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http://laws.findlaw.com/9th/9610287.html |
U.S. 9th Circuit Court of Appeals
USA v MARSH
9610287
UNITED STATES OF AMERICA, No. 96-10287 Plaintiff-Appellee, D.C. No. v. CR-93-00592-VRW PHILLIP MARSH, Defendant-Appellant. UNITED STATES OF AMERICA, No. 96-10288 Plaintiff-Appellee, D.C. No. v. CR-93-00592-VRW MARLENE MARSH, Defendant-Appellant. UNITED STATES OF AMERICA, No. 96-10289 Plaintiff-Appellee, D.C. No. v. CR-93-00592-VRW DOUGLAS CARPA, Defendant-Appellant. 5117 UNITED STATES OF AMERICA, No. 96-10291 Plaintiff-Appellee, D.C. No. v. CR-93-00592-VRW JILL SPENCER, Defendant-Appellant. UNITED STATES OF AMERICA, No. 96-10292 Plaintiff-Appellee, D.C. No. v. CR-93-00592-VRW DARRELL SPENCER, Defendant-Appellant. UNITED STATES OF AMERICA, Plaintiff-Appellee, No. 96-10293 v. D.C. No. CR-93-00592-VRW JOHN CAMPION, a/k/a Joseph Coltrane, OPINION Defendant-Appellant.
On Appeal from the United States District Court
For the Northern District of California
Vaughn R. Walker, District Judge, Presiding
Argued and Submitted
March 9, 1998--San Francisco, California
Filed May 27, 1998
Before: John T. Noonan and Sidney R. Thomas, Circuit
Judges, and Dean D. Pregerson*, District Judge.
Opinion by Judge Noonan
_________________________________________________________________
_________________________________________________________________
COUNSEL
William A. Cohan, Esq., La Jolla, California, for defendant-
appellant Phillip Marsh.
Shari L. Greenburger, Esq., Serra, Perelson Law Firm, San
Francisco, California, for defendant-appellant Marlene Marsh.
Henry G. Wykowski, Esq., Henry G. Wykowski & Asso-
ciates, San Francisco, California, for defendant-appellant Jill
Spencer.
Michael Stepanian, Jai M. Gohel, San Francisco, California,
for defendant-appellant Darrell Spencer.
Arthur Pirelli, San Francisco, California, for defendant-
appellant Douglas Carpa.
George C. Boisseau, Santa Rosa, California, for defendant-
appellant Joseph Coltrane.
Albert S. Glenn, Assistant United States Attorney, Chief,
Appellate Section, Sandra Teters, Thomas Carlucci, Assistant
United States Attorneys, San Francisco, California; Frank P.
Cihlar, Attorney, Tax Division, United States Department of
Justice, Washington, D.C., for plaintiff-appellee.
_________________________________________________________________
OPINION
NOONAN, Circuit Judge:
Phillip Marsh and his five co-defendants appeal their con-
victions of conspiring to defraud the United States by imped-
ing the collection of federal income taxes and their
convictions of related crimes. They also appeal their sen-
tences, which, as to Phillip Marsh total a term of imprison-
ment of 17 1/2 years, as to his wife Marlene a term of 14
years, and as to the other defendants lesser but still substantial
periods of prison.
FACTS AND PROCEEDINGS
Phillip Marsh was the founder in 1990 of The Pilot Con-
nection Society, often self-identified by its acronym TPCS.
Marsh's enterprise offered its customers the elusive and
enchanting prospect of untaxing themselves. The verb "untax"
entered the language in political conflict in England over a
formidable tariff on foreign grain and denoted political action
by the government ("Who will untax our bread? " E. Elliott,
Corn-Law Rhymes, 1833). "Untax," as used in the present
context, means freeing oneself from any legal obligation to
pay any income tax, federal or state.
To achieve this exceptional state, TPCS offered an "Untax
Package." The package included Phillip Marsh's The Com-
pleat Patriot, the Constitution of the United States, Psalm 91,
and a photograph of Phillip and his wife suitable for framing.
It also included "Very basic untax documents and their
instructions." Among them were a form letter to be sent to the
District Director of the Internal Revenue Service stating that
the quondam taxpayer had recently found out that the director
had been "attempting to extort money" from him and
demanding that he justify his jurisdiction by a certified copy
of the director's designation of authority from the Secretary
of the Treasury. The letter was not to be xeroxed and was to
be handwritten because "[i]t takes 3 to 5 times as long to read
hand written material as it does to read typed material -- any-
thing to slow the IRS down!" Another form letter, to be simi-
larly copied by hand, informed the district director that the
taxpayer was not a person under the director's jurisdiction.
The Untax Package included another form by which the
taxpayer revoked income tax returns previously signed by him
and "cancelled" his signature on such returns. This form was
to be retyped by the taxpayer, eliminating the Pilot Connec-
tion letterhead, and to be notarized. The theory of the revoca-
tion and cancellation, as explained in the Untax Package, was
that the IRS would use earlier returns to prove that the tax-
payer was aware of his obligation to file and pay. The revoca-
tion and cancellation would, so the Untax Package suggested,
eliminate this easy evidence of the taxpayer's wilfulness in
now refusing to file and pay. The reason that the taxpayer
could so readily remove himself from the taxpaying rolls was,
according to TPCS, that "income tax is voluntary. " (SER 32.)
If you didn't want to pay it, you didn't have to.
TPCS also advised its members to resort to "alternative
banking," that is, to pay everything by cash or postal money
order, or to join something called the National Commodity
and Barter Association and use "warehouse banking," or to
have some trusted associate open an account for one in the
associate's name, or to establish, with TPCS's help, an
"offshore trust." The reason for adopting one of these alterna-
tive styles of money management was that if you opened a
checking or savings account you agreed "that the money
belongs to the bank from that moment on," with the implica-
tion that the bank would surrender the money on levy by the
IRS (SER 36.) Members were provided with forms, to be
recopied and notarized, of revocation of bank signature cards.
(SER 35.)
Another practical precaution the TPCS member was
advised to take, in order to assure that his emancipation from
taxation was effective, was to file W-4s with his employers
claiming as many exemptions as he had thousands of dollars
of income. For example, if he earned $30,000, he was to file
a W-4 claiming 30 exemptions. The member was assured by
TPCS that there was no limit to the number of exemptions he
could lawfully claim. (SER 342.) No mention was made of
any duty to have a reason for claiming an exemption.
Untax Packages, the contents sometimes different in unes-
sential detail, were sold by TPCS for a price that varied for
the occasion. At the start the price was over $6,000. (SER 8.)
The price announced in January 1993 was "$2,100 or 10% of
your existing tax problem (if any), whichever is higher."
(SER 380.) As of January 31, 1990, TPCS had only three pur-
chasers of the Untax Package. By December 31, 1993, TPCS
recorded 3,848 purchasers and income from them of
$7,638,625. (SER 19.)
TPCS had ordinary members who did not purchase the
Untax Package but who did pay $45 for membership. By the
end of 1993 there were 12,617 in this category. (SER 19.)
They received TPCS's magazine, The Connector. The maga-
zine carried the subtitle "The Voice of Freedom " and ran a
facsimile of an American flag as its logo. Its pages repeated
at their foot the mantra of the Society, "Income Tax Is
Voluntary!" The Connector informed its readers that there
was no law making anyone liable for income tax.
TPCS had a cadre superior to that of mere members, consti-
tuted by those admitted to the status of Associate Member. An
Associate Member had the right to sell the publications of
TPCS. He paid $10,000 to acquire the franchise and the confi-
dential instructions on marketing that accompanied the fran-
chise. By December 31, 1993, there were 730 persons who
had been admitted to this advanced status. Apparently some
associates got a discount, for the total paid by them recorded
in the Society's book was $5,281,010. (SER 19.)
Phillip Marsh conceived the idea of TPCS. His wife Mar-
lene joined him in marketing it. Together they traveled the
United States soliciting the purchase of memberships and
Untax Packages and speaking at seminars and conferences
intended to promote TPCS. Marlene's daughter, Jill Spencer,
was an Associate Member and the office manager, in the lat-
ter capacity opening and distributing mail sent to TPCS, log-
ging cash received and responding to some customer
complaints. Her husband Darrell was also an Associate Mem-
ber. He became TPCS's General Manager, overseeing staff
and publications, revising the Untax Package, and writing in
his own name in The Connector, to explain why paying
income tax was optional.
A family operation, TPCS was aided by Joseph Coltrane,
alias John Campion, and by Douglas Carpa. Coltrane was the
National Coordinator of the TPCS sales force. Carpa was not
a TPCS member but from approximately May 1991 to June
1992 assisted the marketing of memberships in TPCS by put-
ting together trusts in which TPCS members might hope to
hide their assets from the IRS. He offered his drafts of trust
instruments only to those who purchased the Untax Package.
He assured members that his trusts were "old and cold" and
would work to cure even preexisting problems with the IRS
because the trusts would be predated to a time before an IRS
lien.
In its publications TPCS asserted that it was not a tax pro-
tester movement, that it did not deny the constitutionality of
the Internal Revenue Code, and that it did not maintain that
Congress lacked the power to tax income. TPCS simply
taught that Congress had not exerted that power and that the
IRS was "a private corporation" engaged in lawless efforts to
extract money from Americans not obliged to pay. TPCS
characterized its own teachings as educational and added that
they were the exercise of free speech, protected by the First
Amendment from prosecution.
TPCS was aware that the IRS challenged its view of the
law, an awareness reinforced by the rejection that TPCS's
Untax Package received when put into practice by members.
The IRS by 1991 was aware of TPCS and alert to its raison
d'etre. In February 1992 an affidavit filed by IRS Special
Agent Diane Messer characterized TPCS as an "illegal tax
protester organization" and sought a search warrant authoriz-
ing the seizure of documents pertaining to TPCS and to Phil-
lip and Marlene Marsh. The search was to be carried out at
the Marshes' home, which they used as the Society's head-
quarters. Pursuant to the warrant, a comprehensive seizure
was made of the correspondence, computers, and file cabinets
of the Society.
Apparently as a response to the search, on August 12, 1992,
in Stockton, California, Phillip and Marlene Marsh and Jill
Spencer signed two papers alleging that certain persons were
indebted to them in the amount of $350,000 each and seeking
to place a commercial lien on the property of the debtors.
These persons were Agent Messer and three other IRS agents
involved in the search; the United States Magistrates who had
authorized the search; three United States attorneys in the
Eastern District of California and one United States attorney
in the Northern District; Lawrence Karlton, Senior District
Judge of the Eastern District; and California Superior Court
Judge Jeremy Fogel. The liens were filed in Nevada and
Washington.
A year later, in February 1993, a second affidavit executed
by Agent Messer asserted that TPCS was "so permeated with
involvement with illegal activities" that a comprehensive
search could not separate the few innocent items "from the
vast amount of material which will be relevant evidence of the
criminal violations." The Marshes then moved from Califor-
nia to Colorado and from their home there continued their
enterprise under the name the Liberty Foundation. A third
affidavit executed by Messer led to the comprehensive search
of the Colorado office in December 1993.
A grand jury had already, on November 29, 1993, indicted
the defendants for conspiracy to defraud the United States.
The defendants moved unsuccessfully to suppress the material
seized by the government from their files. Phillip Marsh
sought with equal unsuccess to introduce a report by a psychi-
atrist who evaluated him and found him to suffer from delu-
sions; the psychiatrist's proffered testimony was excluded in
limine on the government's motion. Trial followed in the dis-
trict court for Northern California running slightly over three
months, from August 29, 1994 to November 30, 1994. The
jury was unable to agree on the principal counts.
The United States obtained a superseding indictment charg-
ing all six defendants with conspiracy to defraud the United
States by obstructing the lawful functions of the IRS, in par-
ticular by their operation and promotion of TPCS and the
Untax Package. The two Marshes and the two Spencers were
personally charged with tax evasion and failure to file a
return. The indictment also charged all defendants except
Carpa with numerous counts of mail fraud in the sale of the
Untax Package to over 3,000 persons. The two Marshes and
Jill Spencer were charged with endeavoring to impede the
administration of the tax laws by filing the commercial liens
in Nevada and Washington against the government officials
named in them.
The government announced in its Status Conference State-
ment that it intended to introduce "as much of its evidence as
possible through `summary witnesses.' " The defendants filed
a joint motion in limine opposing this procedure:"it appears
that the government intends to avoid cross-examination of the
alleged mail fraud victims by hearsay summaries. " The gov-
ernment had proposed that IRS agents read excerpts from the
TPCS files. The defendants objected that the material from
TPCS files -- complaint letters from persons saying that they
had been deceived by TPCS -- fell within no exception to the
hearsay rule. The defendants asserted that the procedure
would violate their Sixth Amendment right to confront their
accusers. Citing Coy v. Iowa,
487 U.S. 1012
(1988), where
the Supreme Court held it unconstitutional to place a screen
shielding the accusers from the defendant, the defendants here
said: "Agent Durrette would be the screen between the defen-
dants and their alleged victims."
A hearing was held the following week before the judge
who had presided at the first trial in order to schedule the time
allowed for trial. The court expressed dissatisfaction with the
amount of time "wasted" by both sides in the first trial. The
court stated that the jury had heard the details of the untaxing
scheme "ad nauseam." The government argued that the first
jury had been "affected by the government's inability to pres-
ent the case in a way that educated them as to what our theory
of the case was, what our evidence meant, during the presen-
tation of the evidence." The court asked, "What stopped
you?" The government replied that the court had stopped it
from having a witness read from the material seized in the
searches. The government went on to say that it had to prove
the defendants' state of mind as to both the mail fraud counts
and the tax evasion counts. The court: "It seems to me that is
proved by the quality of the evidence as opposed to the quan-
tity of the evidence." The court went on to say:"I thought the
victims were a disaster for the government . . . .[T]he victims
were particularly unsympathetic. They were people who were
already in serious trouble with the Internal Revenue Service,
were essentially tax cheats themselves; and were put on the
witness stand with the representation that they were somehow
victimized by the defendants . . . . And I'm convinced that
your case ran aground with that first group of witnesses." The
district court never formally ruled on the defendants' in
limine motion to exclude the complaint letters; the govern-
ment concluded that it had a green light.
On November 9, the government offered Agent Durrette to
summarize material taken from the files of TPCS. The defen-
dants stipulated that the material came from the files -- the
government would not have to prove where each piece of cor-
respondence came from. The court described the stipulation.
It was "that these TPCS client file documents would simply
be stipulated as to their admission into evidence without the
necessity of putting a witness on the stand to lay any founda-
tion as to these documents. And the stipulation would be that
these documents were found in one or the other of the facili-
ties associated with the Pilot Connection Society. " The gov-
ernment answered, "Yes." Agreeing, the defendants again
vigorously objected to the government's presentation of the
files through testimony about their contents by Durrette. The
government replied that proof of the defendants' state of mind
was "the heart and soul" of its case.
Durrette took the stand. The government had prepared an
extensive file of material taken from TPCS with duplicates of
a number of letters to be given as handouts to the jury. The
material consisted substantially in statements of government
officials as to what the income tax law was, statements of
other persons including officers of the Church of Jesus Christ
of Latter Day Saints on the obligation to pay income taxes,
and letters from purchasers of the Untax Package complaining
that the Package did not work or, worse, that they had been
fraudulently induced to buy it.
The defendants objected repeatedly to the procedure -- to
Durrette's reading of views on the law as argument by the
government, to Durrette's reading of selected passages from
the correspondence as not summarizing but highlighting, and
to the reading of the complaints as violative of the Confronta-
tion Clause. Every objection was overruled by the trial court.
The second trial was two months shorter than the first. On
December 13, 1995 the jury found all six defendants guilty of
violating 18 U.S.C. S 371 by conspiring to defraud the United
States in the collection of income taxes. Phillip and Marlene
Marsh and Jill Spencer were convicted of two counts of viola-
tion of 26 U.S.C. S 7212(a) by corruptly endeavoring to
obstruct the administration of the income tax laws by filing
the liens. Both the Marshes and both the Spencers were con-
victed of violating 26 U.S.C. S 7201 by tax evasion and vio-
lating 26 U.S.C. S 7203 by failing to file tax returns. Both
Marshes were acquitted of ten counts of mail fraud and con-
victed of ten counts of mail fraud in violation of 18 U.S.C.
S 1341. Both Spencers were similarly acquitted, Darrell of
five, Jill of nine counts, and similarly convicted of nine mail
fraud counts; and Coltrane was convicted of six mail fraud
counts. The court denied Rule 29 motions, including motions
by the Marshes and Jill Spencer to dismiss the obstruction
charges on the ground of lack of venue.
On June 26, 1996 the court pronounced sentence. Phillip
Marsh was sentenced to 5 years imprisonment for conspiracy
to defraud the United States; 5 years imprisonment for each
of his ten mail fraud convictions; 5 years imprisonment on
each of two convictions of tax evasion; 3 years imprisonment
for each his two endeavors to impede the administration of the
tax laws; and 1 year imprisonment for each conviction of will-
ful failure to file tax returns. The sentences for conspiracy, tax
evasion and 9 of the 10 mail fraud counts were to be served
concurrently with each other. The 3 year sentences for the
endeavor to impede were to be were to be served consecu-
tively to the other counts and to each other. The 1 year sen-
tences for the two failures to file counts served consecutively
to each other and the other counts. The sentence on the two
tax evasion counts and two failure to file counts totals 7 years.
The 5 year sentence for the tenth mail fraud charge was to be
served consecutively to the extent necessary to produce a total
sentence of 17 1/2 years.
Marlene Marsh was sentenced to 5 years imprisonment for
conspiracy to defraud the United States; 5 years each for the
10 mail fraud counts, 5 years each for the two tax evasion
counts, 3 years on each of the 2 counts of endeavor to impede,
1 year on each of the 2 convictions of willful failure to file.
The 3 year sentences for endeavor to impede were to be
served concurrently with each other and consecutively to the
other sentences, the 1 year sentences for failure to file were
to be served consecutively to each other and to the other sen-
tences, and the 5 years for the two tax evasion counts and 10
mail counts were to be served concurrently to each other and
consecutively to the other sentences to the extent necessary to
produce a total sentence of 14 years. The sentence on the two
tax evasion counts and two failure to file counts totals 7 years.
Darrell Spencer was sentenced to 5 years imprisonment for
conspiracy to defraud the United States, 5 years on each of 9
mail fraud convictions, 5 years on each of 2 tax evasion con-
victions, and 1 year on each of 2 failure to file convictions.
The sentence for conspiracy, the 2 tax evasion sentences, and
8 of the 9 mail fraud sentences were to be served concur-
rently, as were the sentences for failure to file. The sentence
on the two tax evasion counts and two failure to file counts
totals 5 years. The ninth mail fraud sentence was to be served
consecutively to the other sentences to the extent necessary to
produce a total of 7 1/4 years.
Jill Spencer was sentenced to 5 years of imprisonment for
conspiracy to defraud the United States, 5 years on each of 9
mail fraud convictions, 5 years on each of 2 tax evasion con-
victions, 1 year on each of 2 failure to file convictions, and
3 years on each of 2 convictions to impede. The sentences for
conspiracy, tax evasion and the 9 mail fraud counts were to
be served concurrently, as were the sentences for failure to
file. The sentence on the two tax evasion counts and the two
failure to file counts totals 5 years. The two 3 year sentences
for corrupt endeavor to impede were to be served concur-
rently to each other but consecutively to the other sentences
to the extent necessary to produce a total sentence of 7 1/4
years.
Coltrane was sentenced to 5 years for a conspiracy to
defraud the United States and 1/4 year imprisonment on one
count of mail fraud, the sentences on the other counts of mail
fraud to be served concurrently. Carpa was sentenced to 4 3/4
years on conviction of conspiracy to defraud the United
States.
The defendants appeal.
ANALYSIS
All defendants contend that they were denied the right to
confront the witnesses against them when Agent Durrette read
to the jury excerpts from material found in the defendants'
files.
The following are from the excerpts read aloud to the jury
by Agent Durrette: (The excerpts are exact, but not given in
full; the authorships and dates are as read.)
1. "Some so-called tax protesters are making speeches and
offering seminars around the country at which serious
misrepresentations about the tax laws are being presented
to the public as fact." Fact Sheet.
2. "Indeed, it is strange how the mind justifies things. For
example, the way you justify `untaxing' people by bla-
tantly misrepresenting the truth about your so-called
`untaxing' program for the sole purpose of lining your
pockets with unsuspecting victim's hard earned money
while you sit idly by and watch the Franchise Tax Board
and Internal Revenue Service come in and steal every-
thing they have -- knowing full well that this will be the
outcome." Letter from Shawn O'Connor, 7/6/92.
3. "Why would I sent you a check for $8,745 when you
have not got the lien off my home?" Letter from Curtis
Howard 5/29/91.
4. "To date, the Pilot Connection System has not given any
relief and has only compounded my tax problems. On the
basis of fraud, I herewith demand the return of my $2,000
plus $499." Letter, 6/3/91.
5. "[The failure to succeed in not paying taxes] makes our
statement, `stop paying taxes permanently and legally' far
from being the truth." Letter from Hugh Bodey, 7/6/91.
6. "You did not `untax me legally and permanently' as
promised -- and, I am confident, that and if and when I
have to go to court, you would drop me as you have oth-
ers that I am hearing about." Letter from Hugh Bodey,
8/10/91.
7. "The program was sold to me under, what I now consider
false pretenses. In fact, I would go so far as to say it was
out and outright fraud." Letter from Roger Hawks,
8/12/91.
8. "Due to the facts provided to us by you, some of which
we now know to be out and out lies, we signed on with
your organization." Letter from Arthur and Donna Fuller,
8/15/91.
9. "Bob Kane [a lawyer] told our company attorney (see
memo) that I had a zero percent chance of ever eventually
winning against the IRS." Letter 8/16/91.
10. "Despite all the Pilot Connection's and Greg Galaski's
efforts, I was given two options by a federal judge: I
could comply with the court's order in person or at the
IRS office, or I could comply from the adult detention
center in downtown Los Angeles."
"I am asking nothing of the Pilot Connection now, Dar-
rell, because I don't believe in it anymore. The only
thing I have asked is that Don Held make good on his
promise to give me back the money I paid him if the
untax program didn't work." Letter from Dan Barwick,
8/3/91.
11. "When I joined the Connection I thought they had found
that simple key to avoid taxes and a `voluntary' part of
the IRS system, if people qualified. As it appears now
it doesn't work so I have decided to look for work
elsewhere." Letter from Ogden Kraut, 8/15/91.
12. "When I joined the Pilot Connection, I believed what I
was told and being naive about patriot issues didn't have
the knowledge to spot defects and lies in your program."
Letter, 10/14/91.
13. "I am in a situation now that I have no income and I had
to borrow the $4,000 that I paid to the Pilot Connection
and I've received nothing but broken promises and lies."
Letter, 11/1/91.
14. "When I first became involved with your group I
believed what you were saying was true and factual. But
the longer I used the Pilot Connection's system the more
it becomes evident the system does not work."
"You have been dishonest in your allegations and letter
process and I feel that I cannot do business with anyone
or any company or group that is deceitful."
"You have fraudulently taken money from me and at
this time I wish to have all monies returned to me. " Let-
ter, 11/29/91,
15. "I cannot sell a bill of goods to someone that I can't
even deliver for myself and my wife. We did not have
a problem when we started this program, but we seem
to be developing one and my wife is really scared,
because she is afraid of going to jail and losing her job
where she has 26 years service and has only 4 years to
go before retirement." Letter from Darrell Hoover,
12/18/91.
16. "We have found, in doing further research, at the law
library, that your organization is teaching incorrect prin-
ciples dealing with some very serious legal matters."
Letter from Robert and Leah Aycock, 12/18/91.
17. "I don't think you realize the sad situations a lot of us
are in. You talk a good line over the phone, but where's
the beef?" Letter to Pilot Connection/Phil Marsh.
18. "We have done everything in the pamphlet plus every
step Jim Caler said and still problems. Federal and state
has attached both of our wages again, but this time the
interest and penalties are even higher . . . Take us off the
Pilot Connection." Letter, 1/22/92.
19. "This is our letter of resignation due to the fact that I
believe your material and system of removing people
from state and federal taxes is fraudulent." Letter,
3/2/92.
20. "I paid you $15,000 to take care of my liens and levies
and I expect to see this accomplished. I have become
very insecure with the lack of performance." Letter,
2/5/92.
21. "Now I don't know what I have to do. I still have a lien
against me. They still did not remove the lien." Letter,
2/25/92.
22. "Everything we have been told has been wrong and we
no longer have any confidence with you and your
organization." Letter 5/16/92.
23. "I learned that the rest of your stupid arguments are
`frivolous' arguments. I call them `stupid' because the
courts are getting pissed off. They told us [patriots] over
and over that these are frivolous arguments that they
don't want to hear any more. They take the attitude, and
rightly so, that we are wasting their time, and the tax-
payers' money, with arguments that have repeatedly
lost. They have no patience with people using these stu-
pid arguments." Letter from Roy Buchanan.
24. "I am writing to express my disappointment in your
`untaxing' program . . .. I also followed your lien and
levy procedures, but to no avail. I still have a tax lien on
file and levy notices still follow me." Letter from Les
Johnson 8/11/92.
25. "[My attorney said] that the package was not legally
sound for me." Letter from Michael Hutton 9/9/92.
26. "According to this final notice, I do not believe that I
have been untaxed by the Pilot Connection." Letter
dated 9/28/92.
27. Your untax program costs me $1,100 and was absolutely
worthless . . .. Thanks a lot for wasting my hard-earned
retirement savings." Letter from David Mayo.
28. "Upon further investigation and study I have found your
information to be incomplete and misleading. The dam-
age done as a result of placing my hope and trust in you
has created a complexity of criminal violations that
could cost me my family, home, business and, most
importantly, my personal freedom." Letter from Ina
Gregory 10/1/92.
29. "He inferred that the IRS does not pay attention to the
notice of revocation and other strategies used by the
Pilot Connection. That I might end up paying the IRS
and the P.C., that the Pilot Connection was a scam and
Phil is mainly out to get people's money." Letter
10/28/92.
30. "What kind of people are you anyway? You take my
money and your organization does not perform what
you promise and then become abusive and threatening
to me? . . . I also want my $3,500 back A.S.A.P. " Letter
dated November 1992.
31. "I have talked at length with people in my town about
all that I read in your book. And most of the response
I have gotten is -- `sure, I know someone honest tried
this and they are serving time in Leavenworth.' " Letter
11/1/92
32. "Pilot Connection Society has made false claims to its
untaxed members, which has misled them and also
places them and their families in jeopardy of being con-
victed of tax evasion." Letter dated 11/18/92.
33. "They levied my wages anyway. What kind of bull is
this? I would like my $1,500 refunded. How can you
folks in good conscience keep on with this crap? Like
I said, I do want a refund. Because you did nothing at
all to earn the $1,500. It seems to be a big joke. " Letter
from Chris Yost.
34. "This letter will serve as my formal resignation from the
Pilot Connection Society; effective upon receipt. My
decision to enter into an agreement with your organiza-
tion was based on misrepresentations made by you and
your employees. The assistance and services I was led
to believe I would receive was never provided. I have
witnesses and proof of this fraud." Letter from Ed Max-
ime.
35. "In today's trial, the judge looked at the P.C. material I
had included in my brief. . . . The judge ridiculed it; said
that all of those types of approaches had long since been
tried and rejected." Letter from Albert Baxter 12/8/92.
36. "You have claimed to have `untaxed' in excess of
17,000 people of which surely 1 percent would have
received the letters from the IRS . . .. I am not asking
for even 1 percent of documented proof of these letters
but only of 1/2 percent of documented proof which
would be 85 letters. (I don't even believe that you can
provide 10 percent of that)." Letter 1/13/93.
37. "We trusted Liberty Foundation (Pilot Connection) only
to realize that our 3 and a half year battle with the IRS
was all for nothing. It disrupted our lives. During wage
garnishments we had no money. Try explaining to the
children why there won't be any Christmas. Sob stories
to you, real life to us. We lost a lot of money by trusting
in the Liberty Foundation. Worse than that, we lost our
liberty, the very thing your company offers." Letter
11/3/93.
[1] The government argues vigorously that this mass of
accusations was admissible because the jury was instructed
that the accusations were admitted not for the truth of the
statements but to show the state of mind of the defendants.
That was certainly the government's rationale. The difficulty
with the government's position is that the jury was not
instructed to limit its consideration to the defendants' state of
mind. In its brief on appeal the government points to a state-
ment of the court made on November 20 in reference to a doc-
ument then read to the jury. This instruction has no apparent
relevance to the documents read to the jury on November 9.
An examination of the record on November 9 shows that,
after being reminded of the defendants' in limine motion, the
trial court told the government to proceed. At this time, at the
start of Durrette's reading, the jury was given no instruction
whatsoever as to its purpose or limits.
Both the prosecution and defense counsel stated that they
had "cautionary instructions" to offer. The government said
its was the instruction that the court had given during the ini-
tial jury instructions. The court, in fact, gave no instruction,
so we are uncertain what was offered on November 9. How-
ever, we have reviewed the preliminary jury instructions to
see if they did contain relevant cautionary words. The most
relevant of these instructions are as follows:
Evidence may be introduced for the limited pur-
pose of establishing that the defendants were aware
of materials that expressed opinions in conflict with
those expressed by the Pilot Connection Society
regarding the success of a tax-related program mar-
keted by the tax --by the Pilot Connection Society.
Before you may consider any such evidence against
a particular defendant, you must find that the defen-
dant knew of the existence of these materials or their
contents. (Tr. 11/2/95, vol. 2, at 143.)
An intent to defraud may be demonstrated by the
scheme itself. Similarly, the defendant's knowledge
of a false statement or his or her reckless indiffer-
ence to the truth or falsity of that statement can dem-
onstrate an intent to defraud. (Id. at 149.)
In determining whether or not the government
proves that a defendant acted with an intent to
defraud and to obtain money or property by means
of false promises or statements or whether defendant
acted in good faith, you must consider all of the evi-
dence in the case bearing on defendant's statement.
(Id. at 150.)
None of these instructions limit the jury's consideration of
material from the files for the truth of what is contained in
them.
The first time that the court told the jury why the docu-
ments were being read -- sometime into the reading -- the
court said, "And it's clear from the court's instructions to the
jury -- and, ladies and gentlemen, if any of you have any
questions, please let me know. But it's clear that the docu-
ments themselves are the evidence. And they are being intro-
duced to show what documents were at the various locations
at the various times that the witness testified about." A little
later in response to another objection from the defendants, the
court said: "This is a document in the files of the Pilot Con-
nection Society found on the date indicated, and that's what
the document is being offered for. Again, is there any ques-
tion that any juror has that that is the evidence which is being
offered?" Neither of these instructions tells the jury not to
consider the truth of the matters read.
The first time an instruction on the defendants' state of
mind was given was in reference not to accusations against
TPCS but to an objection to Durrette reading from an IRS tax
manual found in the files: "The court is permitting the govern-
ment to argue cases that have been overruled as a matter of
law and citing legal principles that are no longer valid as if
that's notice of anything, and to that I most strenuously object
and move to strike." The court responded: "Well, the objec-
tion is overruled. This is clear this is an IRS tax manual. The
exact current status of the propositions of law referred to in
the manual are not issues for the jury to decide. They are not
necessarily part of the instructions. What this is being offered
for is a document that was in the files at the place and at the
time indicated by Mr. Durrette. And that bears on it being
offered with respect to the intent issues in this case vis-a-vis
the present defendants. But we are not here to argue the law."
(Tr. 11/9/95 at 78-79.) This instruction only indicates the pur-
pose of the reading of material on the tax laws.
To the next objection by defendants the court said:
"Counsel, I have been very patient this morning. Perhaps
that's a change in my attitude, but I am beginning to lose
patience. You have made a number of objections to this evi-
dence. I have ruled on these. It's clear what the evidence is
being offered for. The jury has been repeatedly instructed on
this. The jury has been told that what they are receiving are
excerpts of documents that are being admitted into evidence,
and for illustrative purposes Ms. Teters and the witness are
going through and pointing out certain things that the govern-
ment contends are of significance. Now, it's quite clear what
is going on, and it need not be a process that is periodically
punctuated by speechifying by lawyers. Your objections are
preserved, and so there isn't any need for undue interruption
and prolongation of this process."
The first time any instruction regarding complaint letters or
similar materials was given was much later in Durrette's testi-
mony when he read from a Clarion Ledger, Jackson, Missis-
sippi, editorial dated March 28, 1990, which stated:"Tax
protesters become a part of the con job that is played on the
American people." Counsel for the defendants objected: "I am
at a loss as to exactly what these editorial comments are pro-
viding notice of except the opinion of someone who wrote an
editorial." The court responded: "This is simply being offered
for the state of mind of the defendants." (Id. at 111-12.) Much
later in Durette's reading, a letter of Rudy and Gloria Medina
resigning from TPCS was read followed by a complaint letter
dated September 3, 1991. The defense again objected to these
letters as hearsay. The court stated again: "Well, as we dis-
cussed in the past, this is being offered for the state of mind
of the defendants." (Id. at 185.)
[2] It is apparent from this review that on three occasions
the jury was told that particular documents being read related
to the defendants' "intent" or the defendants'"state of mind."
At no time was the jury instructed that they were not to con-
sider the accusations as conveying truth about the facts
alleged in them. At no point was the jury told that these were
limiting instructions which confined the way they must look
at the evidence.
[3] In the first of the rulings that responded to defense
objections, twice repeated, the court told the jury merely that
the documents being read had been found at TPCS headquar-
ters. The court assumed that instructing the jury that what was
being established by the reading was that the documents were
found at TPCS headquarters operated as a restraint on the
jury's use of the documents. But for all the jury was
instructed, it could do whatever it wanted with what was
found at TPCS headquarters.
[4] If these accusations were to be admitted, it was incum-
bent on the court to give clear instruction to the jury distin-
guishing what they could treat as showing the knowledge of
defendants and what they could not treat as evidence of crime.
Aside from the three brief and particular references cited
above, no instructions at all were given on this vital point.
The three brief references were entirely insufficient to clarify
a concept that even for lawyers is not an easy one -- the dif-
ference between taking a statement for its truth value and lim-
iting it simply to the effect of the statement on the mind of the
person exposed to it. Even to a person trained in the law it
takes a mental effort of some magnitude to hear a letter
strongly manifesting the mind of the letter-writer as to the
truth of events the letter-writer says have happened and to dis-
tinguish between the asserted truth and the effect of the com-
munication on the mind of the recipient of the letter. There are
cases in which such letters have been admitted to show the
knowledge of the recipient, See e.g. United States v. Lasky,
600 F.2d 765, 769 (9th Cir. 1979); United States v. Farkas,
935 F.2d 962, 965 (8th Cir. 1991), but always with a clear
instruction that the letters should not be considered for the
truth of the matters contained therein. Without such limitation
the accusations act as testimony against the defendants.
[5] The instructions ultimately given the jury as it retired
did not cure the omission. The jury was told that only defen-
dants who knew or "should have known" of the documents
should be charged with notice of their contents. This instruc-
tion in no way limited the jury in considering the truth of the
contents. The jury was also told that it should observe any
limiting instructions that had been given in the course of the
trial. No instructions had been given telling the jury that it
could not take the truth of the 37 accusations enumerated
above into account.
The government does not argue that the defendants waived
their Confrontation Clause objection by not raising it again
when the final instructions were prepared. The defendants
were not obliged to object again when they had made their in
limine motion and formally presented it to the court which
disregarded it and which rebuked the defendants with some
asperity when they raised the objection again during Durret-
te's testimony. The defendants did not have to perform a vain
act.
[6] As Durrette read material into the record unlimited in
its bearing, abundant hearsay was presented to the jury. The
right secured to the defendants by the Sixth Amendment was
violated. The right to cross-examine one's accusers is funda-
mental in our system of justice. Olden v. Kentucky, 488 U.S.
227, 231 (1988). Cross-examination is "the principal means
by which the believability of a witness and the truth of his tes-
timony are tested." Davis v. Alaska,
415 U.S. 308
, 316
(1974).
[7] When a constitutional right is violated by trial rulings,
we are bound to determine whether the error was harmless
beyond a reasonable doubt. Chapman v. California, 386 U.S.
18, 24 (1967). The government here had a strong case based
on the contents of the Untax Packages that the defendants put
together and promoted. The defendants had a not very plausi-
ble defense that TPCS was an educational enterprise exercis-
ing its right to free speech. If that defense was to have any
chance of creating a reasonable doubt in the jurors' minds, the
jurors had to credit the defendants with honesty. The hearsay
accusations destroyed that chance. Taken as true, as the jury
was allowed to take them, the accusations established that the
defendants were hypocrites, liars, callous exploiters of their
victims, operators of a major scam.
[8] The 37 accusations were overwhelming evidence of the
scheme of mail fraud charged in the indictment and exempli-
fied in the particular mail fraud counts. The three live wit-
nesses to mail fraud that the government produced were
David Anderson, who admitted to having embezzled taxes he
withheld from his employees before he had any contact with
TPCS; Debbie Long, whose disillusionment with TPCS came
when the State of California levied on her wages; and Clifford
Koeper, who believed that Untax Package did not work but
became an Associate Member of TPCS and sold the Untax
Package to two others. The burden of the government's mail
fraud case was carried largely by the accusations read into the
record. When the government on appeal states there was
"ample evidence the TPCS members did not get what they
paid for," (Appellee Br. at 46.) (italics in original), and that
"there is no better proof of the fact that TPCS members did
not get what they paid for than the testimony of the victims,"
(Id. at 47), the government does not cite the testimony of
Anderson, Longer, and Koeper, but appears to invoke all the
accusations that become part of what the jury had before it.
[9] The evidence proving the existence of a scheme to com-
mit mail fraud was linked to the evidence proving the conspir-
acy to defraud the United States. Count One of the indictment
listed the fraudulent recruitment of taxpayers by TPCS as
overt acts carrying out the conspiracy. Addressing the jury in
closing arguments, the government specifically urged that the
defendants' deceitful recruiting of TPCS members was proof
of the conspiracy to defraud the United States ("they lie as to
how many people have been successfully untaxed, they lie as
to the numbers of people in the organization, and the effec-
tiveness of their methods"). The government immediately
added: "The instructions that the judge has given you are that
you need only find that one overt act, as listed in the indict-
ment, was committed in furtherance of the conspiracy that's
alleged there."
[10] The accusations of fraud on the TPCS members
proved, or could have been taken by the jury as proving, both
the mail fraud counts and the conspiracy count. It is difficult
for us to determine beyond a reasonable doubt that they did
not function in this way. When you hear that defendants have
told out-and-out lies, run a scam, and used false pretenses,
and you are not limited how you can use this evidence, it
would be entirely natural to credit the accusations so vigor-
ously advanced as true. In confirmation of this conclusion is
the difference in the outcome of the two trials. When the gov-
ernment had to produce a number of live witnesses who were
themselves tax cheats, the jury hung. With these inconvenient
witnesses eliminated, the jury convicted. The palpable differ-
ence in result makes likely that the change of evidence to the
presentation of hearsay tipped the scales. We cannot say
beyond a reasonable doubt that the violations of the Confron-
tation Clause did not produce result. The convictions of the
Marshes, the Spencers and Coltrane of mail fraud and of con-
spiracy to defraud the United States must be set aside.
[11] Carpa presents a different case. The jury was explicitly
instructed not to consider against him the letters read from the
files. The jury is presumed to have obeyed this instruction.
However, the letters went very far to show that TPCS was a
criminal conspiracy, and the existence of this conspiracy had
to be proved in order to make Carpa a conspirator. The rever-
sal of the convictions of the Marshes, Spencers, and Coltrane
for conspiracy leaves Carpa without other convicted conspira-
tors and with proof of his part in a conspiracy dependent on
the evidence showing TPCS to be a conspiracy. Under these
circumstances, Carpa's conviction of conspiracy must also be
reversed.
The Commercial Liens. The filing of baseless liens to
harass government officials has become a standard tax prote-
stor ploy. The liens are easy to file and not easy to remove.
No judge or other officer of the government would like to
have them filed on his or her property. They bear the mark of
malice, as they do in the case where they appear as a mean
response to a lawfully authorized search. Nonetheless, the
crime can be punished only in accordance with law.
[12] The indictment charged that the Marshes "did cor-
ruptly endeavor to intimidate and impede" certain officers of
the United States by the filing of the liens in Nevada and
Washington. The officers were located in the Eastern and
Northern Districts of California. None were in Nevada or
Washington. The liens were mailed for filing from the Eastern
District of California. The question was put to the jury
whether venue for the crime could be found in the Northern
District. The jury's verdict of guilty so found. The affected
defendants challenge the finding.
[13] The government's argument is that an effect of the fil-
ing of the liens was an impact on the IRS officers in San Jose,
California, who were conducting a criminal investigation of
the defendants. The government invokes United States v.
Angotti, 105 F.3d 539 (9th Cir. 1997) (venue for the prosecu-
tion of the crime of making a false statement in violation of
18 U.S.C. S 1014 lies where the crime is completed by the
statement having effect). The problem with Angotti as anal-
ogy is that the crime of endeavoring to impede the IRS is
complete when the endeavor is made. The government did not
have to show that its agents abandoned their investigation or
even that the agents were anxious about the effect of the liens
on their credit. No effect need be proved. The filing of the lien
is the crime. The government itself presented this exact
description of the crime to the jury in its closing argument:
"All you have to find is that there was an attempt. Because
that's what a corrupt endeavor is." (Tr. 12/8/95 at 11) The
jury could not find that any step to complete the crime was
taken in the Northern District of California when the criminal
deeds had already been committed. Venue as required by the
Sixth Amendment was lacking. The convictions on these
counts must be set aside.
[14] Waivers. Two issues now raised by the defendants
were waived at trial. On the face of the indictments the venue
of the tax counts was wrong: the Marshes and Spencers had
been residents of the Eastern District of California, but they
were being tried in the Northern District. The defendants said
not a word about the venue until they were convicted. They
now contend that the government might have proved some act
in the Northern District that would have related to the tax
courts and justified the venue; they could not know till the
trial was over. The defendants waited too long. They cannot
sandbag the government after the verdict is in. United States
v. Powell, 498 F.2d 890, 891-92 (9th Cir. 1974).
Phillip Marsh earnestly urges that the exclusion of the evi-
dence of his psychological state was error in the light of our
en banc decision in United States v. Morales, 108 F.3d 1031
(9th Cir. 1997), which he characterizes as establishing a new
constitutional rule that should be applied retroactively.
Griffith v. Kentucky,
479 U.S. 314
(1987). Morales did not
announce new constitutional doctrine but applied the Federal
Rules of Evidence. Marsh cannot benefit from the case retro-
actively. He waived his right to introduce the psychiatrist's
testimony by not seeking to introduce it in the second trial.
We find no plain error.
Other issues raised by the defendants need not be consid-
ered in view of our ruling on the principal counts.
SUMMARY
the end
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