United States Court of Appeals
For the First Circuit
Nos. 02-2469 and 02-2522
UNITED STATES OF AMERICA,
Appellee/Cross-Appellant,
v.
JOHN MIKUTOWICZ,
Defendant, Appellant/Cross-Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
Before
Torruella, Lourie* and Howard,
Circuit Judges.
Michael J. Connolly with whom Kelley A. Jordan-Price and
Hinckley, Allen & Snyder LLP were on brief, for appellant.
Gregory Victor Davis, Attorney, Tax Division, Department of
Justice, with whom Eileen J. O'Connor, Assistant Attorney General,
Robert E. Lindsay, Alan Hechtkopf, Attorneys, Tax Division,
Department of Justice, and Michael Sullivan, United States
Attorney, were on brief, for appellee.
April 22, 2004
*
Of the Federal Circuit, sitting by designation.
HOWARD, Circuit Judge. In these cross-appeals, we
consider John Mikutowicz's challenge to his convictions for tax
offenses and the government's challenge to the term of
incarceration. We affirm the convictions but vacate the judgment
and remand for resentencing.
I.
We set forth the facts in the light most favorable to the
verdict. See United States v. Diaz, 300 F.3d 66, 69 (1st Cir.
2002). Mikutowicz is the sole shareholder of AGM Marine
Contractors ("AGM"), a sub-chapter S corporation located in
Mashpee, Massachusetts.1 AGM is involved in marine construction
projects, including dredging and building bridges. In addition,
Mikutowicz is also the sole shareholder of Felix Management, Inc.
("Felix"), another sub-chapter S corporation, which manages
Mikutowicz's various real estate investments.
In 1991, Mikutowicz sought the assistance of psychologist
Neil Carter for a combination of business and personal problems.
After Mikutowicz described his financial difficulties, Carter
suggested that he contact an individual in Colorado named Paul
Harris who could help him establish an "asset protection program."
1
Under sub-chapter S of the Internal Revenue Code, all revenue
earned and expenses incurred by a qualifying corporation pass
through to the shareholders of the corporation and are reported on
the shareholders' tax returns. See 26 U.S.C. § 1366.
-2-
Mikutowicz followed Carter's advice and contacted Harris.
Harris was one of the operators of Tower Executive Resources
("Tower"), a company that, inter alia, assisted its members in
shielding income from taxation. After meeting with Mikutowicz,
Harris proposed moving some of AGM's and Felix's profits to
offshore bank accounts in order to defer taxation on Mikutowicz's
income. Mikutowicz agreed.
Tower thereafter created Ellis Engineering ("Ellis"), a
Turks & Caicos corporation. Mikutowicz was Ellis's sole employee,
and Ellis shared a business address with AGM. It did not outwardly
appear that Ellis actually operated a separate business from this
address, although Ellis, acting through Mikutowicz, purportedly
provided AGM with consulting services and equipment rentals and
materials from 1992 to 1998.
During this period, AGM paid Ellis $1.3 million for these
"services." This money was deposited into Ellis's Massachusetts
bank accounts. Mikutowicz deducted these payments from AGM's taxes
as "ordinary and necessary business expenses." See 26 U.S.C. §
162. These deductions reduced AGM's profits and therefore reduced
Mikutowicz's personal taxable income. See supra n.1.
The money AGM paid to Ellis was eventually transferred to
a bank account in the Turks & Caicos Islands established by Tower
for Mikutowicz's benefit. This account was in the name of another
Tower created company, Harborsober Ltd. From the Harborsober
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account, Mikutowicz eventually transferred most of the money into
a personal account in the Cayman Islands.
Mikutowicz similarly diverted profits from Felix to his
offshore account. In 1998, Felix paid Tower $26,357 for "franchise
and professional fees," although there was no evidence that Tower
actually gave or did anything of value for Felix. Mikutowicz
deducted these fees from Felix's taxes, and this money was also
transferred, through the Harborsober account, to Mikutowicz's
Cayman Island account.2 Mikutowicz and his companies never
declared any of the money deposited in the Harborsober account as
taxable income.
The government calculated that, through these
machinations, Mikutowicz reduced his tax burden by $570,005. On
September 6, 2001, a grand jury indicted Mikutowicz on ten tax
offenses: one count of conspiring to commit tax fraud, see 18
U.S.C. § 371; five counts of filing materially false tax returns
for the years 1995-1998, see 26 U.S.C. § 7206(1); and four counts
of tax evasion for the years 1995-1998, see 26 U.S.C. § 7201. On
June 28, 2002, after a fifteen-day trial, a jury convicted him on
all counts.
2
Mikutowicz also used another Tower affiliated company,
Finance Global, Ltd., to transfer $100,000 of taxable income from
a real estate transaction to the Harborsober account and eventually
into his Cayman Island account.
-4-
On September 20, 2002, the district court sentenced
Mikutowicz to one year and one day of imprisonment and two years of
supervised release; it also ordered him to pay a $50,000 fine, a
$1,000 special assessment, and restitution. The district court
arrived at Mikutowicz's sentence by granting him a two-level
reduction for acceptance of responsibility and a five-level
downward departure because his criminal conduct constituted
"aberrant behavior."
II.
Mikutowicz challenges his convictions on a number of
grounds, focused primarily on the jury's consideration of whether
the claimed deductions were "ordinary and necessary business
expenses." He argues first that: (1) the district court should not
have instructed the jury on the Internal Revenue Code's definition
of "ordinary and necessary business expenses" and (2) even if such
an instruction was appropriate, the district court erroneously
declined to provide a supplemental instruction on this issue.
Second, he argues that (1) the district court should have excluded
testimony by the government's tax computation expert that the
deductions AGM claimed for making payments to Ellis were not
"ordinary and necessary business expenses" and (2) the district
court improperly limited cross-examination of this expert.
Finally, he claims that the district court abused its discretion by
declining to investigate his allegation of juror misconduct.
-5-
A. Instruction on "Ordinary and Necessary Business
Expenses"
Mikutowicz first argues that the district court erred by
instructing the jury on the definition of "ordinary and necessary
business expenses" under the Internal Revenue Code. See 26 U.S.C.
§ 162. He contends that the court's instruction was unnecessary
because the government was required to prove only that the
deductions he claimed were "false"--not that they failed to qualify
as "ordinary and necessary business expenses." This unnecessary
instruction was also prejudicial, he asserts, because it introduced
an extraneous issue that might well have confused the jury and
diverted its attention from his primary defense: that he claimed
the deductions in "good faith."
The purpose of jury instructions "is to inform the jury
of its function, which is the independent determination of the
facts, and the application of the law, as given by the court, to
the facts found by the jury." 2A Charles A. Wright, Federal
Practice and Procedure: Criminal, § 485 (3d ed. 2000). The
instructions should "fairly and impartially state the issues and
applicable law in logical sequence . . . [so that] the jury [can]
understand the issues and intelligently apply the law." Id.
(quoting Elbe v. United States, 364 F.2d 127, 134 (10th Cir.
1966)). It is common in tax crime prosecutions for the court to
instruct the jury on the meaning of tax law terms implicated by the
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particular facts of a case. See, e.g., United States v. Wapnick,
60 F.3d 948, 955 (2d Cir. 1995) (in tax evasion case, jury
instruction on definition of "sham corporation" was proper); United
States v. Curtis, 782 F.2d 593, 596-98 (6th Cir. 1986) (in tax
evasion case, jury instruction on definition of "income" was
proper); United States v. Sorrentino, 726 F.2d 876, 881 (1st Cir.
1984) (in tax evasion case, jury instruction on definition of
"taxable income" was proper).
Here, knowing the definition of "ordinary and necessary
business expenses" was helpful to the jury in applying the law to
the evidence. The parties agree that conviction on each count
required the government to prove that the deductions claimed by
Mikutowicz on behalf of AGM and Felix were "false." See 26 U.S.C.
§ 7206(1) (filing false corporate tax return requires government to
prove that return was false as to material matter); 26 U.S.C. §
7201 (tax evasion requires government to prove that defendant owed
substantially more federal income tax than declared); 18 U.S.C. §
371 (conspiracy charge required government to prove that defendant
agreed with another to file false return and to evade taxes).
Based on the evidence presented, whether the deductions claimed by
AGM and Felix were "false" depended on whether they were properly
claimed as "ordinary and necessary business expenses." Thus, the
jury's ultimate conclusion that the deductions were "false" was
inexorably linked to whether they were "ordinary and necessary
-7-
business expenses." Therefore, a definition of "ordinary and
necessary business expenses" was useful information for the jury to
evaluate the evidence.
Mikutowicz's suggestion that the "ordinary and necessary
business expense" instruction shifted the jury's focus away from
his "good faith" defense is not persuasive. The district court's
instructions explained to the jury the separate requirement that
the government prove that Mikutowicz did not act in "good faith."
Indeed, the court was quite explicit in this regard. It
instructed:
[I]t isn't enough for the government to show
that [the deductions] were improper. The
government also has to prove that the
defendant knew that they were improper, or,
rather that the defendant did not believe
that the statements he made about the
deductions in these returns were true and
correct.
Rather than confuse the jury, the instructions highlighted for the
jury that the government had to prove, inter alia, that the
claimed deductions were false and that Mikutowicz did not claim
the deductions in "good faith."
As a fallback, Mikutowicz contends that, even if the
district court permissibly instructed the jury on the definition
of "ordinary and necessary business expenses," the court should
have included a supplemental instruction (which we shall describe
momentarily). "The trial court's refusal to give a particular
instruction constitutes reversible error only if the requested
-8-
instruction was (1) correct as a matter of substantive law, (2)
not substantially incorporated into the charge as rendered, and
(3) integral to an important point in the case." Sheek v. Asia
Badger, Inc., 235 F.3d 687, 697 (1st Cir. 2000) (quoting Elliot v.
S.D. Warren Co., 134 F.3d 1, 6 (1st Cir. 1998)).
The district court instructed the jury:
[O]rdinary and necessary business expenses
are such expenses as are directly connected
to the operation of the business. And the
government claims here that these deductions
were not ordinary and necessary because they
did not reflect any economic reality, were
not related to the operations and business
of either AGM or Felix, but were designed
merely to funnel funds into the defendant's
personal bank account offshore.
Mikutowicz sought to augment this instruction with
language focusing the jury's attention on whether Ellis was a
"legitimate corporation." The district court told the jury that
"there is no question that Ellis was a legitimately and validly
constituted corporation. The question here has only to do with
the payments made to it by AGM, and the purpose and treatment of
those payments by AGM . . . and ultimately Ellis as well."
Had the court provided the requested language, which
comprised a detailed (and confusing) list of factors used to
determine whether Ellis was a legitimate corporation, the jury
could have been erroneously induced to conclude that its task was
to determine Ellis's legitimacy instead of whether AGM made the
payments to Ellis for legitimate business purposes. The district
-9-
court's instruction kept the jury's attention focused on whether
the deductions were properly claimed by Mikutowicz's companies.
There was no error.
B. Expert Testimony on "Ordinary and Necessary Business
Expenses"
Mikutowicz next challenges the testimony of the
government's "tax computation" expert, Michael Pleshaw. Pleshaw,
an Internal Revenue Service ("IRS") agent, explained to the jury
the basis for the IRS's conclusion that deductions claimed by
Mikutowicz and his companies were improper. Mikutowicz challenges
the admission of Pleshaw's testimony concerning "the non-
deductibility of AGM's payments to Ellis Engineering." We review
the admission of Pleshaw's testimony for an abuse of discretion.
See United States v. Santana, 342 F.3d 60, 68 (1st Cir. 2003),
cert. denied, 2004 WL 323919 (U.S. Feb. 23, 2004).
Pleshaw provided the jury with a summary of why the IRS
determined that the deductions claimed by Mikutowicz and his
companies were improper. It is well established in several
circuits that "[e]xpert testimony by an IRS agent which expresses
an opinion as to the proper tax consequences of a transaction is
admissible evidence." United States v. Windfelder, 790 F.2d 576,
581 (7th Cir. 1986); see United States v. Sabino, 274 F.3d 1053,
1067 (6th Cir. 2001), amended on other grounds, 307 F.3d 446
(2002); United States v. Monus, 128 F.3d 376, 386 (6th Cir. 1997);
United States v. Townsend, 31 F.3d 262, 270 (5th Cir. 1994);
-10-
United States v. Toushin, 899 F.2d 617, 620 n.4 (7th Cir. 1990);
United States v. Gold, 743 F.2d 800, 817 (11th Cir. 1984); United
States v. Fogg, 652 F.2d 551, 557 (5th Cir. 1981). The primary
limitation on this type of evidence is that the agent may not
testify about the defendant's state of mind when the challenged
deductions were claimed. See Fed. R. Evid. 704(b) (expert may not
testify to mental state of defendant where mental state is element
of charged offense); Sabino, 274 F.3d at 1067 ("[I]n a tax case,
the summary witness is allowed to summarize and analyze the facts
indicating willful tax evasion so long as the witness does not
directly embrace the ultimate question of whether the defendant
did in fact intend to evade income taxes.") (internal quotations
and citations omitted); Windfelder, 790 F.2d at 582 (stating that
it was error, in tax fraud case, to admit IRS agent's testimony
that defendant "intentionally understated his income" because this
testimony "impermissibly state[d] an opinion as to the defendant's
knowledge or willfulness, a mental state which constitutes an
element of the crimes charged"); see also United States v. Valle,
72 F.3d 210, 216 (1st Cir. 1995) ("Rule 704(b) prohibits all
direct expert testimony concerning a criminal defendant's intent,
regardless of the witness's field of expertise, so long as intent
is an element of the crime charged.").
Pleshaw's testimony adhered to these standards. He
described the IRS's audit of Mikutowicz and his businesses and the
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results of the audit. In addition, he testified to the rationale
which led the IRS to reach its conclusions. Pleshaw offered no
testimony concerning Mikutowicz's state of mind when claiming the
challenged deductions. There was no abuse of discretion in the
admission of Pleshaw's testimony.
Mikutowicz also asserts that the district court violated
his rights under the Confrontation Clause of the Sixth Amendment
by limiting his cross-examination of Pleshaw. The court refused
to let Mikutowicz question Pleshaw about various judicial
opinions, which Mikutowicz claims would have established that the
deductions were properly taken.
A defendant is entitled to cross-examine a government
witness to test the truth of his testimony. See United States v.
González-Vázquez, 219 F.3d 37, 45 (1st Cir. 2000). But the court
"retains wide latitude to impose reasonable limits on cross-
examination in order to avoid confusion of the issues or extended
discussion of marginally relevant material." Id. (internal
quotations and citations omitted). "Defendants cannot run
roughshod, doing precisely as they please simply because cross-
examination is underway." United States v. Boylan, 898 F.2d 230,
254 (1st Cir. 1990). We review this challenge de novo to
determine whether defense counsel was afforded a reasonable
opportunity to impeach adverse witnesses. See United States v.
Balsam, 203 F.3d 72, 87 (1st Cir. 2000). Should that threshold be
-12-
reached, any restrictions that were placed on the extent and
manner of the cross-examination will be reviewed for abuse of
discretion. Id.
Pleshaw was not qualified as an expert on tax law. As
the IRS agent who audited Mikutowicz and his businesses, Pleshaw
provided detailed testimony on the process used to conduct the
audit, the conclusions reached, and the computations made to
arrive at Mikutowicz's tax deficiency. The government attempted
to elicit from Pleshaw neither an opinion on the precise meaning
of terms used in the Internal Revenue Code nor a discussion of
legal sources that could bear on such an interpretation, as well
it should not have. "[E]xpert testimony proffered solely to
establish the meaning of a law is presumptively improper." United
States v. Prigmore, 243 F.3d 1, 18 n.3 (1st Cir. 2001); see
Nieves-Villanueva v. Soto-Rivera, 133 F.3d 92, 99-101 (1st Cir.
1997) (ruling that it was error to admit expert testimony
explaining the holdings of various Puerto Rico Supreme Court
opinions).
Yet, this is precisely what Mikutowicz sought to do.
Even though Pleshaw is not a lawyer and did not mention the United
States Tax Court on direct examination, defense counsel attempted
to question Pleshaw about three Tax Court opinions from the early
-13-
1980's.3 Even a tax lawyer would have found it difficult to
respond intelligently to questions about the precise facts and
holdings of several twenty-year old Tax Court cases and then apply
those holdings to the facts of the instant case, without having had
a prior opportunity to prepare. Had the cross-examination
proceeded as Mikutowicz proposed, it would have involved defense
counsel reading excerpts of the cases to the jury, without the jury
having a context for evaluating the import of the information that
it was receiving. See Curtis, 782 F.2d at 600 ("The jury is not
comprised of lawyers . . . To attempt to explain the myriad rules
of judicial construction, the complexity of legal principles, or
the function of precedent would hopelessly divert the jury from
their preeminent duty of assessing . . . guilt."). The district
court was well within its discretion in concluding that such an
"examination" would have exceeded the scope of the direct
examination and confused the jury. See United States v. Ingredient
Technology Corp., 698 F.2d 88, 97 (2d Cir. 1983); Benjamin A.
Vernia, Annotation, Admissibility of Expert Testimony Regarding
Questions of Domestic Law, 66 A.L.R. 5th 135 (1999) (noting that
3
Defense counsel also proposed to question Pleshaw concerning
a sixty-year old Supreme Court opinion. See Moline Properties v.
Comm'r of Internal Revenue, 319 U.S. 436 (1943).
-14-
the bases for the rule against an expert explaining the law to the
jury "relate to jury confusion").4
C. Juror Misconduct
Mikutowicz's final argument concerns the district court's
refusal to investigate his allegation that the jurors had engaged
in premature deliberations. The relevant facts are as follows.
On the thirteenth day of trial the jury began its
deliberations. On the third day of deliberations the jury
forewoman sent a note to the court asking that one of the jurors be
excused. As a result, the court met with the forewoman. During
the meeting, the forewoman explained the problem:
There's a young woman, the first, the second
day she was talking about her religious
beliefs and that it was not her job to judge
her fellow human beings. That was for God
in the next life. That was the second day.
We told her, you know we tried to buck her
up and say, okay . . . God put you here on
this jury for a reason, and you will be able
to make a decision. But it has gotten
worse. She's up there reading her Bible
right now. She has just kind of closed
down, and she's been the major impasse in
getting any work done.
The court proceeded to discuss the situation with the
distressed juror. The juror told the court that she was upset
4
Equally important, it would have usurped the judge's role.
"In our legal system, purely legal questions and instructions to
the jury on the law to be applied . . . [are] exclusively the
domain of the judge." Nieves-Villanueva, 133 F.3d at 99. Thus, it
was the judge's role alone to instruct the jury on the law
necessary for determining whether the challenged deductions were
properly claimed as "ordinary and necessary business expenses."
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by the intense nature of the deliberations. As she described
it:
[T]here's a lot of evidence up there, and
you're trying to prove your case [referring
to counsel for each party]. Well I need to
know by looking at these documents what's
right . . . And we sat in there, and we
heard your side, and we heard your side, but
I need to look at them for myself and see .
. . Nobody seems--everybody has their own .
. . There's just certain things that we're
arguing about.
At the conclusion of this discussion, defense counsel
advised the court that the forewoman's earlier reference to "the
second day" appeared to indicate that some of the jurors had
expressed their opinions about the case since the second day of
trial. Defense counsel asked for a "further inquiry . . . as to
whether in fact the jurors discussed the merits of the case during
the trial." The court declined the request, noting that it did
"not recall [the forewoman] saying anything about the matter before
deliberations."
We review the district court's response to an allegation
of juror misconduct for an abuse of discretion. See United States
v. Connolly, 341 F.3d 16, 33-34 (1st Cir. 2003). We have
recognized that the district court maintains significant
discretion in determining the type of investigation required by a
juror misconduct claim. See, e.g., United States v. Ortiz-
Arrigoitia, 996 F.2d 436, 443 (1st Cir. 1993); Boylan, 898 F.2d at
258. Moreover, the court's discretion is at its broadest when
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determining how to deal with an allegation of premature jury
deliberations. See United States v. Dominguez, 226 F.3d 1235, 1246
(11th Cir. 2000) (a "trial judge is vested with broad discretion in
responding to an allegation of jury misconduct, and that discretion
is at its broadest when the allegation involves internal misconduct
such as premature deliberations, instead of external misconduct
such as exposure to media publicity").
Where a claim of juror misconduct is raised, the court's
first task is to ascertain whether the allegation is colorable.
See Boylan, 898 F.2d at 258. If the claim meets this threshold,
the court must then conduct a further investigation to discern the
extent of the jury taint and the possible prejudice. See United
States v. Cruz, 156 F.3d 22, 28 (1st Cir. 1998). However,
misconduct allegations that "are frivolous . . . do not trigger any
duty of inquiry and do not require that a hearing be held." Neron
v. Tierney, 841 F.2d 1197, 1202 n.6 (1st Cir. 1988).
The district court did not abuse its discretion in
determining that Mikutowicz's claim of premature jury deliberations
was so weak that it did not require further action. Even assuming
that by the "second day" the forewoman meant the second day of the
trial as opposed to the second day of deliberations, the forewoman
did not state that any of the jurors had engaged in premature
deliberations. She stated only that one juror had expressed doubt
about her ability to participate in the task of determining whether
-17-
another individual is guilty of a crime. A conversation between
jurors concerning the general anxiety associated with serving on a
criminal jury is a far cry from a conversation in which the jurors
discussed the merits of the parties' positions.
Our conclusion that no duty to investigate was triggered
is supported by the district court's conversation with the
distressed juror. In that conversation, the juror indicated that
the jurors had sat through both parties' cases and were then wading
through the evidence and arguing about the proper result. This
summary of the jury's actions strongly suggests that the jurors
were involved in active deliberations at the appropriate time and
had not prejudged the case.
The only evidence that Mikutowicz presented of juror
misconduct is his allegation that the forewoman disclosed to the
court that deliberations took place on "the second day" of trial.5
As discussed above, the forewoman made no such disclosure. The
burden of showing a colorable claim rests with the party raising
the issue. See United States v. Nazzaro, 889 F.2d 1158, 1167 (1st
Cir. 1989). As Mikutowicz has not met this burden, the district
court acted within its considerable discretion by declining to
5
In his factual summary of the juror misconduct claim, Mikutowicz
also makes reference to an incident where a juror collapsed from an
anxiety attack during testimony that was favorable to Mikutowicz.
But he has not put forward any developed argument explaining how
this incident ties into his claim.
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investigate the matter. See id. ("[T]he law wisely affords the
trier . . . substantial discretion in determining whether to
interrogate jurors.").
III.
In its cross-appeal, the government raises two challenges
to the sentence imposed on Mikutowicz. First, it challenges the
district court's grant of a two-level reduction for acceptance of
responsibility. Second, it challenges the district court's grant
of a five-level downward departure because Mikutowicz's criminal
conduct constituted "aberrant behavior."
A. Acceptance of Responsibility
Pursuant to U.S.S.G. § 3E1.1 (1998), the district court
granted Mikutowicz a two-level reduction for acceptance of
responsibility because (1) even though he went to trial, he
admitted, pretrial, "the conduct" underlying the charges, and (2)
prior to trial, he repaid the IRS approximately $55,000 in back
taxes.6 We review deferentially the district court's conclusion
that the defendant has accepted responsibility, see United States
v. Capelton, 350 F.3d 231, 245 (1st Cir. 2003), and will reverse
only on a showing of clear error, see United States v. Walker, 234
F.3d 780, 784 (1st Cir. 2000). Clear error exists where there is
6
The parties agree that the Sentencing Guidelines in effect
in 1998 apply to this case.
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no articulable grounds or foundation for the court's conclusion.
See United States v. Bennett, 37 F.3d 687, 696 (1st Cir. 1994).
The first ground for the reduction is that, prior to
trial, Mikutowicz admitted his unlawful conduct. See U.S.S.G. §
3E1.1 comment (n. 1(a)) (1998). In this regard, the district court
stated: "It is true that he went to trial, but going to trial
should not be penalized . . . . He admitted his conduct, and it
seems to me under these circumstances he is entitled to go down by
two levels."
While there is no question that a defendant should not be
punished for exercising his right to trial, the choices exercised
can affect sentencing exposure. The Sentencing Guidelines state
that, as a general matter, an acceptance of responsibility
reduction "is not intended to apply to a defendant who puts the
government to its burden of proof at trial by denying the essential
factual elements of guilt, is convicted, and only then admits guilt
and expresses remorse." U.S.S.G. § 3E1.1, comment (n.2) (1998);
see also United States v. Baltas, 236 F.3d 27, 37 (1st Cir. 2001).
The Guidelines recognize, however, that in some "rare situations"
a defendant may stand trial and still receive an acceptance of
responsibility reduction. U.S.S.G. § 3E1.1, comment (n.2) (1998);
see United States v. Ellis, 168 F.3d 558, 564 (1st Cir. 1999).
Application Note 2 gives as examples a defendant who admits factual
guilt but goes to trial to raise a constitutional challenge to the
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prosecution and a defendant who goes to trial to assert that the
statute under which he is charged does not apply to his conduct.
U.S.S.G. § 3E1.1, comment (n.2) (1998). We have recognized that
additional "rare situations" could exist that would permit a
defendant to receive an acceptance of responsibility reduction
after electing to go to trial. See Ellis, 168 F.3d at 564.
However, where a district court grants an acceptance of
responsibility reduction to a defendant, post trial, the acceptance
of responsibility determination must be based solely on "pre-trial
statements and conduct." Id. at 564 (emphasis in original).
The district court ruled that Mikutowicz admitted the
"essential factual elements of guilt" before trial, even though he
went to trial to claim that his conduct was not "willful" and
therefore not criminal. This determination was clearly erroneous.
By contesting willfulness, Mikutowicz did not admit "the essential
factual elements of guilt." U.S.S.G. § 3E1.1 comment (n.2) (1998);
Bennett, 37 F.3d at 697.
It is true that Mikutowicz admitted the actus reus of his
crimes prior to trial. He admitted establishing offshore bank
accounts, taking deductions from AGM for "services" provided by
Ellis, diverting the deducted monies to the offshore accounts, and
not paying taxes on the diverted funds. However, Mikutowicz
remained steadfast that his conduct was not "willful", i.e., in
violation of a known legal duty. See United States v. Cheek, 498
-21-
U.S. 192, 201 (1991). Thus, Mikutowicz denied the mens rea of the
crimes. That the defendant possesses the requisite mens rea is one
of the "essential factual elements of guilt." See United States v.
Crass, 50 F.3d 81, 84 (1st Cir. 1995) ("intent, like any other
essential element of the crime charged, may not be contested
without jeopardizing a downward adjustment for acceptance of
responsibility"); United States v. Burrows, 36 F.3d 875, 883 (9th
Cir. 1994) (stating that defendant was not entitled to acceptance
of responsibility deduction because "the fact that [the defendant]
freely admitted the actus reus of the crime does not change the
fact that he maintained . . . a complete defense based on his
purported lack of mens rea").
Mikutowicz's "willfulness defense" said, in effect, "I
did not know that what I was doing was illegal so I should not be
punished for my actions." This defense is exactly the opposite of
the expression of remorse that the acceptance of responsibility
guideline contemplates. See United States v. Royer, 895 F.2d 28,
30 (1st Cir. 1990) ("acceptance of responsibility necessitates . .
. authentic remorse"). Therefore, Mikutowicz did not accept
responsibility by admitting his underlying conduct while
simultaneously denying that he possessed the criminal intent to
commit the charged offenses. See Bennett, 37 F.3d at 696-98
(reversing acceptance of responsibility reduction for defendant who
went to trial to challenge intent prong of bank fraud charge
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because defendant had not admitted "factual guilt"); see also
United States v. Dyck, 334 F.3d 736, 744 (8th Cir. 2003) (reversing
acceptance of responsibility reduction for defendant who went to
trial to claim that his conduct was not "willful" because this "was
a denial of factual guilt that put the government to its proof");
United States v. Chastin, 84 F.3d 321, 324 (9th Cir. 1996)
(reversing acceptance of responsibility reduction, in tax fraud
case, because the defendant's "failure to accept responsibility for
his crime was manifest in his decision to take the case to trial,
where he vigorously denied the 'willful' element of the offense");
United States v. Jaynes, 75 F.3d 1493, 1508 (10th Cir. 1996)
("Where a defendant admits his conduct but claims he did nothing
illegal and had no unlawful intent . . . his denial is inconsistent
with an acceptance of responsibility.")(internal quotations and
citations omitted); United States v. Castner, 50 F.3d 1267, 1279-80
(4th Cir. 1995) ("[B]y denying intent to defraud [the defendant]
did not completely accept responsibility for all his criminal
conduct.").
In granting an acceptance of responsibility adjustment,
the district court also relied on Mikutowicz's pretrial payment of
back taxes. In April 2002, two months before trial, Mikutowicz
filed an amended 1998 tax return in which he reimbursed the IRS
$55,633. While the precise total of Mikutowicz's tax liability is
unclear, see United States v. Mikutowicz, No. 01-10321-RWZ, (D.
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Mass. Nov. 13, 2002), there is no dispute that this was only a
fraction of what he owed.
The Guidelines provide that one method by which a
defendant can demonstrate acceptance of responsibility is to
voluntarily pay restitution prior to the adjudication of guilt.
See U.S.S.G. § 3E1.1 comment (1(c)) (1998); Bennett, 37 F.3d at
698. The Seventh Circuit has described the requirement as
"pretrial payment of full restitution." See United States v.
Bonanno, 146 F.3d 502, 513 (7th Cir. 1998) (quoting United States
v. Morgano, 39 F.3d 1358, 1377-78 (7th Cir. 1994)). Most cases in
which courts have found that pretrial restitution favors granting
acceptance of responsibility involve situations where the defendant
has also pled guilty to the charged offenses. See, e.g., United
States v. Grasser, 312 F.3d 336, 338-39 (7th Cir. 2002); United
States v. O'Kane, 155 F.3d 969, 971 (8th Cir. 1998). We know of
only one case in which a defendant, after exercising his trial
right, received an acceptance of responsibility reduction based on
pretrial restitution. See United States v. Bean, 18 F.3d 1367 (7th
Cir. 1994). In Bean, the defendant was charged with a check-kiting
scheme. Id. at 1368. The defendant paid full, pretrial
restitution but chose to go to trial to argue that he did not
intend to defraud the bank. Id. Even though the defendant went to
trial to challenge intent, the court stated that he could receive
an acceptance of responsibility reduction because he had
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voluntarily paid full, pretrial restitution. Id.
Under the logic of Bean, the district court could grant
Mikutowicz an acceptance of responsibility reduction based on his
payment of pretrial restitution, even though he went to trial. The
government has not argued that Bean was incorrectly decided and we
do not think it so manifestly wrong that we are willing to reject
it without briefing and argument. Nonetheless, even assuming the
viability of the Bean rule for present purposes, we cannot sustain
the acceptance of responsibility adjustment on this record.
The extent of restitution paid by Mikutowicz is not
clear. Mikutowicz argued that, because of certain IRS rules, he
could only reimburse the 1998 tax deficiency, and therefore he paid
as much as was legally possible. The district court did not make
a finding to this effect.7 Moreover, it is not clear that
Mikutowicz's payment was truly voluntary. Since Mikutowicz's
primary defense to the criminal charges related to his intent (and
not his failure to pay taxes), he presumably owed back taxes
regardless of the results of the criminal proceedings. Because
Mikutowicz may have owed the same debt even if acquitted, the
restitution may not have been "voluntary" and therefore not
indicative of his acceptance of responsibility for his crimes. See
7
The district court stated that Mikutowicz paid back "as much
of the tax as he could." It is not clear whether this means that
he paid back as much as the law permitted or that he paid back as
much as he could afford at the time.
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Bennett, 37 F.3d at 698 (holding that paying restitution as part of
a civil settlement does not indicate acceptance of responsibility).
Moreover, even if the district court determined that
Mikutowicz's restitution was the maximum allowed by law and was
truly voluntary, it could still be argued that his decision to
challenge his factual guilt outweighs this act of contrition. See
United States v. Yoon, 128 F.3d 515, 529 (7th Cir. 1997); United
States v. Field, 110 F.3d 592, 594 (8th Cir. 1997). Considering
that acceptance of responsibility determinations are best made by
the district court, see Capelton, 350 F.3d at 245, and that there
is a possibility that Mikutowicz could still qualify for an
acceptance of responsibility reduction, we vacate the two-level
reduction and remand to the district court to reconsider the matter
in light of the above discussion.
B. Aberrant Behavior
The final issue that we tackle is whether the district
court erred by granting Mikutowicz a five-level downward departure
because his conduct constituted "aberrant behavior." We begin by
outlining the standard of review.
On April 30, 2003, section 401 of the Prosecutorial
Remedies and Other Tools to End the Exploitation of Children Today
Act ("PROTECT Act") became effective. See 18 U.S.C. 3742(e). The
PROTECT Act, which applies to all appeals pending on and after its
effective date, establishes a new regime for reviewing district
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court rulings granting departures from the Sentencing Guidelines.
See United States v. Thurston, 358 F.3d 51, 70-72 (1st Cir. 2004);
United States v. Frazier, 340 F.3d 5, 14 (1st Cir. 2003). We now
review de novo whether the "sentence departs from the guideline
range based on a factor that (i) does not advance the objectives
set forth in [18 U.S.C.] § 3553 (a)(2); or (ii) is not authorized
under [18 U.S.C.] 3553(b); or (iii) is not justified by the facts
of the case." 18 U.S.C. § 3742(e); see United States v. Maldonado-
Montalvo, 356 F.3d 65, 68-69 (1st Cir. 2003).8 In cases where the
departure is based on a factor that the Sentencing Commission has
already approved, we proceed directly to consider whether the
departure is "justified by the facts of the case." Thurston, 358
F.3d at 76. In performing this analysis, we accept the district
court's factual findings unless they are clearly erroneous. See 18
U.S.C. § 3742(e)(3)(C).
The Guidelines, in their current form, recognize
"aberrant behavior" as a legitimate ground for a downward
departure. See U.S.S.G. § 5K2.20 (2003). However, as noted above
at n.6, the Guidelines effective in 1998 govern this case. See
United States v. Dewire, 271 F.3d 333, 335 n.2 (1st Cir. 2001).
These Guidelines did not take a position on whether "aberrant
8
Prior to the enactment of the PROTECT Act, we reviewed the
determination that the facts of a case justified a departure only
for an abuse of discretion. See United States v. Lujan, 324 F.3d
27, 31 n.5 (1st Cir. 2003).
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behavior" was an appropriate ground for a downward departure. See
U.S.S.G. Ch. 1 Pt. A(4)(d) (1998) ("The Commission . . . has not
dealt with the single acts of aberrant behavior that still may
justify probation at higher offense levels through departures.").
Because the 1998 Guidelines are silent on whether
"aberrant behavior" is a permissible departure factor, our first
task is to determine de novo whether this factor conflicts with the
objectives set forth in 18 U.S.C. § 3553(a)(2) or is not authorized
by 18 U.S.C. § 3553(b).9 This task is straightforward. Under the
1998 Guidelines, every circuit court of appeals accepted "aberrant
behavior" as a legitimate basis for a downward departure. See
Elizabeth Williams, Annotation, Downward Departure from United
States Sentencing Guidelines Based on Aberrant Behavior, 164 A.L.R.
Fed. 61 (2000) (collecting cases approving "aberrant behavior" as
basis for departure). In November 2000, the Sentencing Commission
confirmed the correctness of this view by adopting a guideline
explicitly recognizing "aberrant behavior" as a legitimate basis
for a departure. See U.S.S.G. § 5K2.20 (2003). Thus, we conclude
that, under the 1998 Guidelines, "aberrant behavior" is a factor on
which the district court could base a departure.
Having concluded that "aberrant behavior" can justify a
9
18 U.S.C. § 3553(a)(2) sets forth the federal policy
objectives for sentencing and 18 U.S.C. § 3553(b) sets forth the
circumstances in which a court could depart from the applicable
sentencing guideline range.
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departure, we turn next to consider de novo whether the facts of
this case justify granting Mikutowicz a departure on this basis.
Under the 1998 Guidelines, we applied a "totality of the
circumstances" approach to requests for "aberrant behavior"
departures. See United States v. Grandmaison, 77 F.3d 555, 563
(1st Cir. 1996).10 Under this test
[d]istrict court judges may consider, inter
alia, factors such as pecuniary gain to the
defendant, charitable activities, prior good
deeds, and efforts to mitigate the effects
of the crime in deciding whether a
defendant's conduct is aberrant in terms of
other crimes . . . . Spontaneity and
thoughtlessness may also be among the
factors considered, though they are not
prerequisites for departures.
Id. In addition, the district court could consider "first-offender
status as a factor" and could grant a departure to a defendant
"whose criminal conduct involve[d] more than one criminal act."
Id. at 563-64.11
The district court applied Grandmaison's "totality of the
circumstances" approach to grant Mikutowicz a five-level downward
departure because (1) the convictions comprised a single six-year
10
Several other circuits opted for a narrower approach that
required the defendant's conduct to be "spontaneous or
thoughtless." Grandmaison, 77 F.3d at 562 (citing cases from the
Third, Fourth, Fifth, Seventh, and Eighth Circuits adopting this
approach).
11
The current Sentencing Guidelines do not adopt "the totality
of the circumstances" test. See U.S.S.G. § 5K2.20 (2003). However,
because this case is governed by the 1998 Guidelines, the
Grandmaison standard applies. See Dewire, 271 F.3d at 335 n.2.
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course of conduct; (2) Mikutowicz employs several individuals; (3)
he has strong community ties; (4) he has been instrumental in the
care of his family; and (5) he did not intend to deprive the
government of the tax permanently. Applying de novo review, our
precedent requires that we vacate this "aberrant behavior"
departure.
In United States v. Bradstreet, 135 F.3d 46, 56-58 (1st
Cir. 1998), we vacated a downward departure for "aberrant behavior"
in a situation that is materially indistinguishable from this one.
The defendant in Bradstreet was convicted of several offenses
arising from a two-year scheme to falsify corporate records. See
id. at 48. The defendant testified at trial that he did not act
with an intent to defraud. See id. at 57. The jury was
instructed that, to find the defendant guilty, it had to conclude
that he acted with such an intent. See id. Thus, the jury's
guilty verdict indicated that the defendant had testified
dishonestly by claiming that he did not act with a fraudulent
intent. See id.
This dishonest testimony disqualified the defendant from
receiving an "aberrant behavior" departure. We explained that an
"aberrant behavior" departure "is appropriate only where the
conduct was isolated and is unlikely to recur." Id. A defendant
cannot claim that his conduct was isolated and not likely to recur
when "he testifies dishonestly after engaging in felonious
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dishonesty." Id. Thus, "one convicted of criminal dishonesty is
. . . not entitled to an aberrant conduct departure if he has
testified dishonestly about his criminal conduct." Id. We
recognized that a defendant could still receive a downward
departure after giving false testimony if the testimony was the
product of confusion, mistake, or faulty memory. See id. at 58.
However, we concluded that, by its nature, false testimony
concerning criminal intent could not be the product of such
confusion or mistake. See id. at 57. Therefore, the jury's
verdict necessarily established that the defendant's testimony was
dishonest and disqualified him from receiving an "aberrant
behavior" departure. See id. at 58.
A similar analysis applies here. Mikutowicz claimed at
trial that his conduct was not "willful." He testified on direct
examination:
I never once thought that I was breaking any
laws. I'm not a law-breaker. I thought
that this plan was completely lawful as to
the way it was explained to me. There is no
amount of money that would cause me to break
the law of this country. That's plain and
simple.
The district court instructed the jury that, to find Mikutowicz
guilty, it had to determine that his conduct was willful, i.e., (in
the context of this case) done "with a specific intent to violate
the law." The jury convicted Mikutowicz on all counts. This
finding compels us to conclude that Mikutowicz testified
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dishonestly by claiming that he did not know that he was breaking
the law by engaging in these tax schemes. Like the testimony
concerning "intent" in Bradstreet, Mikutowicz's testimony
concerning "willfulness" cannot plausibly be explained as the
result of confusion or faulty memory. See id. at 57 (stating that
defendant's testimony that he did not intend to defraud "strikes us
as inherently not subject to characterization as unintentional").
Indeed, at the sentencing hearing, the defense continued to assert
that Mikutowicz did not know that his conduct violated the law. He
is thus ineligible for an "aberrant behavior" departure.
Accordingly, we vacate the five-level downward departure.12
IV.
For the reasons stated, we affirm Mikutowicz's
convictions but vacate the judgment and remand for resentencing.
12
Relying on United States v. Brennick, 134 F.3d 10, 15-17
(1st Cir. 1998), Mikutowicz argues that we could affirm the
departure on the basis of the district court's finding that he
intended to repay the taxes owed at some later date. But in
granting the departure, the court invoked the "totality of the
circumstances" which strongly suggests to us that the court
included this fact as part of its "aberrant behavior" analysis and
not as an independent basis for departing.
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