PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 17-4427
UNITED STATES OF AMERICA,
Plaintiff – Appellee,
v.
PATRICK EMANUEL SUTHERLAND,
Defendant – Appellant.
Appeal from the United States District Court for the Western District of North Carolina,
at Charlotte. Max O. Cogburn, Jr., District Judge. (3:15-cr-00225-MOC-DCK-1)
Argued: March 20, 2019 Decided: April 19, 2019
Before WILKINSON, HARRIS, and QUATTLEBAUM, Circuit Judges.
Affirmed by published opinion. Judge Wilkinson wrote the opinion, in which Judge
Harris and Judge Quattlebaum joined.
ARGUED: Barry Joel Pollack, ROBBINS, RUSSELL, ENGLERT, ORSECK,
UNTEREINER & SAUBER, LLP, Washington, D.C., for Appellant. Amy Elizabeth
Ray, OFFICE OF THE UNITED STATES ATTORNEY, Asheville, North Carolina, for
Appellee. ON BRIEF: Dawn E. Murphy-Johnson, MILLER & CHEVALIER
CHARTERED, Washington, D.C., for Appellant. R. Andrew Murray, United States
Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Charlotte, North Carolina,
for Appellee.
WILKINSON, Circuit Judge:
Defendant Patrick Sutherland appeals from his convictions for filing three false
tax returns and obstructing a grand jury proceeding. Sutherland principally contends that
providing fabricated loan documents to a U.S. Attorney’s office was too distant from an
ongoing grand jury proceeding to meet the nexus requirement set forth in United States v.
Aguilar, 515 U.S. 593 (1995), and Marinello v. United States, 138 S. Ct. 1101 (2018).
The district court properly instructed the jury on the nexus requirement, however, and the
jury’s determinations pursuant to that instruction were based on the substantial evidence
presented at trial. For the reasons that follow, we affirm.
I.
This case involves the defendant’s attempts to avoid paying taxes, and his
subsequent efforts to cover up those crimes. Sutherland owned or operated several
insurance businesses that sold products out of the United States and Bermuda. He routed
his international transactions though Stewart Technology Services (STS), a Bermuda
company. Defendant claims that his sister, Beverly Stewart, owned and controlled STS,
but Sutherland actually managed all its day-to-day affairs. Despite allegedly owning a
multi-million-dollar business, Stewart worked at the Best Western hotel in Cody,
Wyoming for less than $10 an hour. At one point, she was unable to pay a $600 fee
without her hotel earnings.
Between 2007 and 2011, STS sent Sutherland, his wife, or companies that he
owned more than $2.1 million in wire transfers. In each of the tax years 2008, 2009, and
2010, STS and Sutherland treated these wire transfers in inconsistent manners that
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provided Sutherland tax advantages. See J.A. 1252-62 (Government exhibit 12A, which
compiles information from 127 wire transfers). To wit, Sutherland treated the vast
majority of the wire transfers from STS to his companies as bona fide loans or capital
contributions, which ordinarily are not taxable income for their recipient. By contrast,
STS treated nearly all of the wire transfers as expenses that had been paid to Sutherland.
If the wire transfers were in fact expenses paid to Sutherland, as STS recorded them, then
Sutherland and his companies should have reported the wire transfers as taxable income.
Far from reporting them as income, however, Sutherland either treated the transfers from
STS to him and his wife as bona fide loans or failed to account for them in his general
ledger altogether. In the end, Sutherland did not report the $2.1 million as income on his
tax returns.
Sutherland’s treatment of the STS transfers mirrored his treatment of other
income. Indeed, the defendant seemed to think that marking income as a capital
contribution or loan was a foolproof scheme. For example, three Sutherland companies—
Insigne Consulting, Insigne, Inc., and XYZ Entertainment—sent almost $42,000 to
Kryotech Holdings, another Sutherland company, between 2007 and 2009. The paying
companies recorded each transfer as a non-taxable marketing expense, while Kryotech
treated the payments as non-taxable capital contributions. The net result: none of
Sutherland’s companies would pay taxes on those funds. Similarly, Insigne, Inc., received
more than $125,000 in taxable fees from another firm, Global Financial Synergies,
between 2006 and 2010—yet Sutherland described the majority of them as nontaxable
capital contributions. Come tax day, despite the millions of dollars flowing through his
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accounts, Sutherland reported just $88,979 of income in 2008; $16,669 in 2009; and
$72,415 in 2010.
But the scheme was short lived. In April 2012, Sutherland was served with grand
jury subpoenas seeking financial records from his companies, including Insigne
Consulting, Insigne Financial Services, Insigne, Inc., Kryotech Holdings, and XYZ
Entertainment. Just three months later, Sutherland’s attorney sent to the U.S. Attorney’s
office a letter that purported to explain away a large number of transactions relating to the
subpoenaed materials. With respect to the wire transfers from STS to Sutherland’s
companies, the letter said that each transfer was a loan that was “contemporaneously
documented by written and fully-executed loan agreements,” J.A. 1309. Those
agreements were attached to the letter.
In 2015, a federal grand jury indicted Sutherland for filing false returns in the tax
years 2008, 2009, and 2010, in violation of 26 U.S.C. § 7206(1), and for obstructing,
influencing, or impeding the 2012 grand jury investigation, or attempting to do so, in
violation of 18 U.S.C. § 1512(c)(2). See also id. § 2 (aiding and abetting).
The evidence at trial not only outlined the financial misdeeds described above, but
also demonstrated that the loan documents Sutherland sent to the U.S. Attorney’s office
in July 2012 had been fabricated. Read together, the documents implausibly pledged that
Sutherland would give STS 120% of the proceeds of any sale of his businesses. While the
documents had purportedly been signed by Sutherland’s sister, evidence revealed that
Sutherland commonly signed documents for her. The loan documents from Sutherland,
moreover, conflicted with internal accounting documents from STS (the purported
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lender). Finally, the government introduced documents in which Sutherland claimed to
have made loan payments by transferring interests in his other businesses to STS. But
these related documents were bogus and backdated. A document supposedly signed in
2011, for example, described how Sutherland’s businesses had “received loans from
[STS] in 2011, 2012, and 2013.” J.A. 1333. Legitimate documents do not reference
potential future transactions in the past tense, just as bona fide loans do not require fake
payment trails.
The jury had little trouble seeing through Sutherland’s manipulations of his
accounting records and attempts to fabricate loan documents to cover his tracks. It found
Sutherland guilty on all charges. And the district court ultimately sentenced Sutherland to
a term of thirty-three months in prison. Defendant now appeals.
II.
Sutherland’s primary challenge is to his conviction on the grand jury obstruction
count under 18 U.S.C. § 1512(c)(2). * Section 1512(c)(2) provides: “Whoever
corruptly . . . obstructs, influences, or impedes any official proceeding, or attempts to do
so, shall be fined under this title or imprisoned not more than 20 years, or both.” The
statute includes three core elements. The government must show that the defendant (1)
*
Sutherland also challenges the sufficiency of the evidence for his false tax return
convictions, and, in a footnote, the district court’s loss calculations at sentencing. We
have reviewed the record and concluded that the false tax return verdicts were supported
by substantial evidence, and that the district court’s factual determinations at sentencing
were not clearly erroneous. See United States v. Shephard, 892 F.3d 666, 670 (4th Cir.
2018) (describing clearly erroneous standard for factual determinations at sentencing).
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“corruptly” (2) “obstruct[ed], influence[d], or impede[d]” (3) an “official proceeding,” or
attempted to do so. See United States v. Young, 916 F.3d 368, 384 (4th Cir. 2019). The
government must also demonstrate a “nexus” between the obstructive act and the official
proceeding, as explained in Aguilar, 515 U.S. 593, and Marinello, 138 S. Ct. 1101.
A.
Sutherland contends that the government failed to prove a nexus between his
conduct and an official proceeding. He was, he says, only “attempting to influence the
U.S. Attorney’s Office,” not the grand jury. Supp. Br. for Appellant, at 6. He correctly
notes—and the government does not contest—that the U.S. Attorney’s investigation is
not by itself an official proceeding. The term “official proceeding” is defined by 18
U.S.C. § 1515(a)(1) to include, inter alia, “a Federal grand jury” or “a proceeding before
a Federal Government agency which is authorized by law.” FBI investigations, for
example, are not official proceedings because the statutory language including “a
proceeding before a Federal Government agency which is authorized by law,”
§ 1515(a)(1)(C), “implies ‘some formal convocation of the agency in which parties are
directed to appear, instead of any informal investigation conducted by any member of the
agency.’” Young, 916 F.3d at 384 (quoting United States v. Ermoian, 752 F.3d 1165,
1171 (9th Cir. 2013) (FBI investigation)); see also United States v. Ramos, 537 F.3d 439,
460-64 (5th Cir. 2008) (Border Patrol investigation). The same logic equally applies to
the investigation by the U.S. Attorney’s office in this case, meaning that its investigation
was not an official proceeding.
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The term “official proceeding” thus implies something more formal than a mere
investigation. That limiting term prevents a statutory sprawl in which the countless
communications of citizens with one agency or another of the federal government lay the
groundwork for a potential obstruction prosecution. See Marinello, 138 S. Ct. at 1109-10
(reading tax obstruction statute not to extend to “routine, day-to-day work carried out in
the ordinary course by the IRS,” id. at 1110). This back and forth between citizens and
government works as a general matter to the benefit of both. Much of this activity is a
wholly legitimate effort to “influence” the government. See 18 U.S.C. § 1512(c)(2). And
indeed it is not far-fetched to think that an obstruction statute encroaching too
aggressively on innocent citizen/agency interactions would infringe the basic right to
petition guaranteed by the First Amendment of our Constitution. See U.S. Const. amend.
I (“Congress shall make no law . . . abridging . . . the right of the people . . . to petition
the Government for a redress of grievances.”). Then, too, a statute that chills or burdens
excessively the right of persons to protest or prove their innocence in the face of a
government investigation would run counter to the operation of criminal justice as we
have known it.
There are thus important safeguards to prevent the abuse of § 1512(c)(2). As the
Court held in Aguilar, “it is not enough that there be an intent to influence some ancillary
proceeding, such as an investigation independent of the court’s or grand jury’s authority.”
515 U.S. at 599. Providing materially false documents with an intent only to influence the
U.S. Attorney’s investigation, therefore, would not amount to a violation of § 1512(c)(2).
See Young, 916 F.3d at 387 (“[T]he Government has similarly failed to provide evidence
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demonstrating that Young . . . designed his conduct to thwart [the grand jury]
investigation, rather than designing his conduct to obstruct an FBI inquiry . . . .”). To be
clear, knowingly giving false documents to a prosecutor without the intent to obstruct a
grand jury may violate other federal statutes. E.g., 18 U.S.C. §§ 1001(a), 1519. Just not
§ 1512(c)(2).
Section 1512(c)(2) also requires proof that a particular grand jury proceeding was
“reasonably foreseeable” to a defendant who has been charged with obstructing that
proceeding. Young, 916 F.3d at 386 (citing Arthur Anderson LLP v. United States, 544
U.S. 696, 707-08 (2005)). While the grand jury does not yet have to be convened, it is not
enough for the government to argue that a defendant could have speculated that some
official proceeding lies somewhere in the offing. The Young case illustrates the point. In
that case, the defendant had intentionally misled FBI agents. But this court vacated
defendant’s conviction because “the only way the jury could have concluded he foresaw
a particular grand jury investigation would be through speculation.” Young, 916 F.3d at
387.
As so often in law, there is a balance to be struck. Though obstruction statutes are
susceptible to abuse, they also exist for good reason. Official proceedings are crucial to
the conduct of government. They are entitled to go forward free of corrupting influences
that not only delay them but increase the chances of false and unjust outcomes. The
federal grand jury investigation in this case is but one example of such an “official
proceeding.” See J.A. 1066 (jury instruction that the grand jury was an “official
proceeding”). The government has every right to prosecute those who would corrupt it.
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Compromised proceedings in turn diminish public confidence in the workings of
government and lead to the sort of creeping cynicism toward it that affects so many
nations. Section 1512(c)(2) and other like statutes help to protect against that eventuality
here.
B.
Sutherland insists there was an insufficient nexus between his conduct and the
grand jury. The nexus requirement that the government had to prove under § 1512(c)(2)
comes from Aguilar and Marinello. Aguilar dealt with a conviction under 18 U.S.C.
§ 1503, another obstruction statute, for “corruptly endeavoring to influence, obstruct, and
impede the grand jury investigation.” 515 U.S. at 598 (internal quotation marks and
alterations omitted). The Supreme Court held that there must be a “nexus” between a
defendant’s conduct and the proceeding he obstructed. This meant that his actions needed
to have a “relationship in time, causation, or logic” to the obstructed proceeding. Id. at
599. In other words, obstruction must have been “the natural and probable effect” of the
defendant’s actions. Id. (internal quotation marks omitted). This nexus requirement
demonstrated “restraint in assessing the reach of a federal criminal statute” in order to
reinforce the principles of deference to Congress and fair notice to the accused. Id. at 600.
The Aguilar nexus requirement has flown as the crow flies straight to Marinello.
In that case, the Court interpreted the reach of 18 U.S.C. § 7212(a), which prohibits
obstruction of “the due administration of [the Internal Revenue Code].” Marinello, 138 S.
Ct. at 1105 (emphasis omitted) (quoting § 7212(a)). A jury found that Marinello had
obfuscated his tax records with the intent to gain a personal advantage, but not that he
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knew of an ongoing proceeding related to his tax records or intended to interfere with it.
The Court held that the government had not proven enough to sustain an obstruction
charge. It noted that the principles outlined in Aguilar “apply . . . with similar strength” to
the Internal Revenue Code obstruction statute. Id. at 1106. Without a nexus requirement,
any interactions with the IRS could have been subject to § 7212(a), including “day-to-day
work carried out in the ordinary course by the IRS, such as the review of tax returns.” Id.
at 1110. The Court refused to “transform every violation of the Tax Code into an
obstruction charge,” id., and thus required a “relationship in time, causation or logic”
between a defendant’s actions and a “particular administrative proceeding.” Marinello,
138 S. Ct. at 1109 (quoting Aguilar, 515 U.S. at 599).
The jury instructions in this case drew directly from the principles in Aguilar and
Marinello. The district court first instructed the jury that it must decide whether
Sutherland “knew that” the grand jury proceeding “was pending” when he distributed the
false loan documents. J.A. 1066. It instructed the jury that the defendant must have acted
“corruptly with the intent to obstruct, influence or impede the official proceeding.” Id.
And, finally, the district court crafted an instruction on the nexus requirement straight
from Aguilar: “The government must prove that the defendant . . . intended or knew his
actions would have the natural and probable effect of interfering with the grand jury.” Id.;
Aguilar, 515 U.S. at 599 (“[I]f the defendant lacks knowledge that his actions are likely
to affect the [official] proceeding, he lacks the requisite intent to obstruct.”). The jury
instructions, in other words, properly stated the nexus requirement that the jury had to
apply to Sutherland’s case.
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C.
The facts of Sutherland’s case fit comfortably within the above Aguilar/Marinello
criteria, especially when viewing, as we must, the trial evidence in the light most
favorable to the government as the prevailing party. United States v. White, 810 F.3d 212,
228 (4th Cir. 2016). The official proceeding Sutherland attempted to influence was not
some far-off possibility. The grand jury had in fact convened. Sutherland’s actions,
moreover, show a clear “relationship in time, causation or logic with the” grand jury
proceedings. Marinello, 138 S. Ct. at 1109 (quoting Aguilar, 515 U.S. at 599). Indeed,
Sutherland’s actions are related to the grand jury in time, causation, and logic. The
temporal and logical relationships are clear: Sutherland distributed the false loan
documents just months after the grand jury subpoena was served upon him, and those
documents attempted to explain away transactions reflected in the subpoenaed
documents.
The causal relationship between Sutherland and the grand jury rests in part on the
meaningful differences between the prosecutor in his case and the FBI agent in Aguilar.
In Aguilar, the government had proven that the defendant had lied to an FBI agent who
had “not been subpoenaed or otherwise directed to appear before the grand jury.” 515
U.S. at 601. The Court held that no rational jury could find a nexus between the
defendant’s false statements and the pending grand jury proceeding. 515 U.S. at 600-02.
At the same time, the Court acknowledged that “a jury could find [a] defendant guilty” if
he lied to an individual who had already been subpoenaed to testify before the grand jury.
Id. at 602.
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In the instant case, Sutherland gave false documents to the U.S. Attorney’s office.
A prosecutor tasked with presenting to the grand jury is more akin to a witness who has
been subpoenaed than one who has not. As with a subpoenaed witness, there is a strong
likelihood that the U.S. Attorney’s office would serve as a channel or conduit to the
grand jury for the false evidence or testimony presented to it. “[A]ttorneys for the
government,” after all, may be present while the grand jury is in session. Fed. R. Crim. P.
6(d)(1). The causal relationship between the U.S. Attorney’s office and the grand jury is
that envisioned by the Aguilar decision.
We thus join the Second Circuit in recognizing that the “discretionary actions of a
third person,” as here, can form part of the nexus to an official proceeding. United States
v. Reich, 479 F.3d 179, 185 (2d Cir. 2007) (Sotomayor, J.). In Reich, for example, the
criminal defendant had sent an opposing party in an earlier civil proceeding a forged
court order that would have mooted that party’s outstanding mandamus petition. The
opposing party then withdrew the petition. Because it was “foreseeable” that forging a
court order would cause the opposing party to withdraw its petition, the “evidence [was]
clearly sufficient to establish a relationship in time, causation, or logic between Reich’s
transmission of the forged order and effects on the [official] proceeding.” Id. at 186
(internal quotation marks omitted). As in Reich, where forwarding the fake or forged
document had the foreseeable consequence of reaching and influencing an ongoing court
proceeding, a rational jury could find that Sutherland’s giving false evidence to the U.S.
Attorney’s office in charge of presenting evidence to the grand jury in fact had one
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intended and foreseeable consequence: transmission of those documents to the grand
jury.
At the end of the day, Sutherland’s efforts to corrupt the grand jury in this case lie
at the heart of the conduct prohibited by § 1512(c)(2). He had already violated the federal
income tax laws multiple times, and, in an effort to cover up his crimes, he distributed
phony loan documents to prosecutors with the intent to influence an ongoing federal
grand jury proceeding that was closing in on him. Because the jury was properly
instructed and found Sutherland guilty based on ample and substantial evidence, we
affirm Sutherland’s § 1512(c)(2) conviction.
III.
Sutherland also raises several issues related to the course of his trial. First, he
argues that the government’s closing argument was so disconnected from the evidence
that he was denied a fair trial. Second, he argues that the district court improperly
admitted several pieces of evidence that should have been excluded as improper character
evidence under Rule 404(b). We address each contention in turn.
A.
The defendant contends that the prosecution improperly suggested that all $2.1
million in wire transfers from STS to Sutherland or his domestic entities should have
been treated as income. Because he failed to object at the time, the matter is before us on
plain error review. See United States v. Olano, 507 U.S. 725 (1993). Sutherland has
failed to identify any error, much less a plain one. The evidence supported the
government’s closing argument that Sutherland should have reported the STS wire
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transfers as income. The government proved that the wires had been sent and plainly
discredited the fabricated loan documents during trial.
Even if the closing argument had somehow been improper, however, it did not
affect Sutherland’s “substantial rights.” Olano, 507 U.S. at 736. Closing arguments are
just that—arguments. They are prone to exaggeration; we rely on juries and the
adversarial process to place them in perspective. The district court instructed the jury to
trust its own recollections of the evidence, and that closing arguments were not evidence
themselves. J.A. 980-81. And Sutherland had the opportunity to respond to arguments he
felt were unsupported by the evidence with objections or better arguments of his own. He
did neither.
B.
Sutherland also argues that the district court wrongly admitted character evidence
over his objections. Sutherland targets three pieces of evidence: Sutherland’s 2007 tax
return; Sutherland’s statement to Michael Jones, his business partner until 2008, that his
financial transactions were difficult to trace; and testimony about Jones’s past lawsuit
against Sutherland. We review the district court’s evidentiary rulings for an abuse of
discretion, and we will not vacate a conviction if an error was harmless. United States v.
Burfoot, 899 F.3d 326, 340 (4th Cir. 2018).
Federal Rule of Evidence 404(b)(1) prohibits evidence of a “crime, wrong, or
other act” from being used “to prove a person’s character in order to show that on a
particular occasion the person acted in accordance with the character.” But the rule does
not prohibit such evidence from being used for another purpose, such as, for example,
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proving motive, opportunity, or intent. Fed. R. Evid. 404(b)(2). The rule also does not
affect the admission of evidence that is “intrinsic to the alleged crime.” United States v.
Otuya, 720 F.3d 183, 188 (4th Cir. 2013) (internal quotation marks omitted). “[E]vidence
of other bad acts is intrinsic if, among other things, it involves the same series of
transactions as the charged offense,” id. (internal quotation marks omitted), or if it is
“necessary to complete the story of the crime on trial,” United States v. Basham, 561 F.3d
302, 326 (4th Cir. 2009) (internal quotation marks omitted).
The contested pieces of evidence were properly admitted as intrinsic evidence.
Sutherland’s 2007 tax return, for example, involved the “same series of transactions,”
Otuya, 720 F.3d at 188, that were at issue in tax years 2008-10. After all, STS had
already begun transferring money to Sutherland in 2007, and several of the fabricated
loan documents described transactions from 2007. The same is true of Jones’s testimony
that, during litigation between them, Sutherland said that his “accounting was very
complicated” and that “funds had moved around amongst various accounts so that it
would have taken [an] expert a very long time to figure out.” J.A. 456. Once again, in
describing his books and funding maneuvers, Sutherland was amplifying the very trial
narrative before the jury.
Sutherland also argues that Jones was improperly allowed to testify about a civil
lawsuit he had filed against Sutherland. But Sutherland predominately cites to salacious
details of the lawsuit that were elicited during cross examination. See J.A. 467, 498-99.
Sutherland made a strategic choice at trial to delve into the details of Jones’s lawsuit
against him, which demonstrated Jones’s potential bias. But Sutherland cannot now
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lament the admission of that which he ushered into evidence. Indeed, Sutherland did not
object to Jones’s brief mention that he was “in litigation” with Sutherland during direct
examination. J.A. 454. That limited testimony provided context for Sutherland’s
statement that his accounting was complex, and it was “necessary to complete the story
of the crime on trial.” Basham, 561 F.3d at 326 (internal quotation marks omitted). The
district court thus did not abuse its discretion in admitting these pieces of evidence
against Sutherland.
IV.
For the foregoing reasons, the judgment is in all respects
AFFIRMED.
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