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United States v. Stein


October 15, 2007


The opinion of the court was delivered by: Lewis A. Kaplan, District Judge.


The four remaining defendants and the government move in limine for various evidentiary determinations.

I. Defendants' Motion

A. Testimonial Co-conspirator Declarations

Defendants first seek a determination that previous sworn testimony of defendants in this case -- including testimony at depositions, before a Senate subcommittee and before the IRS -- that might qualify as non-hearsay under Fed. R. Evid. 801(d)(2)(E)*fn1 -- is inadmissible unless the declarants are available for cross-examination because it would violate the Confrontation Clause.

A testimonial statement made in furtherance of a conspiracy triggers the Sixth Amendment right of confrontation, but may be admissible over Confrontation Clause objection, depending upon the objects of the conspiracy.*fn2 This includes truthful statements designed to lend credence to false statements intended to mislead.*fn3 Nevertheless, as the parties have not provided the Court with the precise statements to which their motion relates, it is impossible to reach any definitive conclusions. This branch of defendants' motion therefore is denied without prejudice to renewal at trial.

B. E-mails Offered as Business Records

Defendants seek a determination that e-mails are not automatically admissible as business records under Fed. R. Evid. 803(6). The government agrees in principle, but the parties disagree as to the standard to be applied.

Rule 803(6) renders admissible for its truth a record made at or near the time by a person with knowledge if the record was "kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum." The defendants erroneously argue that the government must "show[] that the e-mails at issue were created pursuant to established company procedures for the systematic or routine making of company records."*fn4 Such a specific showing is not required, as regularity of making such records and of the business activity is all that is required.*fn5 Although the phrase "business duty" appears frequently in Rule 803(6) cases, the defendants read the phrase too narrowly. The phrase "business duty" is used interchangeably with phrases such as "[being] part of a business routine"*fn6 or "[acting] in the regular course"*fn7 to describe the requirement that the declarant be someone inside the business, not a third party.*fn8

Once again, it is impossible to determine in the abstract which of the documents defendants have in mind satisfy the Rule and which do not. Nor is it possible to pass to an appropriately informed consideration of whether the circumstances of particular documents indicate a lack of trustworthiness. This branch of defendants' motion therefore also is denied without prejudice to renewal at trial.

C. IRS Litigation Documents and Closing Agreements Offered as Public Records

The defendants argue that certain IRS documents, including Revenue Agent Reports ("RARs") and Closing Agreements, are not admissible over hearsay objection under Rule 803(8)(B) because they include "matters observed by police officers and other law enforcement personnel." The defendants argue also that Closing Agreements must be excluded under Rule 408.

1. Public Records

Whether the criminal case exception of Rule 803(8)(B) applies to RARs and Closing Agreements will depend upon whether IRS agents are "other law enforcement personnel" within the meaning of the rule.

The Second Circuit "construe[s] 'other law enforcement personnel' to include, at the least, any officer or employee of a governmental agency which has law enforcement responsibilities."*fn9 It held in United States v. Ruffin that "IRS personnel who gather data and information and commit that information to records which are routinely used in criminal prosecutions are performing what can legitimately be characterized as a law enforcement function."*fn10

This holding is in some tension with United States v. Rosa*fn11 and United States v. Felix,*fn12 where the Circuit held that medical examiner reports are not excluded by the criminal case exception of Rule 803(8)(B). But Rosa and Felix do not abrogate Ruffin. Rather, they seem to rely on a conclusion that a medical examiner's report is not an observation of law enforcement personnel because it is routine and non-adversarial.*fn13

The government does not contest that the RARs and Closing Agreements are "adversarial by nature,"*fn14 but it argues that the specific pieces of information that it seeks to offer, via a Rule 1006 summary, are "precisely the type of routine civil matter[s] recorded by the IRS."*fn15

The defendants do not address the specific data the government seeks to offer let alone explain how they might fall within the 803(8)(B) exclusion.*fn16

It seems possible that specific pieces of information included in the IRS documents are non-adversarial and appropriately offered via the government's summaries. But it is impossible to tell without reviewing the specific information that the government proposes to include. Accordingly, this branch of defendants' motion also is premature.

2. Closing Agreements

The defendants argue that Closing Agreements with the IRS should be excluded under Rule 408.*fn17 The argument is unpersuasive.

The government offers the Closing Agreements for the purpose of providing a predicate for summary exhibits indicating only the identity of each shelter and taxpayer, the loss claimed, and the amount of tax due absent the loss claimed. It does not propose to use them to prove liability for, invalidity of, or, in the sense of the rule, the amount of a disputed claim. In consequence, the Closing Agreements, to this extent and for this purpose, are not excluded by Rule 408. This branch of defendants' motion is denied.

D. Expert Opinions by Lay Witnesses

Defendants offer the uncontroversial proposition that lay and percipient witnesses may not give expert testimony and, on that basis, to exclude unspecified government evidence. In the absence of specific information as to precisely what testimony is included in defendants' challenge, the Court cannot properly rule on the objection.

E. Legal Conclusions in Documentary Evidence

Defendants seek also to preclude, presumably by redaction, any statements of law in documentary evidence. They contend that such evidence would confuse and mislead the jury as to the applicable legal standards.*fn18

It is difficult to understand, at least in the abstract, how this case possibly could be tried without at least some of the evidence to which defendants object. Among the government's claims, for example, is the contention that factual recitals in various legal opinions were materially false and misleading. Even more basically, however, the Court sees no reason to think that the jury could not follow limiting instructions with respect to any statements in documents that may be admitted or that it would not scrupulously adhere to the Court's instructions at the close of the evidence.

F. References to Entities in Statements of Non-Testifying Co-Defendants

Defendants Ruble, Larson, and Pfaff argue that, under United States v. Bruton,*fn19 references to entities with which they have been associated -- Presidio in the case of Larson and Pfaff, Brown & Wood in the case of Ruble -- must be excised from any statements of non-testifying co-defendants that are admitted at trial.*fn20

In Bruton, the Supreme Court held that the Confrontation Clause prohibits introduction of a non-testifying co-defendant's statement that implicates the defendant in a crime.*fn21

Statements that become incriminating "only when linked with evidence introduced later at trial," however, do not create Bruton problems.*fn22 In contrast, a statement that refers to the defendant by a nickname does create a Bruton problem because the connection between nickname and defendant is direct and obvious.*fn23

In Chen, the Second Circuit held that there was no Bruton problem when a statement referring to a specific entity (the Board) was admitted in a trial with co-defendants who were members of the entity (directors).*fn24 In reaching this conclusion, the Chen panel held that based on the specific statements at issue did not implicate Bruton because "[t]he statements that inculpate [defendants] only do so when placed in context with other testimony . . . ."*fn25

Defendants argue that the inferential step required to link an entity name to a defendant associated with that entity is obvious and direct. The government argues that the inferential step is more attenuated.

Defendants do not challenge specific statements as raising Bruton issues. Chen makes clear that the inferential step between entity name and a member of that entity is not, per se, sufficiently obvious and direct to raise a Bruton issue. The Court can evaluate the obviousness and directness of the inference only in the context of a given statement. Accordingly, this branch of defendants' motion is denied subject to defendants' right to raise the issue with respect to specific statements as they are offered.

G. Vulgar Language in Certain Exhibits

Defendants move to replace the phrase "shit and [sic] get off the pot," which appears in three government exhibits, with less potentially offensive language. The idea that a New York jury would be so offended by this phrase, occurring on three of the 128,000 pages of documentary evidence that the government proposes to offer, as to result in serious unfair prejudice is unpersuasive.

H. Chenery Associates Inc. Payments

Defendants move to preclude, under Rule 403, evidence of payments made by Chenery in 2000-2002 to Ruble's trust. The government argues that these payments, along with 1996 and 1997 payments offered under Rule 404(b), establish a pattern -- Ruble reported payments if the payor independently reported the payments, but reported only some of payments if the payor did not report the payments -- that is probative of Ruble's intent or knowledge in the charged counts of personal tax evasion.*fn26

The 2000-2002 payments are offered to show intent or knowledge and have an uncertain probative value that depends, in part, on the admissibility of the 1996 and 1997 payments. By memorandum and order of Oct. 12, 2007, the Court deferred ruling on the admissibility under Rule 404(b) of the 1996 and 1997 payments until it is clear that intent is in issue and the probative value of the evidence is clearer.*fn27 For the same reasons, it is appropriate to defer ruling on the admissibility of the 2000-2002 payments until such time, if any, as the Court addresses again the admissibility of the 1996 and 1997 payments.

II. The Government's Motion

A. Admissibility of Out-of-Court Statements

The government seeks preliminary rulings on the admissibility of general categories of out-of-court statements. The government argues that many of these statements will be admissible over hearsay objection (1) under Fed. R. Evid. 801(c) as non-hearsay, (2) under Fed. R. Evid. 801(d)(2)(E) as non-hearsay statements made in furtherance of a "joint venture," or (3) under Fed. R. Evid. 803(6) as business records.

These bases of admissibility cannot be applied in the abstract. Admissibility ultimately must turn on characteristics of the particular items of evidence and the purpose for which it is offered. Any definitive rulings must await trial. Nevertheless, the Court addresses the parties' conflicting understandings of the scopes of these bases for admissibility in order to promote efficiency at trial.

1. Non-hearsay

In summarizing the definition of hearsay, the government makes two potentially inaccurate statements about the applicable standard.

First, the government asserts that verbal acts and communications relevant thereto are not hearsay.*fn28 But there is no independently defined category of verbal acts that is excluded from the hearsay definition. Rule 801(c) excludes from the definition of hearsay statements that are not offered to prove the truth of the matter asserted. Verbal acts are hearsay only to the extent that they are offered to prove the truth of the matter asserted. In the same way, communications relevant to a verbal act are not hearsay only to the extent the communications make up the verbal act and thus are not offered for their truth.

Second, the government asserts that the "admission of non-hearsay 'raises no Confrontation Clause concerns.'"*fn29 This implies that a non-hearsay statement never could raise a Confrontation Clause issue. The scope of the Confrontation Clause, however, is defined in terms of testimonial statements, not in terms of hearsay. A more accurate statement is that out-of-court statements not offered for their truth raise no Confrontation Clause concerns.*fn30

2. The Co-Conspirator Exception

The government asserts that a statement may be admitted under Rule 801(d)(2)(E) as long as the statement was made by a joint venturer and was in furtherance of a joint venture, whether or not the joint venture was for a lawful purpose.*fn31 Specifically, it maintains that it need only show that a defendant and the declarant "were joint venturers in the endeavor of designing, marketing and implementing the shelters at issue" in order to warrant receipt of the declarant's outof-court statement under Rule 801(d)(2)(E).*fn32

There is a conflict among the circuits on this point.*fn33 Many Second Circuit cases suggest that our Circuit is of the view that only statements in furtherance of conspiracies to accomplish illegal objectives are admissible. In Ragland, for example, the Second Circuit wrote that the "threshold requirement for admissibility is satisfied by a showing of a likelihood of an illicit association between the declarant and the defendant . . . ."*fn34 Similarly, it observed in Gigante that "it is the unity of interests stemming from a specific shared criminal task that justifies Rule 801(d)(2)(E)."*fn35 Indeed, the Circuit's standard for determining whether a statement is in furtherance of a conspiracy reveals the assumption that the conspiracy must be unlawful: "Statements by a coconspirator are in furtherance of the conspiracy within the meaning of Rule 801(d)(2)(E) if they prompt the listener to respond in a way that facilitates the carrying out of criminal activity."*fn36

Nevertheless, the Circuit more recently said in Russo that "the objective of the joint venture that justifies deeming the speaker as the agent of the defendant need not be criminal at all."*fn37 The question is whether Russo goes as far as the government suggests.

Having reviewed the specific categories of documents that the government proffers on this basis, it is apparent that the co-conspirator exception in all or most cases is not the principal hearsay exception upon which the government relies. The Court sees little benefit in offering what could well amount to an advisory opinion on this important question. Accordingly, it declines to rule on the point in advance of trial.

B. Proposed Defense Experts

The government initially moved to preclude the testimony of two expert witnesses: Andrew Miller, Ph.D. and Deen Kemsley, Ph.D.,*fn38 arguing that the proposed testimony of both is likely to be irrelevant and duplicative.*fn39 Its reply memorandum, however, proposed that the Court "defer resolution of its motion on the defendants' experts until a more appropriate point during the trial."*fn40 The Court defers judgment on this branch of the government's motion.

III. Conclusion

The in limine motions of the defendants and the government [docket items 931 and 1035] are granted to the extent set forth above and otherwise denied.


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