the IRS into abandoning its investigation into his 1975 income. Whatever the motive, he induced a friend, John Spain, to agree to falsely tell the IRS that Spain had in 1975 paid him $2,000 cash for legal services. He similarly induced another friend, Joseph Cioccolanti, to agree to falsely advise the IRS that he had given Cunningham $4,000 cash. Cunningham then included on his 1975 return $8,000 cash legal fees received (he later claimed that this included, in addition to the $6,000 from Spain and Cioccolanti, $2,000 from George Steinbrenner). In January 1978 interviews requested by the IRS Spain, living up to his promise to Cunningham, falsely advised IRS Agent Glenn Ripa and another agent that in 1975 he had paid a $2,000 cash legal fee to Cunningham. However, when Spain was later called before the grand jury on two occasions in July 1980 and asked about the payment he twice testified that he had never paid a $2,000 legal fee to Cunningham and he denied under oath that he had so told Agent Ripa.

Sweeney's testimony before the grand jury and Cunningham's statements in interviews by the U.S. Attorney's office regarding the nature of the payments received by Cunningham or made for his benefit in 1974 and 1975 were belied by the government's restoration of Sweeney's erased pencilled accounting on his copies of the Irving Trust escrow account statements. These revealed that the payments were taxable shares of legal fees from state court appointments, not loans or pre-1972 legal fees. In January 1981 Cunningham and Sweeney were given the opportunity, in tape-recorded government interviews later introduced at their trial in the present case, once again to explain the payments and the source of the $8,000 cash legal fees reported by Cunningham as received in 1975. Essentially they stuck to the outlines of their earlier version that the $13,870 represented loans. Both continued to state that $10,000 of the $13,870 was borrowed to complete a $45,000 "bridge" loan needed to finance Cunningham's purchase of a new home after Sweeney had been told by the bank that it would not loan more than $35,000. However, Cunningham could not now recall receiving $2,000 from Spain as the source of a portion of the $8,000 listed as cash receipts. Although he admitted that the $9,436 received from Sweeney in 1974 represented legal fees he did not remember whether he had reported it on his income tax return. Nor could Cunningham recall whether he had paid back the loan from Sweeney for purchase of the house or still owed this amount to Sweeney.

In October 1980 Spain was indicted on the charge that he committed perjury in denying to the grand jury that he told Agent Ripa that he had paid $2,000 to Cunningham. Thereupon he consulted Cunningham, whose secretary, Marie Falco, presented to Spain what purported to be a contemporaneous memorandum typed by her on the same day as Spain's interview with Agent Ripa 2 1/2 years previously (January 25, 1978). The memo reported Spain as denying to Falco that he had told Ripa that he had paid any cash to Cunningham. The memorandum was introduced by Spain at his February 1981 trial on the perjury charge after authentication by Ms. Falco. Suspecting that it was fabricated, the government obtained from Judge Wyatt of the district court a subpoena ordering Cunningham's law firm to produce "forthwith" any typewriters in its possession of the model used to type the purported memorandum of January 25, 1978. The government planned to examine the typewriter ribbons (which were carbon film ribbons that could be used only once and would reveal what had been typed on them) to determine whether the memorandum had recently been fabricated, i.e., typed in November 1980.

Following service of the subpoena by government agents at 4:30 P.M. on the afternoon of February 12, 1981, Marc Krieg, one of the three partners in the firm, asked the agents to leave. Krieg then ascertained that there were two typewriters of the kind subpoenaed, one of which was located on the office's reception desk. At 5:20 P.M. Krieg saw Sweeney carrying the typewriter from the reception desk to his office and closing the door behind him. When the typewriter was examined by government agents that night it was found to have a new, virtually unused ribbon on it.*fn6 That evening Krieg advised an Assistant U.S. Attorney that he had seen Sweeney remove the typewriter to his office that afternoon after the subpoena had been served but before the typewriter was turned over to the government. Krieg apparently confirmed this statement in testimony given the next day, February 13, before the grand jury.

On the same date, February 13, 1981, Judge Inzer B. Wyatt, who was presiding at the Spain trial, granted the government's motion for a hearing, which was then held by Judge Edmund Palmieri, to determine whether anyone had tampered with the subpoenaed typewriter before surrendering it to the government. At a continuation of the hearing on February 17, Gay McCreery, receptionist at the Cunningham-Sweeney firm, testified that she had used the subpoenaed typewriter on February 12, 1981, to type addresses on envelopes which Cunningham planned to use in a personal campaign mailing to members of the Democratic National Committee. However, the ribbon on the typewriter turned over by Cunningham and Sweeney in response to the subpoena did not show the imprints of this typing, as it would if it were the ribbon used by Ms. McCreery. When the typed envelopes were then subpoenaed and Krieg and McCreery were unable to find them, Cunningham testified on February 19, 1981, before Judge Palmieri that after deciding to withdraw from his political race on Monday, February 16, 1981, he stuffed the typed envelopes into his pocket and disposed of them in a street trash basket. This conduct indicated that the typed envelopes had been concealed or ...

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