USA v. Richard Stadtmauer

Filing 920100909

Opinion

PRECEDENTIAL U N IT E D STATES COURT OF APPEALS F O R THE THIRD CIRCUIT

No. 09-1575

UNITED STATES OF AMERICA v. R IC H A R D STADTMAUER, A p p e lla n t

Appeal from the United States District Court f o r the District of New Jersey (D .C . Criminal Action No. 2-05-cr-00249-003) D is tric t Judge: Honorable Jose L. Linares

Argued November 17, 2009

B e f o re : AMBRO, ALDISERT, and ROTH, Circuit Judges

(Opinion filed September 9, 2010)

D av id Debold, Esquire M iq u e l A. Estrada, Esquire (Argued) S co tt P. Martin, Esquire G ib s o n , Dunn & Crutcher LLP 1 0 5 0 Connecticut Avenue, N.W. 9 th Floor W a sh in g to n , DC 20036-0000

R o b ert S. Fink, Esquire K o ste la n e tz & Fink, LLP 7 World Trade Center 3 4 th Floor N e w York, NY 10007 D av id M. Zinn, Esquire W illia m s & Connolly LLP 7 2 5 12th Street, N. W. W a sh in g to n , D.C. 20005 C o u n s e l for Appellant R alp h J. Marra, Jr. Acting United States Attorney G e o rg e S. Leone Chief, Appeals Division S te v e n G. Sanders (Argued) Assistant U.S. Attorney O f f ic e of the United States Attorney 9 7 0 Broad Street, Room 700 2

N e w a rk , NJ 07102-0000 C o u n s e l for Appellee

OPINION OF THE COURT

AMBRO, Circuit Judge Table of Contents I. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 A . Richard Stadtmauer and the Kushner Companies. 5 B . The Other Players. . . . . . . . . . . . . . . . . . . . . . . . . . 7 C . The Alleged Conspiracy. . . . . . . . . . . . . . . . . . . . . 8 1 . The General Ledgers.. . . . . . . . . . . . . . . . . 1 1 i. Charitable Contributions. . . . . . . . . 1 1 ii. "Non-Property" Expenses. . . . . . . . 1 2 iii. Capital Expenditures. . . . . . . . . . 13 iv . Gift and Entertainment Expenses. . 1 5 2 . KC's Internal Financial Statements. . . . . . 1 5 3 . SSMB's Preparation of the Partnerships' Tax Returns.. . . . . . . . . . . . . . . . . . . . . 1 6 D . Evidence of Stadtmauer's Knowledge. . . . . . . . . 1 9 1 . "Thursday Meetings" . . . . . . . . . . . . . . . . . 2 1 2 . "Richard Specials" and Other Special F in a n c ia l Statements.. . . . . . . . . . . . . . 2 3 3 . Other Circumstantial Evidence of S ta d tm a u e r's Knowledge of Tax Law 3

a n d Consciousness of Guilt. . . . . . . . . 2 6 i. Rationale for Private School Tuition P a ym e n ts .. . . . . . . . . . . . . . . . . 2 6 ii. The 1996 IRS Audit. . . . . . . . . . . . 2 6 iii. Dissenting Limited Partners and E x e c u tiv e s . . . . . . . . . . . . . . . . 27 E . The Verdict and Stadtmauer's Post-Verdict M o tio n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0 II . Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1 II I. Discussion.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1 A . Willful Blindness. . . . . . . . . . . . . . . . . . . . . . . . . 3 2 1 . Whether the District Court's Willful B lin d n e ss Instruction Applied to S ta d tm au e r's Knowledge of the Law. . 3 3 2 . Willful Blindness and Cheek. . . . . . . . . . . 3 8 3 . Whether the District Court's Willful B lin d n e ss Instruction Applied to the Element of Specific Intent. . . . . 4 6 4 . Whether Trial Evidence Warranted the W illf u l Blindness Instruction. . . . . . . . 5 0 B . Lay Opinion Testimony.. . . . . . . . . . . . . . . . . . . . 5 2 1 . Background.. . . . . . . . . . . . . . . . . . . . . . . . 5 2 2 . Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 9 C . Prosecutorial Misconduct. . . . . . . . . . . . . . . . . . . 7 1 D . Expert Testimony. . . . . . . . . . . . . . . . . . . . . . . . . 7 6 E . Restrictions on Cross-Examination. . . . . . . . . . . . 8 2 F o llo w in g a two-month jury trial in the District Court for th e District of New Jersey, Richard Stadtmauer was convicted o f one count of conspiracy to defraud the United States (in 4

v io la tio n of 18 U.S.C. § 371), and nine counts of willfully aiding in the filing of materially false or fraudulent tax returns (in v io la tio n of 26 U.S.C. § 7206(2)). On appeal, Stadtmauer raises m a n y challenges to these convictions. We deal principally with th e issue Stadtmauer raises last: whether the District Court erred in giving a willful blindness instruction in this case, including w h e th e r the Supreme Court's decision in Cheek v. United States, 4 9 8 U.S. 192 (1991), forecloses the possibility that willful b lin d n e ss may satisfy the legal knowledge component of the " w illf u ln e ss " element of criminal tax offenses. We join our sis te r circuit courts in concluding that Cheek does not prohibit a willful blindness instruction that applies to a defendant's k n o w le d g e of relevant tax law. We reject also Stadtmauer's o th e r claims of error, and thus affirm. I. B a c k gro u n d1 A. R ic h a rd Stadtmauer and the Kushner Companies

T h is criminal case stemmed from an investigation of C h a rle s Kushner, a prominent real estate entrepreneur, political f u n d ra ise r, and philanthropist in New Jersey. Kushner controls h u n d re d s of limited partnerships, each of which owns and m a n a g es a single commercial or residential property. Kushner

"As required when reviewing convictions, we recite the re le v a n t facts in the light most favorable to the [G]overnment." U n ite d States v. Leo, 941 F.2d 181, 185 (3d Cir. 1991). 5

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is the general partner of each partnership and, for most, his sib lin g s (including his brother, Murray Kushner 2 ) and their c h ild re n are the other limited partners. These partnerships have c o l le c tiv e l y operated under the name "Kushner Companies" (" K C " ). KC is not a registered entity and does not own any p r o p e r tie s .3 In the mid-1990s, Charles and Murray Kushner accused e a c h other of taking more than his fair share out of their c o m m o n businesses. During the course of the ensuing civil litig a tio n , Murray alerted federal authorities to potential m is c o n d u c t by his brother and KC. Following an investigation, K u sh n e r pled guilty in 2004 to, among other things, assisting in th e filing of false partnership tax returns and federal campaign c o n trib u tio n offenses. During the course of its investigation of Kushner, the G o v e rn m e n t indicted several other individuals, including S ta d tm a u e r-- a Certified Public Accountant, a law school g ra d u a te , and Kushner's brother-in-law. He became an e m p l o ye e of KC in 1985, and eventually rose to become an e x e cu tiv e vice president. In this role, Stadtmauer oversaw the

We use "Kushner" throughout this opinion to refer only to C h arles Kushner. For descriptive purposes, however, we refer to KC hereafter a s if it were an entity. 6
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o p e r a tio n s of KC's residential and commercial properties. S tad tm a u e r also held a small stake (between 1% and 7%) in m a n y of KC's partnerships. Stadtmauer and Kushner held equal in ter e sts (50% each) in Westminster Management, an entity w h i c h collected management fees from the other partnerships. B. T h e Other Players

S e v e r a l former KC executives testified against S ta d tm a u e r at trial, including: (1) Chief Financial Officer (" C F O " ) Stanley Bentzlin; (2) Chief Operations Officer (" C O O " ) Scott Zecher; and (3) Alan Lefkowitz, who succeeded B e n tz lin as CFO in 2000. Of these three, only Zecher was i n d i c te d .4 K C employed the accounting firm of Schonbraun, Safris, M c C a n n , Bekritsky & Company, LLC ("SSMB") as its main " o u ts id e " accountant. The lead SSMB accountant for KC m a tters was Marci Plotkin, who served as KC's CFO in the early 1 9 9 0 s before returning to SSMB.5 Though Plotkin was

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He pled guilty to conspiring to defraud the United States.

In the late 1990s, Kushner briefly replaced SSMB with the a c co u n tin g firm of Richard Eisner & Company. Kushner agreed to hire Eisner & Company on the condition that it hire Plotkin a s its lead accountant for KC matters. Eisner & Company a g re e d to hire Plotkin, but shortly thereafter Kushner decided to 7

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te c h n ic a lly an employee of SSMB, KC reimbursed SSMB for yea rly bonuses it paid to Plotkin 6 and certain of Plotkin's salary in cre ase s, and reimbursed Plotkin for the cost of her son's p riv a te school tuition. Kushner did not heed Bentzlin's warning th a t paying Plotkin a bonus would impair her independence and p re c lu d e SSMB from issuing financial statements on behalf of K C partnerships. M a r ci Plotkin was assisted by (among others) SSMB p a rtn e r Stanley Bekritsky and Anne Amici, a staff accountant w h o worked almost exclusively on KC matters. Plotkin, B e k rits k y, and Amici were indicted along with Stadtmauer and e a c h pled guilty to conspiring to defraud the United States. Of th e se three, only Bekritsky testified at Stadtmauer's trial. C. T h e Alleged Conspiracy

T h e Government charged that Stadtmauer, Bekritsky, P lo tk in , and Amici conspired to file false or fraudulent tax re tu rn s for the 1998-2001 tax years for Westminster M a n a g e m e n t and eleven other KC limited partnerships: " O a k w o o d Garden Developers," "Elmwood Village

re-hire SSMB (after SSMB agreed to re-hire Plotkin). KC funneled to Plotkin (through SSMB) bonus payments of $ 1 5 ,0 0 0 in 1996, $20,000 in 1997, and $25,000 in 1998. (App. 2 8 2 3 ­ 2 4 .) 8
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A s s o c ia te s," "Pheasant Hollow," "QEM," "Mt. Arlington," and s ix partnerships with variations of the name "Quail Ridge." The G o v e rn m e n t alleged that these partnerships fraudulently claimed f o u r categories of expenditures as fully deductible business e x p e n s e s 7 on their tax returns 8 : (1) charitable contributions,

The Internal Revenue Code provides that an expenditure is f u lly deductible as a business expense if it: "(1) was paid or in c u rre d during the taxable year; (2) was for carrying on a trade o r business; (3) was an expense; (4) was a necessary expense; a n d (5) was an ordinary expense." Neonatology Assocs., P.A. v. C o m m 'r, 299 F.3d 221, 228 (3d Cir. 2002) (citing I.R.C. § 162(a)). A partnership does not, itself, pay taxes. "Instead, the p a rtn e rs claim a pro-rata share of the partnership's profits and lo s s e s and each pays tax on his share." Kantor v. Comm'r, 998 F .2 d 1514, 1517 n.1 (9th Cir. 1993). However, partnerships are s till required to file income tax returns. [ F ]o r the purpose of computing income and d e d u c tio n s , "the partnership is regarded as an in d e p e n d en tly recognizable entity apart from the a g g re g a te of its partners." It is only once the p a r tn e rs h ip ' s income and deductions are a sc e rta in e d and reported that its existence may be d is re g a r d e d and the partnership becomes a c o n d u it through which the taxpaying obligation p a s s e s to the individual partners.
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w h ic h generally are not deductible as business expenses; (2) e x p e n d itu re s incurred by one partnership but paid by a different p a rtn e rs h ip (known as "non-property" expenses); (3) capital e x p e n d itu re s, which generally must be amortized and d e p re c ia te d over the life of the relevant asset (and thus are not im m e d ia te ly deductible in full); and (4) gift and entertainment e x p e n se s , which generally are not fully deductible as business expenses. The Government's theory was that these four types of ex p en d itu res were fraudulently deducted in full as ordinary b u s in e ss expenses on the partnerships' tax returns through a th re e -s te p process. First, the expenses were logged in each lim ite d partnership's general ledger via a computer-based a c co u n tin g program that broke down all revenue and expenses in to categories called "accounts." Second, KC used the general le d g e rs to prepare internal financial statements that a u to m a tic a ll y categorized these four types of expenditures as " e x p en s e s." Finally, SSMB used the general ledgers and in te rn a l financial statements to prepare external financial sta tem e n ts and tax returns for each partnership that falsely c laim e d these four categories of expenditures as fully deductible b u s in e s s expenses. T o illustrate, below we discuss primarily the 2000 tax

Brannen v. Comm'r, 722 F.2d 695, 703 (11th Cir. 1984) (q u o tin g United States v. Basye, 410 U.S. 441, 448 (1973)). 10

re tu rn for one of the limited partnerships, Elmwood Village A sso ciates ("Elmwood Village"). 1. T h e General Ledgers i. C h a rita b le Contributions

K u s h n e r and Stadtmauer frequently directed that c h a rita b le contributions be paid out of partnership funds, which w e r e logged into the general ledger under the "contributions" a c c o u n t. In 2000, Elmwood Village paid approximately $ 1 8 6 ,0 0 0 to various charitable organizations, including d o n a tio n s to the Suburban Torah Center--the "personal syn ag o g u e" of Kushner and Stadtmauer--and to the Center's R ab b i, Stadtmauer's "rabbinical advisor." (App. 2846­47.) Also logged under the "contributions" account were d o n a tio n s made to various political campaigns and political a c tio n committees, and $25,384 in private school tuition p a ym e n ts for Zecher's and Plotkin's children. Because the latter p a ym e n ts were logged as partnership expenses (rather than e n te re d into the payroll system as taxable income), no taxes w e re withheld and no Form 1099 was issued to Zecher or P lo tk in . Zecher testified that he generally left the descriptions b la n k on the checks for tuition payments because "[t]here was n o t h in g [he] really could write. It was not an appropriate b u s in e ss expense." (Id. at 2817.)

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ii.

" N o n -P r o p e rty" Expenses

W h e n e v er a particular KC partnership incurred an e x p e n se that it could not satisfy out of its current funds, Kushner w o u ld direct that a different partnership pay the expense. He re f erre d to this practice as "losing a bill," and it was a regular ag en d a item for upper-level management meetings held every T u e s d a y (referred to as "Tuesday Meetings" or "Cash M e e tin g s " ). Typically, either Kushner, the CFO, or the c o n tr o lle r chose the source of payment; in other instances, K u sh ner directed Stadtmauer to choose which partnership would p a y the expense. Zecher testified that it was Kushner's view th a t an expense could be paid by any partnership that he c o n tro lle d . Sometimes Kushner would tell Zecher that the p a r tn e r s h ip actually paying the expense "didn't matter because it was all family." (Id. at 3116.) For example, in 1998 various KC partnerships paid more th a n $1 million in expenses associated with the renovation of K C 's central office building in Florham Park, New Jersey.9 K u s h n e r directed Bentzlin to have several different partnerships, o n a rolling basis, pay portions of the total expenses incurred as a result of the renovations. These expenditures were logged in th e partnerships' respective general ledgers under the "repairs a n d maintenance" account. Eventually, Kushner instructed
9

The building is owned by "Florham Park Associates," a lim ite d partnership controlled by Kushner and his children. 12

B e n tz lin to review with Stadtmauer the list of all bills due for th e renovation work, and directed Stadtmauer to "instruct [ B e n tz lin ] on how to lose it," i.e., to choose "what entity to pay it out of." (Id. at 2130.) In addition to one partnership paying another p a rtn e rs h ip 's expenses, KC partnerships also paid for expenses th a t had no relation to any partnership's business. In 2000, E lm w o o d Village paid approximately $30,000 in "non-property" e x p e n s e s that were booked to various general ledger accounts, in c lu d in g "advertising," "seminars," "legal fee-other," and " o th e r professional fees." This amount included (among other th in g s ): (1) $10,000 paid to a consulting firm to research the v i a b ility of a comeback by then-former Israeli Prime Minister B e n ja m in Netanyahu; (2) $10,000 toward a $100,000 fee to pay M r. Netanyahu to speak at a breakfast sponsored by NorCrown B a n k (an entity not affiliated with KC in which Kushner held an in te re st); and (3) $3,815 toward a $50,000 fee to pay former C h a irm a n of the Federal Reserve Paul Volcker to speak at a n o th e r NorCrown Bank event. iii. C a p ita l Expenditures

F r o m 1998 through 2001, various KC partnerships p u rc h a se d capital assets and made capital improvements to their p ro p e rtie s. In general, these expenses were logged in the p a rtn e rs h ip s ' general ledgers under the "repairs and m a in te n a n ce " account rather than the capital expenditures 13

a c co u n t. As Lefkowitz explained at trial, "[t]here [were] a few in s t a n c e s where things might have been capitalized, but as a g e n e ra l rule . . . everything went through expenses." (Id. at 2 6 0 4 .) Bentzlin explained that, although each general ledger h a d a capital improvement "account," capitalizing assets " w a sn 't the way it was done at Kushner Companies." He added th a t [ w ]e regularly and routinely expensed [capital a ss e ts ] under one of the repairs and maintenance o r capital improvement accounts . . . [;] that was th e way they were doing it upon my arrival, and it d id n 't change throughout my tenure with a f e w -- ju s t with a few exceptions. ... . . . You didn't question it. You know, it w a s ruled with an iron fist. They controlled pretty m u c h everything. (Id . at 2190.) In 2000, Elmwood Village spent $269,323 on im p r o v e m e n ts that allegedly should have been capitalized, w h i c h included adding new bathrooms and kitchens to a p a rtm e n ts -- in c lu d in g new cabinets and $49,318.40 worth of n e w appliances (such as washers and dryers)--and a new truck 14

(f o r $25,126). All of these expenses were logged in the p a r t n e r s h i p ' s general ledger under the "repairs and m a in te n a n ce " general ledger account rather than a capital a c c o u n t. iv. G if t and Entertainment Expenses

K u s h n e r and Stadtmauer frequently directed various p a rtn e rs h ip s to pay gift and entertainment expenditures that had n o specific connection with the partnership paying the expense. In 2000, Elmwood Village paid: (1) $12,640 to cater a brunch a t the New Jersey Performing Arts Center; (2) $7,027 to a wine sto re for alcohol delivered to Kushner's and Stadtmauer's p riv ate homes during the holidays; (3) $5,905.23 to cater a f u n d ra is e r for former New Jersey Governor Jon Corzine; and (4) th o u s a n d s of dollars for New York Yankees, New York Mets, a n d New Jersey Nets season tickets. Each of these expenditures w as logged in Elmwood Village's general ledger under a " m is c e lla n e o u s ," "gifts/entertainment," or "travel" account. 2. K C 's Internal Financial Statements

K C used the general ledgers to generate internal financial s t a te m e n ts for each partnership. The accounting template (or " sk e leto n " ) used to produce these statements automatically g ro u p e d certain accounts from the general ledgers--including th e "contributions," "gifts/entertainment," "miscellaneous," and " s e m in a rs " accounts--under the category of "office expenses." 15

I n addition, the "legal fee-other" and "other professional fees" a c co u n ts were grouped under the category of "payroll and re la te d expenses." Each of these categories--in addition to the "advertising " an d "repairs and maintenance"10 ca teg o ries-- w ere , in turn, grouped under the general category o f "expenses," and thus deducted in full from the partnership's re v e n u e on the internal financial statement.1 1 This violated a p p lic a b le accounting standards, which required the p a rtn e rs h ip s ' financial statements to be prepared on an income ta x basis. 3. S S M B ' s Preparation of the Partnerships' T a x Returns

S S M B used KC's general ledgers and internal financial s ta te m e n ts to prepare external financial statements for each p a rtn e rs h ip . KC would submit a "Management Representation L e tte r" to SSMB along with its financial statements, in which
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Included in the "repairs and maintenance" group were the " a p a rtm e n t renovations" and "building improvement" accounts w h ic h , as Zecher explained, included, respectively, "capital im p ro v e m e n ts made to apartments" and "capital improvements m a d e to the general property, [e.g.,] the outside of the buildings, th e roofs, paving parking lots, things like that." (Id. at 2923.) Bentzlin and Bekritsky believed that Plotkin had c o n f ig u re d the software before she left KC, but neither was sure. (Id . at 2341, 3292.) 16
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K C management certified that "[t]here are no material tra n sa c tio n s that have not been properly reflected in the financial s ta te m e n ts ." Stadtmauer signed most of these representation lette rs. KC also provided SSMB with the template it used to p re p a re its internal financial statements. In preparing the partnerships' external financial s ta te m e n ts and tax returns, SSMB used the groupings applied by K C 's internal accounting software. Thus, the 2000 internal and e x te rn a l financial statements for Elmwood Village reflected v ir tu ally identical amounts for "office expenses" and "repairs an d maintenance." As Bekritsky testified, the tax returns were p re p a re d "on the same basis" as the partnerships' financial s ta te m e n ts , meaning that "if [something is] deducted on the f in a n c ia l statement, it is deducted on the tax return and produces in c o m e or increases the loss of the partnership." (Id. at 3218.) E lm w o o d Village's 2000 tax return deducted a total of $ 4 9 6 ,7 1 3 in ordinary and necessary business expenses (on lines 3 through 15 of Form 8825, entitled "Rental Real Estate e x p e n se s" ). Included in this amount was $211,885 in charitable co n trib u tio n s, political donations, and tuition payments (for, a m o n g others, Plotkin's and Zecher's children). (Line 8 of S c h e d u l e K to the return--where partnerships are required to list c h a rita b le contributions--was left blank.) The "non-property," a n d gift and entertainment, expenses incurred by Elmwood V illa g e in 2000 were similarly claimed as fully deductible b u s in e ss expenses (instead of listed separately as required on 17

S c h e d u l e M-1). Finally, Elmwood Village reported no increase i n capital assets in 2000. Rather, $269,323 in alleged capital e x p e n d itu re s were included in the $347,939 reported as " re p a irs " (on line 10 of Form 8825), while other alleged capital e x p e n d itu re s were spread among various items in Statement 10 o f Schedule M-2 (entitled "Other Rental Expenses").12 A ro u n d March or April of each year, Stadtmauer met w ith KC's CFO and someone from SSMB--usually Plotkin, and infrequ ently Bekritsky--to review and sign the KC partnerships' ta x returns. During these sessions, Stadtmauer sometimes r e v ie w e d SSMB's financial statements for the partnerships; in d e e d , he refused to "sign a tax return unless he had the f in a n c ia l statements next to him." (Id. at 2958.) He would "flip th ro u g h " each return, "look at certain things, and then sign it." (Id . at 2194.) Stadtmauer only occasionally asked questions a b o u t the returns, and typically spent "30 seconds to a minute" o n each. (Id. at 2283.) However, he spent more time on KC's m a jo r properties, particularly those that had large annual in c re a s e s in "repairs and maintenance" expenses. (Id. at 2958.) S ta d tm a u e r reviewed and signed as many as 800 tax

Bekritsky explained that this was done so that amounts re p o rte d for repairs and maintenance "wouldn't stick out on the re tu rn [ s]." (Id. at 3261.) Bekritsky admitted that he knowingly p re p a re d and filed false tax returns on behalf of KC partnerships to avoid losing a valuable account. (Id. at 3352.) 18

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re tu rn s in a given day. Stadtmauer signed each of the p a rtn e rs h ip s ' tax returns below a legend declaring, "[u]nder p e n a ltie s of perjury," that he had "examined th[e] return, in c lu d in g accompanying schedules and statements," and that, to th e best of his knowledge, the return was "true, correct, and c o m p l e te ." (E.g., Supp. App. 937.) Stadtmauer signed each re tu rn in his capacity as Vice-President of the corporate general p a rtn e r; as Bentzlin and Zecher testified, Stadtmauer believed t h a t by doing so he would protect himself from personal liab ility. (App. 2209, 2903.) The Government alleged that, from 1998 through 2001, th e twelve KC partnerships identified in the indictment claimed m o re than $6 million in improper deductions. Capital ex p e n d itu res that were deducted in full the year they were in c u rre d accounted for more than half of this amount. D. Evidence of Stadtmauer's Knowledge

T o establish that Stadtmauer "willfully" aided in the p re p a ra tio n of materially false or fraudulent tax returns--as re q u ire d for a violation of 26 U.S.C. § 7206(2) 1 3 -- t h e

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26 U.S.C. § 7206(2) makes it a crime to [w ]illfu lly aid[] or assist[] in, or procure[], c o u n se l[ ], or advise[] the preparation or p re se n ta tio n under, or in connection with any 19

G o v e rn m e n t was required to prove beyond a reasonable doubt th a t he voluntarily and intentionally violated "a known legal d u t y. " United States v. Pomponio, 429 U.S. 10, 12 (1976). W h e th e r Stadtmauer had knowledge that the deductions claimed o n the partnerships' tax returns were materially false or f ra u d u len t was the critical issue at trial. A t trial, Bentzlin, Zecher, and Bekritsky each testified th a t they never discussed with Stadtmauer the falsity of any p articu lar deduction or tax return. Accordingly, the Government s o u g h t to meet its burden of proving that Stadtmauer acted " w illf u lly" through various forms of circumstantial evidence ( s o m e of which have already been discussed), including: (1) e v id e n c e of Stadtmauer's intimate familiarity with the p a rtn e rs h ip s and how their general ledgers were maintained; (2) e v id e n c e that Stadtmauer made decisions on how to treat p a rtn e rs h ip expenses in the past with tax consequences in mind; a n d (3) other evidence suggestive of a consciousness of guilt, e .g ., evidence that Stadtmauer was aware that the partnerships w e re making improper expenditures.

matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, w h ic h is fraudulent or is false as to any material m a tter, whether or not such falsity or fraud is with th e knowledge or consent of the person authorized o r required to present such return, affidavit, claim, o r document[.] 20

1.

" T h u r sd a y Meetings"

In addition to the "Tuesday Meetings" that Stadtmauer re g u la rly attended, for many years he ran weekly "Thursday M e e tin g s " with the limited partnerships' property managers, as w e ll as KC's in-house counsel, controller, Bentzlin, and so m e tim e s Plotkin.1 4 The purpose of each meeting was to c o n d u c t an in-depth review of one or two KC properties. The m a n a g ers prepared presentation packages that showed the p a rtn e rs h ip s ' actual expenses to date. Stadtmauer went through th e presentations "line by line," and asked "specific" questions a b o u t each. (App. 2641.) According to Zecher, "there was n o th in g [Stadtmauer] didn't see fit to get involved with in p ro p e rty management," and he was "one of the brightest people [ th a t Zecher had] ever met." (Id. at 2836.) In 1996, certain property managers started using special le tte r codes on their general ledgers to identify "non-property" e x p e n se s paid for by their respective partnerships. The codes allo w ed property managers to identify those expenses more e a sily and exclude them from their Thursday Meeting p rese n tatio n s. According to Bentzlin, the property managers w e re hesitant to answer Stadtmauer's questions about such e x p e n se s during Thursday Meetings (previously listed as " m is c e lla n e o u s" expenses on the presentations), because they
14

Stadtmauer led these meetings until early 1999, when an o th er KC executive began running them. (App. 2701.) 21

k n e w the expenses were for expenses "paid out of other p ro p e rtie s," and "didn't want to blurt it out in front of a roomful o f people." (Id. at 2150.) Stadtmauer was "quite unhappy" when he learned of the c o d e s , and directed his subordinates to end the practice. (Id. at 2 1 8 6 .) Stadtmauer and Bentzlin ultimately decided to lump n o n -p ro p e rty expenses together under a category called "other." D o in g so obviated the need for Stadtmauer to "interrogate or c o n tin u e to question the property manager as to the nature of th o se expenditures" during Thursday Meetings, and made it e a sie r during Tuesday Meetings to "figure out [how] the a p a rtm e n t complex on its own was really operating." (Id. at 2 1 8 5 ­ 8 6 .) In addition, Stadtmauer directed that KC's a c c o u n tin g software be modified "to allow somebody to go in a n d change [existing] descriptions within the general ledger." (Id . at 2187.) Stadtmauer also frequently instructed his subordinates to o m it descriptions in check requests to avoid leaving a "trail" w h en KC "used one property to pay another property's e x p e n se s." (Id. at 2628.) He admonished Zecher to "never put th e descriptions in," because he "d[idn't] want the descriptions [ t o show up] in the ledger." (Id. at 2855.) Stadtmauer also " re m in d e d [Zecher,] over and over, [to] be careful what [he] put in emails. Emails never disappear." (Id. at 2858.)

22

2.

" R ic h a rd Specials" and Other Special F in a n c ial Statements

In certain circumstances, Stadtmauer directed that special f in a n c ia l statements for the partnerships be prepared for banks a n d other entities. These were known as "Richard Specials." T h ese special financial statements were often prepared when KC w a n te d to reduce outstanding letters of credit on particular p ro p e rtie s. Stadtmauer would direct that "negative items" that te n d e d to depress the partnership's profitability be removed f ro m these statements, such as capital expenditures (that had b e e n logged as "repair and maintenance" expenses) and "nonp ro p e rty" expenses. (Id. at 2077­78.) To prepare these s ta te m e n ts , Stadtmauer was given a "detailed report" of the p a rtn e rs h ip 's general ledger, which he would go through line by lin e and indicate the items to be removed for the financial s ta te m e n t. (Id. at 2077.) KC prepared both internal and external v e rs io n s of every "Richard Special"; the internal version re v e ale d the adjustments made, while the external version s h o w e d only the final numbers after adjustments. (Id. at 2225.) T h e first time Stadtmauer asked Bentzlin to create a " R ic h a rd Special," Bentzlin objected and told Stadtmauer that h e "didn't think it was the right thing to do" because they " w o u ld be sending different financials out other than the ones p re p a re d by the accountant." (Id. at 2079.) Stadtmauer argued it would be proper because they would call it a "statement from o p e ra tio n s" (as opposed to a "statement of operations"), 23

s u p p o s e d ly making clear that it wasn't a true financial statement. (Id . (emphasis added).) Bentzlin told Stadtmauer he thought the ju stif ica tio n was "ridiculous," and though Bentzlin ultimately a g re e d to prepare the "Richard Specials," he "didn't want [them] e v e r to go out with [his] name on [them]." 15 (Id.) S im ila r to "Richard Specials," on several occasions KC p re p a re d special financial statements in connection with p o te n tia l acquisitions and joint ventures. For example, in 1995 c e rta in lenders agreed to finance KC's acquisition of Elmwood V illa g e , provided that KC would commit to making $1.5 million i n capital improvements to the property and secure a $1.6 m illio n letter of credit. These expenditures were entered, as u s u a l, under non-capital accounts on the partnership's general led g e r. At the end of the year, however, KC decided to
15

Similar to the "Richard Specials," SSMB often prepared sp e c ial supplemental schedules, listing various non-property e x p e n se s and capital improvements, that were attached to the p a rtn e rs h ip s ' financial statements. These supplemental s c h e d u le s were called "Schedules of Non-Recurring Expenses," b u t were unofficially referred to as "Schonbraun Specials." H o w e v e r, as Bentzlin explained at trial, these "non-recurring" e x p e n se s were essentially "non-recurring every year," and he f e are d that KC was "giving the Government a road map" on h o w to discover, in the event of an audit, expenses that were b e in g improperly deducted on the tax returns. (App. 3255.) A f te r Bekritsky raised his concerns to Plotkin, SSMB ended the p ra c tic e . (Id.) 24

c a p italiz e the items on the partnership's financial statement "to g e t the letter of credit cancelled." (Id. at 2348.) This decision w a s made during a Tuesday "Cash Meeting" in which S ta d tm a u e r participated. E lm w o o d Village's 1996 tax return accurately reported a lm o s t $1 million in capital improvements. After the letter of c re d it was cancelled, however, KC "went back to the usual p ro c e d u re s of expensing those types of expenditures." (Id. at 2 2 1 0 .) Elmwood Village did not capitalize any expenditures a f te r 1996, and its post-1996 returns treated the 1996 r e n o v a tio n s that had been capitalized as fully deductible repairs. S im ila rly, in 2000 KC paid $280 million to acquire a c o m p a n y called WNY, which owned approximately 40 p ro p e rtie s in New Jersey, Pennsylvania, Maryland, and D e la w a re . KC was required to obtain a $40 million letter of c re d it in connection with the acquisition. Stadtmauer, Plotkin, a n d Zecher had a "very detailed meeting" on how they would " d o the accounting for the WNY properties." (Id. at 2967.) T h e y agreed that they would "capitalize everything and anything [ th e y] could, instead of expensing it, like [they] always did in th e other properties." (Id.) Zecher testified that Stadtmauer was " c o n v in c e d , because the transaction was so large, and the $40 m illio n [in] letters of credit were so unusual for [KC], that the b a n k s were going to come in and look at not only the tax returns, b u t . . . the actual books and records." (Id.)

25

W h e n the letters of credit were removed, Plotkin asked w h e th e r she should expense the capitalized items. Zecher re sp o n d e d that he and Stadtmauer had determined that the f in a n c ia l statements would "look very weird" if they stopped c a p ita liz in g . (Id. at 2970­71.) 3. O t h e r Circumstantial Evidence of S ta d tm a u e r's Knowledge of Tax Law and C o n sc io u sn e ss of Guilt i. R a tio n a le for Private T u i tio n Payments School

As noted, for several years KC paid the private school tu itio n for, among other KC employees, Plotkin's and Zecher's c h ild re n . Zecher testified that Stadtmauer came up with the idea o f paying the tuition directly to the school instead of increasing Z e c h e r' s year-end bonus by that amount. (Id. at 2824.) S ta d tm a u e r told Zecher that he was "trying to be nice" by paying th e tuition directly to the school, which would allow Zecher to a v o id thousands of dollars in additional income taxes. (Id.) ii. T h e 1996 IRS Audit

In 1996, the Internal Revenue Service ("IRS") audited the ta x returns for two KC partnerships, focusing on the large d e d u c tio n s taken for repairs (including $850,000 to reconstruct a building's facade, which was deducted in full as a business 26

e x p e n s e ) . The IRS ultimately issued "no change" letters. F o llo w in g the audit, however, Plotkin sent a letter to B e n tz lin -- o n which Stadtmauer was copied--instructing B e n tz lin to change the word "improvements" to "repairs" in the " te n a n t improvements," "apartment renovations," and "building im p ro v e m e n ts " general ledger accounts. (Id. at 2269­70.) B e n tz lin believed the purpose was to make these categories a p p e ar as if they contained repair and maintenance expenditures ra th e r than "potentially a capital improvement type item." (Id. a t 2270.) iii. D is s e n tin g Limited Partners and E x e c u tiv e s

In addition to the Kushner family and Stadtmauer, there w e re other individuals who held interests in various KC p a r tn e rs h ip s. As Zecher testified at trial, many of these in d iv id u a ls made repeated requests for information regarding the f in a n c ia l state of their partnership interests. In many instances, S ta d t m a u e r and Kushner ordered Zecher to refuse those re q u e s ts . In one instance, a partner of a KC partnership named "K & F Clinton" inquired as to certain political contributions made b y that partnership and attributed to him. (Id. at 2891.) The p a rtn e r denied he had ever authorized the contributions, and n o te d that, "had [he] been informed of the intention to make p o litic a l contributions, [he] would have advised that such 27

p o litic a l contributions were inappropriate and [he] would have d e m a n d e d that they not be made from K & F" funds. (Id. at 2 8 9 2 .) He further noted that "[n]othing in the partnership a g re e m e n t authorized the disbursement of K & F funds for any u n re la te d purpose." (Id. at 2892­93.) Zecher got similar re s p o n s e s from several other partners. (Id. at 2893.) Another limited partner--Stanley G re e n b erg -- " c o n sta n tly" had difficulty obtaining annual f in a n c ia l statements for the partnerships in which he had an in te re s t. (Id. at 3356.) When he finally obtained and examined th e partnerships' financial statements for a prior three-year p e rio d ,1 6 "it was obvious [to him] that the expenses [claimed f o r ] run[ning] the[] properties were way out of line." (Id.) A m o n g other things, Greenberg noticed that the partnerships in w h ic h he had an interest had treated capital expenditures as o rd in a ry expenses, and had made numerous charitable c o n trib u tio n s to Kushner's and Stadtmauer's synagogues, as w e ll as political contributions. (Id. at 3363.) When Greenberg expressed his concerns to Kushner, the la tte r told him that "if you don't like it, I will give you your m o n e y back." (Id. at 3358.) Greenberg also had conversations w ith Stadtmauer, both in person and by phone, regarding the im p ro p e r expenses being paid by the partnerships, and asked
16

Though Greenberg also requested the partnerships' general le d g e rs , he never received any. (Id. at 3358.) 28

S ta d tm a u e r to "stop [KC from] doing what they were doing." (Id .) Though he offered no "excuse . . . or any explanation" for th e expenses, Stadtmauer rejected Greenberg's request, e x p la in in g that "that was the way they did business." (Id.) F o llo w in g these conversations, KC attempted to buy out G re e n b e rg 's interests in the partnerships. In addition to these dissenting limited partners, the G o v ern m en t also introduced testimony that KC executives were e x p e c te d not to challenge KC's accounting practices. As B en tzlin explained, "[y]ou had to do pretty much as you were to ld [at KC]. [Stadtmauer] and [Kushner] often would throw tirad e s at any number of the meetings on a regular routine basis o r in the office, you know, that you really didn't have latitude to m a k e any changes." (Id. at 2190.) Former CFO Alan Lefkowitz learned this lesson the hard w a y. In early 2001, he emailed Kushner to ask whether he sh o u ld follow the past practice of paying a bill for a Mikvah (a Je w ish ritual) with funds from one of the partnerships. Kushner w a s furious, and admonished Lefkowitz that he "should never w rite something like th[at] down." (Id. at 2613.) According to Z e c h er, Kushner was angry that Lefkowitz had "put[] in an em ail in writing that [KC was] paying bills for a . . . not-forp ro f it project out of . . . for-profit properties." (Id. at 2858.) K u s h n e r printed out the email and hand-wrote: "This guy is a d e f in ite Moron. We must deal with the situation." Kushner f o rw a rd e d a copy of the email (bearing his hand-written note) to 29

S ta d tm a u e r, and it was later discussed among upper-level m a n a g e m e n t. Stadtmauer later told Zecher: "This is a stupid th in g to do and you better make sure this guy doesn't do it a g a in ." (Id.) Lefkowitz was eventually barred from Tuesday Meetings a n d later resigned. He believed that management (including S ta d tm a u e r) had concluded that he was not a "team . . . player," i.e ., was "not willing to go along with what they want[ed] to d o ." (Id. at 2613.) E. T h e Verdict and Stadtmauer's Post-Verdict M o tio n s

F o llo w in g a two-month trial,1 7 the jury convicted S ta d tm a u e r of one count of conspiracy and nine counts of aiding in the willful filing of materially false or fraudulent partnership ta x returns.1 8 The District Court denied Stadtmauer's motions
17

We note that Stadtmauer chose not to put on a defense.

The jury acquitted Stadtmauer of six counts of aiding in the w illf u l filing of false or fraudulent tax returns (Counts Six th ro u g h Eleven), which corresponded to the 1999­2000 tax re tu rn s for three of the Quail Ridge partnerships. As the G o v e rn m e n t notes, a question asked by the jury during its d e l ib e r a tio n s suggests that it acquitted Stadtmauer on these c o u n ts because it was unable to locate a piece of evidence e x p la in in g how expenses from Quail Ridge's unitary general 30

18

fo r a judgment of acquittal and to dismiss the indictment.1 9 In F e b r u a r y 2009, the District Court sentenced him to 38 months' im p ris o n m e n t. He timely appealed. II. J u r is d ic tio n

T h e District Court had jurisdiction under 18 U.S.C. § 3231. We have appellate jurisdiction under 28 U.S.C. § 1291. III. D is c u s s io n

S tad tm a u e r contends that (1) the District Court erred in g iv in g a willful blindness instruction to the jury; (2) the Court im p ro p e rly admitted prejudicial lay opinion testimony by a G o v e rn m e n t witness; (3) the prosecutor violated his obligation to correct false testimony by a Government witness; (4) the

ledger were apportioned among the three specific Quail Ridge p a r tn e r s h ip s (i.e., "8 Quail Ridge," "9 Quail Ridge," and "10 Q u a il Ridge"). Stadtmauer moved before trial to dismiss the indictment to th e extent it was based on the failure to capitalize expenditures, a rg u in g that the law on capitalization is vague and uncertain. T h e District Court deferred ruling on the motion, concluding th at "[a] determination of whether the tax laws in question are v a g u e and uncertain necessarily involves a fact sensitive a n a lys is ." (Id. at 86.) The Court denied the motion after trial, a n d Stadtmauer does not challenge that ruling on appeal. 31
19

C o u rt improperly allowed an IRS agent to testify as an expert w itn e ss ; and (5) the Court violated the Federal Rules of E v i d e n c e and his Sixth Amendment rights by restricting the s c o p e of his cross-examination of Government witnesses. We a d d re s s each claim in turn. A. W illf u l Blindness

S ta d tm a u e r argues that the District Court erred in giving a willful blindness instruction to the jury for three reasons. R e lyin g on Cheek v. United States, 498 U.S. 192 (1991), he first a rg u e s that the "willfulness" element of criminal tax o f f e n s e s-- w h ic h "requires the Government to prove that the law im p o s e d a duty on the defendant, [and] that the defendant knew o f th[at] duty," id. at 201--can never be satisfied by willful b lin d n e ss . Second, he contends that the Court improperly in s tru c t e d the jury that the element of intent could be satisfied th ro u g h proof of willful blindness, by analogy in violation of our re c e n t en banc decision in Pierre v. Attorney General, 528 F.3d 1 8 0 (3d Cir. 2008) (en banc). He finally argues that the trial e v i d e n c e did not warrant a willful blindness instruction.

We exercise plenary review over whether a willful b lin d n e s s instruction properly stated the law. United States v. K h o r o z ia n , 333 F.3d 498, 507­08 (3d Cir. 2003); see also U n ited States v. Wert-Ruiz, 228 F.3d 250, 255 (3d Cir. 2000). W e review a district court's determination that the trial evidence 32

ju s tif ie d the instruction for abuse of discretion, United States v. F lo r e s , 454 F.3d 149, 156 (3d Cir. 2006), and "view the e v i d e n c e and the inferences drawn therefrom in the light most f a v o ra b le to the [G]overnment," Wert-Ruiz, 228 F.3d at 255. 1. W h e th e r the District Court's Willful B l i n d n e s s Instruction A p p l i e d to S ta d tm a u e r's Knowledge of the Law

B e f o r e turning to Stadtmauer's first challenge to the D i s tr ic t Court's willful blindness instruction, we address the G o v e rn m e n t's contention that the Court's instruction applied o n ly to Stadtmauer's knowledge of facts, not his knowledge of th e law. The Government's initial proposed willful blindness in s tru c tio n plainly applied to Stadtmauer's knowledge of the la w . The final sentence of that instruction stated: "You may f in d that [the] defendant acted knowingly . . . if you find either th a t the defendant actually knew about the applicable IRS re q u ir e m e n t s for the prosecution years, or that the defendant d e lib e ra te ly closed his . . . eyes to what he . . . had every reason to believe." (Supp. App. 60.) Stadtmauer submitted a brief o b je c tin g to this instruction. Though he conceded that willful b lin d n e ss may be appropriate to establish knowledge of facts, he arg u ed that, under Cheek, "willfulness" requires actual k n o w le d g e of the law, which cannot be satisfied through d e lib e ra te ignorance. 33

A t the charging conference, the Government submitted a revised instruction that omitted the reference to Stadtmauer's k n o w le d g e of "applicable IRS requirements." It instead in s tru c te d the jury that the "element of knowledge" would be s a tis f i e d if the Government proved beyond a reasonable doubt " a conscious purpose by the defendant to avoid knowledge [that] th e tax returns at issue were false or fraudulent as to a material m a tte r ." (App. at 3973­74.) Though the Government revised its charge to address Stadtmauer's objections, it nonetheless m a d e explicit its position that willful blindness could cover both k n o w le d g e of the law and knowledge of facts, arguing that "it is a little difficult to say that it can't [apply to] legal [ k n o w le d g e ] at all[,] because it's really kind of a mixed question o f law and fact[] in many [tax] cases." 2 0 (Id. at 3905.)

Stadtmauer contends that the Government sought a willful b lin d n e ss instruction solely (and improperly) as a "preemptive m e a su re ." (Appellant's Br. at 76.) He notes that when then the G o v e rn m e n t requested the instruction, it stated: "[w]e believe [ S tad tm a u e r] has actual knowledge, but we would like to p re se rv e the right to argue willful blindness depending on what w e hear from the other side" in closing arguments. (App. 3906.) W e disagree with this contention. As our precedent m a k e s clear, there is nothing improper with the Government s e e k in g a willful blindness instruction while also contending th a t there is sufficient evidence of actual knowledge. See, e.g., W e rt-R u iz, 228 F.3d at 255 ("[I]t is not inconsistent for a court to give a charge on both willful blindness and actual knowledge, 34

20

In its final instructions, the District Court gave a willful b lin d n e ss instruction consistent with the Government's revised in s tru c tio n . In relevant part, the Court instructed the jury as f o l lo w s : T h e element of knowledge on the part of the d e f e n d a n t may be satisfied by inferences drawn f ro m proof that the defendant closed his eyes to w h a t would otherwise have been obvious to the d e f en d a n t. A finding beyond a reasonable doubt o f a conscious purpose by the defendant to avoid k n o w le d g e that the tax returns at issue were false o r fraudulent as to a material matter would p e rm it an inference that he had such knowledge. S tated another way, the defendant's k n o w le d g e of a fact or circumstance may be in f e rre d from his willful blindness to the e x is te n c e of that fact and circumstance.

for if the jury does not find the existence of actual knowledge, it might still find willful blindness."). Moreover, though S ta d tm a u e r argued in his summation that the number of tax re tu rn s he signed at a time, coupled with the brief amount of t i m e he spent reviewing each, proved that he lacked actual k n o w le d g e of their contents (App. 4082, 4135), the Government d id not make arguments based on a willful blindness theory in its summation. 35

N o one can avoid responsibility for a crime b y deliberately ignoring what is obvious. Thus, yo u may find that the defendant knew that the tax re tu rn s at issue were false or fraudulent as to a m a te ria l fact based on evidence that you find e x is ts that proves beyond a reasonable doubt that t h e defendant was aware of a high probability th a t the tax returns at issue were false or fr a u d u l e n t as to a material matter; and two, that d e f e n d a n t consciously and deliberately tried to a v o id learning about this fact or circumstance. (A p p . 3973­74 (emphases added).) Thus, though the Court's w illfu l blindness instruction referred to Stadtmauer's "k n o w led g e of a fact or circumstance," it also instructed the jury th a t the Government could satisfy its burden of proof on "the e lem e n t of knowledge" by proving that Stadtmauer consciously a v o id e d learning that the returns were "false or fraudulent as to a material matter," using language that tracks the applicable s ta tu te . See 26 U.S.C. § 7206(2). The Government argues that the Court's reference to S ta d tm a u e r's knowledge that the tax returns were "false or f ra u d u len t as to a material matter" was merely "addressed to S ta d tm a u e r' s knowledge of the contents of the returns." (A p p e lle e 's Br. at 77.) The Government notes, for example, that r e g a rd l e ss of Stadtmauer's knowledge of the relevant tax laws, h e could have consciously avoided learning of "the fact that an 36

e x p e n d itu r e from one partnership was falsely represented as a d e d u c tio n of another partnership," a question of fact that did not re q u ire proof of Stadtmauer's knowledge of tax law. (Id. at 79.) W e disagree. The Government's charges in this case were not limited to improper deductions for "non-property" expenses (i.e., e x p e n s e s paid by a partnership different than the one that a c tu a lly incurred the expense). Indeed, the bulk of the allegedly im p ro p e r deductions were for expenditures that should have b ee n capitalized, and it was undisputed that these amounts were p a id for work that was actually performed. Rather, for this ca teg o ry of deductions (and others), the Government's theory w a s that legitimate expenditures were deducted in a fraudulent m a n n e r on the partnerships' tax returns. To prove that Stadtmauer knew the partnership tax re tu rn s were "false or fraudulent as to a material matter" with r e sp e c t to these deductions, the Government needed to establish tw o "facts" beyond a reasonable doubt: (1) that Stadtmauer k n e w that these expenditures were claimed as fully deductible b u sin e ss expenses; and (2) that he knew those deductions were im p e r m is s ib l e under the relevant tax laws (i.e., that they re n d e re d the tax returns "false or fraudulent as to a material m a tte r" ). Cf. United States v. Schiff, 801 F.2d 108, 113 (2d Cir. 1 9 8 6 ) (noting that in a criminal tax case the defendant's " k n o w le d g e of tax law [is], itself, a fact to be proved as part of th e government's case") (emphasis in original). In that light, we 37

b e lie v e a reasonable juror could have interpreted the District C o u rt's willful blindness instruction as applying not only to S ta d t m a u e r 's knowledge of facts (i.e., which expenditures were c la im e d as deductible business expenses on the tax returns), but a ls o his knowledge of the law (i.e., whether those deductions w ere materially "false or fraudulent" under the Tax Code). A cc o rd in g ly, we turn to Stadtmauer's argument that the Court's in s tru c tio n incorrectly stated the law in that regard. 2. W illf u l Blindness and Cheek

S t a d tm a u e r argues that a willful blindness charge that a p p lies to a defendant's knowledge of the law is "categorically a n d unequivocally" inappropriate in a criminal tax case in light o f the Supreme Court's decision in Cheek. (Appellant's Br. at 6 9 .) We disagree. W e begin with the facts of Cheek. The defendant there s to p p e d filing federal income tax returns in 1980 and was c h a rg e d with (1) willfully failing to file federal income tax re tu rn s and (2) willfully attempting to evade income taxes. 498 U .S . at 194. Cheek's defense at trial was that, as a result of " in d o c trin a tio n " he received as a member of a group that b e liev e d the federal tax system is unconstitutional, he "sincerely b e liev e d that the tax laws were being unconstitutionally e n f o rc e d and that his actions . . . were lawful," and thus had " a c te d without the willfulness required" for the offenses c h a rg e d . Id. at 196. 38

T h e trial court instructed the jury that, to satisfy the e lem e n t of "willfulness," the Government was required to " p ro v e the voluntary and intentional violation of a known legal d u ty, a burden that could not be proved by showing mistake, ig n o ra n c e, or negligence." Id. However, the court also in s tru c te d the jury that only "an objectively reasonable goodf a ith misunderstanding of the law would negate willfulness." Id . (emphasis added). The Seventh Circuit Court affirmed C h e e k 's conviction, holding that "even actual ignorance is not a defense unless the defendant's ignorance was itself objectively re a so n a b le ." Id. at 198. The Supreme Court reversed. It first reaffirmed that the te rm "willfully," as used in criminal tax statutes, "carv[es] out a n exception to the traditional rule" that ignorance of the law is n o t a defense to criminal liability. Id. at 200. Second, it re a ff irm e d its prior decisions establishing that "the standard for th e statutory willfulness requirement is the `voluntary, in te n tio n a l violation of a known legal duty.'" Id. at 201 (quoting P o m p o n io , 429 U.S. at 12); see also United States v. Bishop, 4 1 2 U.S. 346, 360 (1973). Turning to the jury instruction given in Cheek's trial, the C o u rt concluded that the trial judge erred in instructing the jury th a t "a claimed good-faith belief must be objectively re a s o n a b le " to "negat[e] . . . evidence purporting to show a d e f en d a n t's awareness of the legal duty at issue." 498 U.S. at 2 0 3 . The Court explained that, in proving that a defendant had 39

" a ctu a l knowledge" of the legal duty imposed on him by the tax la w s , the Government must also negat[e] a defendant's claim of ignorance of the la w or a claim that because of a misunderstanding o f the law, he had a good-faith belief that he was n o t violating any of the provisions of the tax laws. T h is is so because one cannot be aware that the la w imposes a duty upon him and yet be ignorant o f it, misunderstand the law, or believe that the d u ty does not exist. In the end, the issue is w h e th e r, based on all the evidence, the G o v e rn m e n t has proved that the defendant was a w a re of the duty at issue, which cannot be true if th e jury credits a good-faith misunderstanding and b e lie f submission, whether or not the claimed b e lief or misunderstanding is objectively r e a so n a b le . Id . at 202. The Court thus distinguished between two types of p e rs o n s : (1) a person with "actual knowledge" of a legal duty, a n d (2) a person who, in good faith, is ignorant of the duty, m is u n d e rs ta n d s it, or believes that it does not exist. It held that c rim in a l tax liability could not attach to a person in the latter c a t e g o r y. S tad tm a u e r's attempt to equate a person who deliberately a v o id s learning of a legal duty with a person falling within the 40

la tte r category (e.g., one who is ignorant of that duty by virtue o f a good-faith belief or misunderstanding) is not persuasive. T h e willful blindness charge, also known as a "deliberate ig n o ran ce " charge, originates from the Ninth Circuit Court's d e c i s io n in United States v. Jewell, 532 F.2d 697 (9th Cir. 1 9 7 5 ). See United States v. Caminos, 770 F.2d 361, 365 (3d C ir. 1985). Jewell explained that [ t]h e substantive justification for the [charge] is th a t deliberate ignorance and positive knowledge a re equally culpable. The textual justification is th a t in common understanding one "knows" facts o f which he is less than absolutely certain. To act " k n o w in g ly," therefore, is not necessarily to act o n ly with positive knowledge, but also to act with a n awareness of the high probability of the e x is te n c e of the fact in question. When such a w a re n e ss is present, "positive" knowledge is not r e q u ir e d . J e w e ll, 532 F.2d at 700 (emphasis added). Thus, willful b lin d n e ss is a "subjective state of mind that is deemed to satisfy a scienter requirement of knowledge," United States v. One 1 9 7 3 Rolls Royce, 43 F.3d 794, 808 (3d Cir. 1994), and "cannot b e c o m e a safe harbor for culpable conduct," Wert-Ruiz, 228 F .3 d at 258. We see nothing in Cheek--which did not involve a 41

w illfu l blindness instruction--that suggests the Supreme Court in te n d e d to exempt criminal tax prosecutions from this general ru le . Cf. United States v. Bussey, 942 F.2d 1241, 1249 (8th Cir. 1 9 9 1 ) (defendant's reliance on Cheek in challenging willful b lin d n e ss instruction in criminal tax trial was "seriously m is p la c ed " because "Cheek did not involve a willful blindness in s tru c tio n " ). The justification for requiring knowledge of the re lev a n t tax laws is that, "in our complex tax system, uncertainty o f te n arises even among taxpayers who earnestly wish to follow th e law, and it is not the purpose of the law to penalize frank d if f ere n c e [ s ] of opinion or innocent errors made despite the e x e rc is e of reasonable care." Cheek, 498 U.S. at 205 (internal q u o tatio n marks and citation omitted); see also Bryan v. United S ta te s, 524 U.S. 184, 195 (1998) (explaining that "[t]he danger o f convicting individuals engaged in apparently innocent a c tiv ity" is what "motivated [the Court's] decision[]" in Cheek); U n ite d States v. Murdock, 290 U.S. 389, 396 (1933) ("Congress d id not intend that a person, by reason of a bona fide m isu n d erstan d in g . . . , should become a criminal by his mere fa ilu re to measure up to the prescribed standard of conduct."), o ve rru led on other grounds by Murphy v. Waterfront Comm'n, 3 7 8 U.S. 52 (1964). By definition, one who intentionally avoids lea rn in g of his tax obligations is not a taxpayer who "earnestly w is h [ e s] to follow the law," or fails to do so as a result of an " in n o c e n t error[] made despite the exercise of reasonable care." C h e e k, 498 U.S. at 205 (internal quotation marks and citation o m itte d ). Rather, a person who deliberately evades learning his le g a l duties has a subjectively culpable state of mind that goes 42

b e yo n d mere negligence, a good faith misunderstanding, or even re c k le s s n e s s . Cf. Wert-Ruiz, 228 F.3d at 237 ("Willful blindness is not to be equated with negligence or lack of due care, for w illf u l blindness is a subjective state of mind that is deemed to s a tis f y a scienter requirement of knowledge." (internal quotation m a rk s and citation omitted)); see also 1973 Rolls Royce, 43 F.3d a t 808 (describing the "mainstream conception of willful b lin d n e ss as a state of mind of much greater culpability than sim p le negligence or recklessness, and more akin to k n o w le d g e " ). Several of our sister circuit courts have similarly c o n c lu d e d that a willful blindness instruction that applies to a d e f en d a n t's knowledge of tax law does not run afoul of Cheek. S e e United States v. Anthony, 545 F.3d 60, 64­65 (1st Cir. 2 0 0 8 ); United States v. Dean, 487 F.3d 840, 851 (11th Cir. 2 0 0 7 ); Bussey, 942 F.2d at 1248­49.2 1 The First and Eleventh

The Fifth and Seventh Circuit Courts have also approved o f a willful blindness instruction that applies to a defendant's k n o w led g e of the law, though those Courts did not specifically d i sc u s s Cheek. See United States v. Hauert, 40 F.3d 197, 203 n .7 (7th Cir. 1994) (affirming conviction for tax evasion where th e facts "support[ed] the inference that the defendant was a w a re of a high probability of the existence of the fact in q u e stio n [tax liability] and purposefully contrived to avoid le a rn in g all of the facts" (internal quotation marks and citation o m itte d ; second alteration in original)); United States v. 43

21

C irc u it Courts have interpreted Cheek as counseling that, though a belief that one is complying with the tax laws need not be " o b je c tiv e l y reasonable" to constitute a defense, it nonetheless m u s t be "held in good faith." Anthony, 545 F.3d at 65; see also D e a n , 487 F.3d at 851 (reasoning that the Cheek Court had, " a lb e it, not in so many words," held that "the law would not co u n ten a n ce " willful blindness to one's tax obligations). A c c o rd in g ly, "the defense that the accused did not know of his [ leg a l] duty fails if he came by his ignorance through deliberate a v o id a n c e of materials that would have apprised him of his duty, a s such avoidance undermines the claim of good faith." A n th o n y , 545 F.3d at 65; see also Dean, 487 F.3d at 851 ("A w illf u l blindness instruction is entirely appropriate where the e v id e n c e supports a finding that a defendant intentionally in s u la te d himself from knowledge of his tax obligations."). We agree with the reasoning of these Courts and join th e m in concluding that a willful blindness instruction that a p p lie s to a defendant's knowledge of the law in a criminal tax c a se (such as the instruction at issue here) does not run afoul of C h e e k.

Wisenbaker, 14 F.3d 1022, 1027­28 (5th Cir. 1994) (willful b lin d n e ss instruction was appropriate in tax evasion case in light o f the defense theory, i.e., that the defendant "belie[ved] that he w a s not responsible for . . . taxes," and evidence that he failed to file tax returns even after his accountants "brought to his a tte n tio n his duty to do so"). 44

T h e District Court's willful blindness instruction in this c a se also adhered to our precedent requiring that such an in s tru c tio n "`make clear that the defendant himself was s u b je c tiv e ly aware of the high probability of the fact in question, a n d not merely that a reasonable man would have been aware of th e probability.'" Wert-Ruiz, 228 F.3d at 255 (quoting Caminos, 7 7 0 F.2d at 365). The Court instructed the jury that it must find b e yo n d a reasonable doubt that Stadtmauer (1) "was aware of a h ig h probability that the tax returns at issue were false or f ra u d u le n t as to a material matter," and (2) "consciously and d e li b e ra te ly tried to avoid learning about this fact." (App. 3 9 7 4 .) The Court told the jury that it could not find the element o f knowledge satisfied if it found only that Stadtmauer "should h a v e known that the tax returns at issue were false as to a m a te ria l matter[,] or that a reasonable person would have known o f a high probability of that fact." (Id. (emphases added).) F in a lly, the Court stressed that it was insufficient that S ta d tm a u e r "may have been stupid or foolish or may have acted o u t of inadvertence or accident. A showing of negligence or of a good-faith mistake of law is not . . . sufficient to support a f in d in g of . . . knowledge." (Id.) The instruction as a whole thus belies Stadtmauer's c la im s that the District Court "allowed the jury to substitute a f a ilu re to inquire for evidence of actual knowledge of the tax la w s " ; allowed the jury to convict him simply for being " ig n o ra n t of" or "for misunderstanding" the law; and instructed th e jury to apply an "objective test[]" in determining whether he 45

h a d knowledge of the law.2 2 (Appellant's Br. at 70­71.) A c c o r d in g ly, we conclude that the Court's willful blindness in s tru c tio n correctly stated the law. 3. W h e th e r the Distric