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
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 27 th day of August, 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
1
1 LLP, Los Angeles, CA, for Defendant-
2 Appellant Robert Pfaff.
3
4 STUART E. ABRAMS, Frankel & Abrams,
5 New York, NY, Jack S. Hoffinger,
6 Susan Hoffinger, Hoffinger, Stern &
7 Ross, LLP, New York, NY, for
8 Defendant-Appellant Raymond Ruble.
9
10 J. SCOTT BALLENGER, Lori Alvino
11 McGill, Latham & Watkins LLP (Steven
12 M. Bauer, Margaret A. Tough, San
13 Francisco, CA), Washington, DC, for
14 Defendant-Appellant John Larson.
15
16 FOR APPELLEE: JOHN M. HILLEBRECHT, Margaret
17 Garnett, Justin Anderson, Katherine
18 Polk Failla, Assistant United States
19 Attorneys, of counsel, for Preet
20 Bharara, United States Attorney for
21 the Southern District of New York.
22
23 Appeal from a judgment of the United States District
24 Court for the Southern District of New York (Kaplan, J.).
25 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
26 AND DECREED that Appellants’ convictions and Larson’s term
27 of imprisonment be AFFIRMED.
28 Raymond Ruble, Robert Pfaff, and John Larson appeal
29 from judgments of conviction and a sentence entered April
30 15, April 21, and April 24, 2009, respectively, in the
31 United States District Court for the Southern District of
32 New York (Kaplan, J.). Appellants were convicted of tax
33 evasion, and sentenced principally to terms of imprisonment
34 and fines. In a separate per curiam opinion filed today, we
35 decide the challenge to Larson’s fine, imposed under 18
36 U.S.C. § 3571(d). We assume the parties’ familiarity with
37 the underlying facts and the case’s procedural history.
38 Appellants raise five issues here: [1] whether the jury
39 instructions were flawed; [2] whether the evidence was
40 sufficient to support their convictions; [3] whether the
41 government’s case at trial constructively amended the
42 indictment; [4] whether they are entitled to have their
2
1 indictments dismissed pursuant to United States v. Stein,
2 541 F.3d 130 (2d Cir. 2008); and [5] whether the district
3 court erred in imposing Larson’s sentence. The issues are
4 considered seriatim.
5 [1] We find no error in the district court’s jury
6 instructions. “We review jury instructions de novo, and
7 reverse only when the charge, viewed as a whole, constitutes
8 prejudicial error.” United States v. Amato, 540 F.3d 153,
9 164 (2d Cir. 2008). The district court charged the jury
10 that a transaction lacks non-tax economic effect when there
11 is “no reasonable possibility that the transaction would
12 result in a profit.” On the facts of this case (where the
13 non-tax economic effect proffered by the defense was the
14 possibility of profit), that was a correct statement of the
15 law. See, e.g., Goldstein v. Commissioner, 364 F.2d 734,
16 740 (2d Cir. 1966) (disallowing “deduction for
17 [transactions] that can not with reason be said to have
18 purpose, substance, or utility apart from their anticipated
19 tax consequences,” in case where taxpayer could have
20 realized a $22,875 profit given favorable market changes
21 (emphasis added)). We have in the past affirmed jury
22 instructions stating a narrower definition. See, e.g.,
23 United States v. Atkins, 869 F.2d 135, 140 (2d Cir. 1989)
24 (approving instruction that transaction has no non-tax
25 economic effect if it is “subject to no market risk”). But
26 we have not held that those instructions state the outer
27 limits of the economic substance doctrine. Nor do we find
28 any error in the district court’s circumstantial evidence
29 examples, which were, if anything, favorable to the defense.
30 [2] The evidence was sufficient to support the
31 convictions. When reviewing a conviction for sufficiency of
32 evidentiary support, “the trial evidence is viewed most
33 favorably for the Government” and “all reasonable inferences
34 a jury may have drawn favoring the Government must be
35 credited.” United States v. Wexler, 522 F.3d 194, 206-07
36 (2d Cir. 2008). We affirm “‘if any rational trier of fact
37 could have found the essential elements of [the] crime
38 beyond a reasonable doubt.’” Id. at 207 (emphasis omitted)
39 (quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979)).
3
1 There is sufficient evidence that the transaction
2 lacked any non-tax economic effect. Testimony described the
3 chances of profiting from the investments as “basically
4 zero.”
5 Sufficient evidence also supports the jury’s finding
6 that the transactions were entirely motivated by tax
7 purposes. Clients testified that the transactions were
8 marketed solely as tax-avoidance schemes, and that, as
9 clients, they had no non-tax business purpose in executing
10 them. Evidently, that is why, at the outset of the
11 purportedly seven-year scheme, a good number of BLIPS
12 clients attempted to limit their commitment to sixty days,
13 even though exiting so early would significantly limit their
14 (already nugatory) chances of profiting on the currency
15 forwards. BLIPS was designed, marketed, and executed as a
16 tax shelter; and the jury was warranted in concluding that
17 all parties knew BLIPS’s profit potential to be nothing more
18 than a pretext.
19 In a challenge to the finding of willfulness,
20 Appellants argue that “economic substance” law was too vague
21 to support their convictions. Citing United States v.
22 Pirro, 212 F.3d 86, 91 (2d Cir. 2000), Appellants contend
23 that economic substance law was not sufficiently “knowable.”
24 But “knowability,” except perhaps as probative of a
25 defendant’s subjective belief in the lawfulness of his
26 conduct, is only relevant insofar as it bears on
27 constitutional vagueness. Vagueness of the law does not
28 ipso facto negate a jury finding of willfulness. See United
29 States v. Ingredient Tech. Corp., 698 F.2d 88, 97 (2d Cir.
30 1983). And economic substance law is not unconstitutionally
31 vague: It has been applied in criminal cases before, and (as
32 discussed) is not unsettled in the way Appellants contend.
33 Cf. Pirro, 212 F.3d at 91 (affirming partial dismissal of an
34 indictment insofar as it charged a violation of a purported
35 legal duty the existence of which was an open question).
36 Finally, we disagree that Appellants’ actions fall
37 outside the ambit of the tax evasion statute, 26 U.S.C.
38 § 7201. Section 7201 provides, in relevant part:
4
1 Any person who willfully attempts in any manner to
2 evade or defeat any tax imposed by this title or
3 the payment thereof shall, in addition to other
4 penalties provided by law, be guilty of a felony.
5 The statute’s expansive language is not susceptible to a
6 limitation that would exclude Appellants. No case
7 interpreting § 7201 appears to have adopted any limit to its
8 reach; those cases that have considered § 7201's scope have
9 rather expressed it expansively, see, e.g., United States v.
10 Townsend, 31 F.3d 262, 267 (5th Cir. 1994) (“[Section] 7201
11 is not limited to prosecutions of those who evade taxes that
12 they may owe themselves, but rather it encompasses
13 prosecutions of any person who attempts to evade the tax of
14 anyone.”). Appellants involved themselves, with the
15 requisite intent, in a scheme to avoid taxes, and we see no
16 statutory basis for excluding them from liability under
17 § 7201.
18 [3] Appellants’ argument concerning constructive
19 amendment is reviewed de novo. United States v. Rigas, 490
20 F.3d 208, 225 (2d Cir. 2007). They argue that the
21 government undertook to prove at trial a conspiracy of the
22 Appellants against KPMG, rather than the charged conspiracy
23 with KPMG. But Appellants were acquitted of conspiracy.
24 Constructive amendment of the conspiracy charge would have
25 warranted vacatur of that charge only; the remainder of the
26 indictment would have stood. See United States v. Milstein,
27 401 F.3d 53, 64-66 (2d Cir. 2005) (per curiam) (vacating
28 conviction on one count for constructive amendment of
29 indictment with respect to that count, and rejecting
30 argument that the constructive amendment warranted vacatur
31 of convictions on other counts). Because no Appellant was
32 convicted of conspiracy, we would be unable to afford relief
33 even if we were to find error.
34 [4] The district court found that KPMG would not have
35 paid Pfaff’s and Larson’s legal fees in this case, and that
36 dismissal under our decision in Stein was therefore
37 unwarranted. We review this finding for clear error.
38 Stein, 541 F.3d at 142, 146. Pfaff and Larson point to a
39 number of facts that they claim demonstrate the clear error
5
1 of the district court’s finding, none persuasive. Most
2 strongly emphasized are three pieces of evidence.
3 First is a 2004 statement by KPMG then-CEO Gene O’Kelly
4 that “[a]ny present or former members of the firm asked to
5 appear will be represented by competent coun[se]l at the
6 firm’s expense.” United States v. Stein, 495 F. Supp. 2d
7 390, 407 (S.D.N.Y. 2007) (first emphasis added). But this
8 statement speaks not at all to what conduct the promise
9 covers, and is therefore of limited independent value.
10 Pfaff and Larson note that some of their indicted conduct
11 occurred while they were at KPMG; but that conduct was
12 minimal relative to the indicted conduct after they left.
13 There is no direct evidence that KPMG considered such a
14 small proportion to be enough, and it was reasonable for the
15 district court to infer in the circumstances that KPMG would
16 not have paid Pfaff’s and Larson’s fees, given the
17 incentives driving fee payment in the first place, see
18 Stein, 541 F.3d at 144 (“[A] firm may have potent incentives
19 to advance fees, such as the ability to recruit and retain
20 skilled professionals in a profession fraught with legal
21 risk.”).
22 Second, Pfaff and Larson compare their situation to
23 that of Gregg Richie, whose attorney’s fees, the district
24 court found, would have been paid by KPMG. However, in
25 contrast to Pfaff and Larson, Ritchie had little involvement
26 with BLIPS after leaving KPMG. Ritchie’s relevant conduct
27 post-KPMG appears to constitute only a small part of his
28 involvement with BLIPS, as compared with his role as head of
29 KPMG’s CaTs (“Capital Transaction Strategies”) group--“[t]he
30 KPMG group focused on designing, marketing, and implementing
31 tax shelters for individual clients.”
32 Finally, Pfaff and Larson point to KPMG’s payment of
33 their legal fees in the Perez v. KPMG civil case, which they
34 contend demonstrated KPMG’s willingness to pay their legal
35 fees in connection with legal proceedings arising from
36 BLIPS. But the Perez case involved conduct undertaken
37 entirely during Pfaff’s and Larson’s employment at KPMG, see
38 Notice of Removal at 25-37, Perez v. KPMG, No. 7:03-cv-00026
6
1 (S.D. Tex. Jan. 24, 2003); and is therefore distinguishable
2 on the lines discussed.
3 [5] Larson argues that his term of imprisonment is
4 impermissibly longer than the sentences imposed on other
5 defendants. We review sentencing decisions for
6 “reasonableness,” employing “the familiar abuse-of-
7 discretion standard.” Gall v. United States, 552 U.S. 38,
8 46 (2007). As Larson contends, the district court relied on
9 the defendants’ ages, observing that any lengthy sentence
10 “would be a life sentence without parole for all these men.”
11 Since Larson is just 13 months younger than Pfaff, it would
12 have been questionable to rely on this factor alone to
13 justify a sentence disparity. But the district court stated
14 that age was merely one of the factors justifying the
15 difference. The district court properly relied on the fact
16 that Larson moved assets abroad in order to protect them
17 from creditors and from the government. See 18 U.S.C.
18 § 3661 (“No limitation shall be placed on the information
19 concerning the background, character, and conduct of a
20 person convicted of an offense which a court of the United
21 States may receive and consider for the purpose of imposing
22 an appropriate sentence.”).
23 In a separate per curiam opinion filed today, we decide
24 the challenge to Larson’s fine, imposed under 18 U.S.C.
25 § 3571(d). Finding no merit in Appellants’ remaining
26 arguments, we accordingly AFFIRM Appellants’ convictions and
27 Larson’s term of imprisonment.
28
29
30 FOR THE COURT:
31 CATHERINE O’HAGAN WOLFE, CLERK
32 By:
33
34
35 ___________________________
7