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
AMENDED 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 26th day of October, 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
29 LLP, Los Angeles, CA, for Defendant-
30 Appellant Robert Pfaff.
1
1 STUART E. ABRAMS, Frankel & Abrams,
2 New York, NY, Jack S. Hoffinger,
3 Susan Hoffinger, Hoffinger, Stern &
4 Ross, LLP, New York, NY, for
5 Defendant-Appellant Raymond Ruble.
6
7 J. SCOTT BALLENGER, Lori Alvino
8 McGill, Latham & Watkins LLP (Steven
9 M. Bauer, Margaret A. Tough, San
10 Francisco, CA), Washington, DC, for
11 Defendant-Appellant John Larson.
12
13 FOR APPELLEE: JOHN M. HILLEBRECHT, Margaret
14 Garnett, Justin Anderson, Katherine
15 Polk Failla, Assistant United States
16 Attorneys, of counsel, for Preet
17 Bharara, United States Attorney for
18 the Southern District of New York.
19
20 Appeal from a judgment of the United States District
21 Court for the Southern District of New York (Kaplan, J.).
22 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
23 AND DECREED that Appellants’ convictions and Larson’s term
24 of imprisonment be AFFIRMED.
25 Raymond Ruble, Robert Pfaff, and John Larson appeal
26 from judgments of conviction and a sentence entered April
27 15, April 21, and April 24, 2009, respectively, in the
28 United States District Court for the Southern District of
29 New York (Kaplan, J.). Appellants were convicted of tax
30 evasion, and sentenced principally to terms of imprisonment
31 and fines. In a separate per curiam opinion filed today, we
32 decide the challenge to Larson’s fine, imposed under 18
33 U.S.C. § 3571(d). We assume the parties’ familiarity with
34 the underlying facts and the case’s procedural history.
35 Appellants raise five issues here: [1] whether the jury
36 instructions were flawed; [2] whether the evidence was
37 sufficient to support their convictions; [3] whether the
38 government’s case at trial constructively amended the
39 indictment; [4] whether they are entitled to have their
40 indictments dismissed pursuant to United States v. Stein,
41 541 F.3d 130 (2d Cir. 2008); and [5] whether the district
42 court erred in imposing Larson’s sentence. The issues are
43 considered seriatim.
2
1 [1] We find no error in the district court’s jury
2 instructions. “We review jury instructions de novo, and
3 reverse only when the charge, viewed as a whole, constitutes
4 prejudicial error.” United States v. Amato, 540 F.3d 153,
5 164 (2d Cir. 2008). The district court charged the jury
6 that a transaction lacks non-tax economic effect when there
7 is “no reasonable possibility that the transaction would
8 result in a profit.” On the facts of this case (where the
9 non-tax economic effect proffered by the defense was the
10 possibility of profit), that was a correct statement of the
11 law. See, e.g., Goldstein v. Commissioner, 364 F.2d 734,
12 740 (2d Cir. 1966) (disallowing “deduction for
13 [transactions] that can not with reason be said to have
14 purpose, substance, or utility apart from their anticipated
15 tax consequences,” in case where taxpayer could have
16 realized a $22,875 profit given favorable market changes
17 (emphasis added)). We have in the past affirmed jury
18 instructions stating a narrower definition. See, e.g.,
19 United States v. Atkins, 869 F.2d 135, 140 (2d Cir. 1989)
20 (approving instruction that transaction has no non-tax
21 economic effect if it is “subject to no market risk”). But
22 we have not held that those instructions state the outer
23 limits of the economic substance doctrine. Nor do we find
24 any error in the district court’s circumstantial evidence
25 examples, which were, if anything, favorable to the defense.
26 [2] The evidence was sufficient to support the
27 convictions. When reviewing a conviction for sufficiency of
28 evidentiary support, “the trial evidence is viewed most
29 favorably for the Government” and “all reasonable inferences
30 a jury may have drawn favoring the Government must be
31 credited.” United States v. Wexler, 522 F.3d 194, 206-07
32 (2d Cir. 2008). We affirm “‘if any rational trier of fact
33 could have found the essential elements of [the] crime
34 beyond a reasonable doubt.’” Id. at 207 (emphasis omitted)
35 (quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979)).
36 There is sufficient evidence that the transaction
37 lacked any non-tax economic effect. Testimony described the
38 chances of profiting from the investments as “basically
39 zero.”
40 Sufficient evidence also supports the jury’s finding
41 that the transactions were entirely motivated by tax
42 purposes. Clients testified that the transactions were
43 marketed solely as tax-avoidance schemes, and that, as
44 clients, they had no non-tax business purpose in executing
45 them. Evidently, that is why, at the outset of the
3
1 purportedly seven-year scheme, a good number of BLIPS
2 clients attempted to limit their commitment to sixty days,
3 even though exiting so early would significantly limit their
4 (already nugatory) chances of profiting on the currency
5 forwards. BLIPS was designed, marketed, and executed as a
6 tax shelter; and the jury was warranted in concluding that
7 all parties knew BLIPS’s profit potential to be nothing more
8 than a pretext.
9 In a challenge to the finding of willfulness,
10 Appellants argue that “economic substance” law was too vague
11 to support their convictions. Citing United States v.
12 Pirro, 212 F.3d 86, 91 (2d Cir. 2000), Appellants contend
13 that economic substance law was not sufficiently “knowable.”
14 But “knowability,” except perhaps as probative of a
15 defendant’s subjective belief in the lawfulness of his
16 conduct, is only relevant insofar as it bears on
17 constitutional vagueness. Vagueness of the law does not
18 ipso facto negate a jury finding of willfulness. See United
19 States v. Ingredient Tech. Corp., 698 F.2d 88, 97 (2d Cir.
20 1983). And economic substance law is not unconstitutionally
21 vague: It has been applied in criminal cases before, and (as
22 discussed) is not unsettled in the way Appellants contend.
23 Cf. Pirro, 212 F.3d at 91 (affirming partial dismissal of an
24 indictment insofar as it charged a violation of a purported
25 legal duty the existence of which was an open question).
26 In addition, sufficient evidence was presented to the
27 jury to support its finding that Ruble either knew or
28 consciously avoided knowing that the taxpayers lacked a non-
29 tax business purpose for engaging in the transaction, and
30 that there was no reasonable possibility that the
31 transaction would yield a profit. As discussed above, Ruble
32 was aware that the investors had no reasonable expectation
33 of a profit unless they remained invested for the long term,
34 and that most of the investors had exited the deals within
35 sixty days. Moreover, the jury was free to infer that Ruble
36 knew that the transaction had no business purpose based on
37 his close relationship with Pfaff and Larson.
38 Finally, we disagree that Appellants’ actions fall
39 outside the ambit of the tax evasion statute, 26 U.S.C.
40 § 7201. Section 7201 provides, in relevant part:
41 Any person who willfully attempts in any manner to
42 evade or defeat any tax imposed by this title or
4
1 the payment thereof shall, in addition to other
2 penalties provided by law, be guilty of a felony.
3 The statute’s expansive language is not susceptible to a
4 limitation that would exclude Appellants. No case
5 interpreting § 7201 appears to have adopted any limit to its
6 reach; those cases that have considered § 7201's scope have
7 rather expressed it expansively, see, e.g., United States v.
8 Townsend, 31 F.3d 262, 267 (5th Cir. 1994) (“[Section] 7201
9 is not limited to prosecutions of those who evade taxes that
10 they may owe themselves, but rather it encompasses
11 prosecutions of any person who attempts to evade the tax of
12 anyone.”). Appellants involved themselves, with the
13 requisite intent, in a scheme to avoid taxes, and we see no
14 statutory basis for excluding them from liability under
15 § 7201.
16 [3] Appellants’ argument concerning constructive
17 amendment is reviewed de novo. United States v. Rigas, 490
18 F.3d 208, 225 (2d Cir. 2007). They argue that the
19 government undertook to prove at trial a conspiracy of the
20 Appellants against KPMG, rather than the charged conspiracy
21 with KPMG. But Appellants were acquitted of conspiracy.
22 Constructive amendment of the conspiracy charge would have
23 warranted vacatur of that charge only; the remainder of the
24 indictment would have stood. See United States v. Milstein,
25 401 F.3d 53, 64-66 (2d Cir. 2005) (per curiam) (vacating
26 conviction on one count for constructive amendment of
27 indictment with respect to that count, and rejecting
28 argument that the constructive amendment warranted vacatur
29 of convictions on other counts). Because no Appellant was
30 convicted of conspiracy, we would be unable to afford relief
31 even if we were to find error.
32 [4] The district court found that KPMG would not have
33 paid Pfaff’s and Larson’s legal fees in this case, and that
34 dismissal under our decision in Stein was therefore
35 unwarranted. We review this finding for clear error.
36 Stein, 541 F.3d at 142, 146. Pfaff and Larson point to a
37 number of facts that they claim demonstrate the clear error
38 of the district court’s finding, none persuasive. Most
39 strongly emphasized are three pieces of evidence.
40 First is a 2004 statement by KPMG then-CEO Gene O’Kelly
41 that “[a]ny present or former members of the firm asked to
42 appear will be represented by competent coun[se]l at the
43 firm’s expense.” United States v. Stein, 495 F. Supp. 2d
44 390, 407 (S.D.N.Y. 2007) (first emphasis added). But this
5
1 statement speaks not at all to what conduct the promise
2 covers, and is therefore of limited independent value.
3 Pfaff and Larson note that some of their indicted conduct
4 occurred while they were at KPMG; but that conduct was
5 minimal relative to the indicted conduct after they left.
6 There is no direct evidence that KPMG considered such a
7 small proportion to be enough, and it was reasonable for the
8 district court to infer in the circumstances that KPMG would
9 not have paid Pfaff’s and Larson’s fees, given the
10 incentives driving fee payment in the first place, see
11 Stein, 541 F.3d at 144 (“[A] firm may have potent incentives
12 to advance fees, such as the ability to recruit and retain
13 skilled professionals in a profession fraught with legal
14 risk.”).
15 Second, Pfaff and Larson compare their situation to
16 that of Gregg Richie, whose attorney’s fees, the district
17 court found, would have been paid by KPMG. However, in
18 contrast to Pfaff and Larson, Ritchie had little involvement
19 with BLIPS after leaving KPMG. Ritchie’s relevant conduct
20 post-KPMG appears to constitute only a small part of his
21 involvement with BLIPS, as compared with his role as head of
22 KPMG’s CaTs (“Capital Transaction Strategies”) group--“[t]he
23 KPMG group focused on designing, marketing, and implementing
24 tax shelters for individual clients.”
25 Finally, Pfaff and Larson point to KPMG’s payment of
26 their legal fees in the Perez v. KPMG civil case, which they
27 contend demonstrated KPMG’s willingness to pay their legal
28 fees in connection with legal proceedings arising from
29 BLIPS. But the Perez case involved conduct undertaken
30 entirely during Pfaff’s and Larson’s employment at KPMG, see
31 Notice of Removal at 25-37, Perez v. KPMG, No. 7:03-cv-00026
32 (S.D. Tex. Jan. 24, 2003); and is therefore distinguishable
33 on the lines discussed.
34 [5] Larson argues that his term of imprisonment is
35 impermissibly longer than the sentences imposed on other
36 defendants. We review sentencing decisions for
37 “reasonableness,” employing “the familiar abuse-of-
38 discretion standard.” Gall v. United States, 552 U.S. 38,
39 46 (2007). As Larson contends, the district court relied on
40 the defendants’ ages, observing that any lengthy sentence
41 “would be a life sentence without parole for all these men.”
42 Since Larson is just 13 months younger than Pfaff, it would
43 have been questionable to rely on this factor alone to
44 justify a sentence disparity. But the district court stated
45 that age was merely one of the factors justifying the
6
1 difference. The district court properly relied on the fact
2 that Larson moved assets abroad in order to protect them
3 from creditors and from the government. See 18 U.S.C.
4 § 3661 (“No limitation shall be placed on the information
5 concerning the background, character, and conduct of a
6 person convicted of an offense which a court of the United
7 States may receive and consider for the purpose of imposing
8 an appropriate sentence.”).
9 In a separate per curiam opinion filed today, we decide
10 the challenge to Larson’s fine, imposed under 18 U.S.C.
11 § 3571(d). Finding no merit in Appellants’ remaining
12 arguments, we accordingly AFFIRM Appellants’ convictions and
13 Larson’s term of imprisonment.
14
15
16 FOR THE COURT:
17 CATHERINE O’HAGAN WOLFE, CLERK
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