United States v. Kosinski , 127 F. App'x 742 ( 2005 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 05a0202n.06
Filed: March 22, 2005
No. 03-2414
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
UNITED STATES OF AMERICA, )
)
Plaintiff-Appellee, )
)
V. ) On Appeal from the United States
) District Court for the Eastern
TIMOTHY KOSINSKI, ) District of Michigan
)
Defendant-Appellant. )
Before: BOGGS, Chief Judge; MARTIN, Circuit Judge; and WEBER, District Judge.*
PER CURIAM. Timothy Kosinski appeals from his criminal convictions stemming from tax
fraud. He argues that 1) prejudicial testimony was introduced at trial, 2) the indictment was
constructively amended, 3) the jury was improperly instructed, 4) Count One (Conspiracy) of the
indictment was legally insufficient, 5) his motion for acquittal on Count One (Conspiracy) was
erroneously denied, 6) his sentence was miscalculated under the Guidelines, and 7) he was sentenced
in violation of the Sixth Amendment. For the following reasons, we affirm his conviction, but
vacate his sentence and remand for resentencing.
I
On June 20, 2002, a grand jury returned a nine-count indictment against Timothy Kosinski:
*
The Honorable Herman J. Weber, United States District Judge for the Southern District
of Ohio, sitting by designation.
one count of conspiracy to defraud the IRS and to structure currency transactions to evade reporting
requirements, five counts of subscribing a false federal tax return, and three counts of structuring
a currency transaction to evade reporting requirements. A jury found Kosinski guilty on seven
counts, and not guilty on two of the three structuring counts. The district court sentenced Kosinski
pursuant to the Sentencing Guidelines. The court found an offense level of nineteen, which
corresponds to a range of thirty to thirty-seven months of imprisonment for offenders with no
criminal history. The district court then sentenced Kosinski to thirty months of imprisonment for
Counts One and Seven and thirty months of imprisonment for Counts Two through Six, to run
concurrently. Kosinski was also ordered to pay an assessment of $7,000, a fine of $60,000, and the
costs of incarceration.
Kosinski is a dentist, who founded T.J. Construction (“T.J.”) in 1992, after the death of his
father. His father was a carpenter and independent contractor, and he had done work with Thyssen
Steel Incorporated (“Thyssen”). Thyssen manufactures steel wire, steel coil, and other steel
products. Under Kosinski, T.J. picked up where his father had left off, and continued to do work
for Thyssen. Thyssen was in the midst of a multi-million dollar expansion of its warehouse system,
in which T.J. had considerable involvement. Specifically, T.J. acted as a “quasi-general contractor”
for major aspects of a warehouse expansion project in Detroit, Michigan, and as a true general
contractor for the construction of a new warehouse in Richburg, South Carolina.
Phillips Contracting Company, which was run by Melvin Phillips, served as a subcontractor
for T.J. on the Thyssen projects, doing most of the concrete, excavation, and underground utility
work. T.J. handled paperwork for Phillips, and, at Melvin Phillips’s request, paid in cash for work
performed. Kosinski and Melvin Phillips worked together for several years and were friends. Their
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relationship as business associates was particularly close, so much so that two of Phillips’s
employees testified that they believed Kosinski and Phillips were partners.
Between 1996 and 1998, checks totaling $8,143,625 were drawn on T.J.’s business account
and made payable to Melvin Phillips or Phillips Contracting, but were deposited in Kosinski’s
personal bank accounts. Kosinski and his associates withdrew most of the money in cash, and used
much of the cash to make payments to Phillips. Kosinski concealed the flow of this money by
making numerous withdrawals of $9,500 – below the $10,000 reporting threshold. Kosinski, his
wife, and his employee, Nina Spratt, often engaged in multiple transactions on a single day.
Between January 1995 and May 1999, Kosinski and his associates withdrew $7,676,000 in cash
from his various personal accounts. Although Kosinski claimed tax deductions for the full amount
of $8,143,625, at least $1,400,000, and possibly more, was never paid to Phillips Contracting.
Melvin Phillips paid his employees with a combination of checks and cash. Neither the
checks nor the cash payments reflected any withholding. Phillips Contracting did not file any
employment tax returns with the IRS between 1995 and 1999. Testimony was introduced that
Phillips had agreed with employees to pay them less in return for not withholding any taxes, with
the awareness that the employees would not pay those taxes. Melvin Phillips claimed that he used
cash to pay suppliers in order to get a better deal; for instance, he claimed to have spent over
$1,000,000 in cash on concrete. The project’s concrete suppliers, however, denied having ever
received a cash payment, and the defense produced no witness or document that confirmed any cash
payments for supplies.
Kosinski also claimed a business deduction for work done between 1996 and 1998 at his
primary home, his vacation home, and his mother’s home. Kosinski paid for the work out of T.J.’s
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business account, and then claimed deduction for the work on T.J.’s income tax. Contractors are
not permitted to take business deductions for work performed at their home or the home of a relative.
Al Paas, the architect overseeing the project for Thyssen, acted as the owner’s construction
manager. On at least three occasions, he received an envelope from Kosinski containing $5,000 in
cash. Although the record is somewhat unclear about the date of these payments, there was at least
some testimony that the payments were made during the period of the conspiracy: 1995 to 1999.
Kosinski told Paas to “use” the money and never asked for receipts, nor was the money reported to
the IRS by any party. In mid-1996, Paas recommended to Thyssen that Kosinski receive an
additional $400,000 in performance bonuses. Paas did not inform Thyssen of the $5,000 payments
he recieved, but he testified that they did not influence his handling of the project in any way.
II
Kosinski makes five claims seeking reversal of some or all of his convictions. He also
argues that his sentence was calculated incorrectly and that applying the Sentencing Guidelines
violated his Sixth Amendment rights.
A. Prejudicial Testimony
Kosinski argues that the testimony of Paas about the $5,000 payments and their purpose was
improperly admitted and prejudicial. He claims that the government elicited the testimony to show
that he bribed Paas and received favorable contracts and an increase in the performance bonus. He
argues that in a trial for conspiracy to defraud the IRS, this testimony had no probative value and
was prejudicial. Kosinski also argues that the testimony showed that the $5,000 payments took
place in 1991 or 1992, before the conspiracy occurred. Kosinski’s counsel objected to the testimony
at trial and subsequently moved for a mistrial.
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We review for abuse of discretion the district court's denial of a motion for mistrial. United
States v. Rigsby, 45 F.3d 120, 125 (6th Cir. 1995). Although Kosinski never cites it, presumably he
is arguing that the evidence was inadmissible under Federal Rule of Evidence 404(b), which
provides in relevant part that “[e]vidence of other crimes, wrongs, or acts is not admissible to prove
the character of a person in order to show action in conformity therewith.” Such evidence is
admissible, however, if it is offered to show “motive, opportunity, intent, preparation, plan,
knowledge, identity, or absence of mistake or accident.” Ibid. Finally, even if relevant, “evidence
may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice,
confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time,
or needless presentation of cumulative evidence.” Fed. R. Evid. 403.
It is clear from the record that the government elicited extensive testimony suggesting that
Paas was paid bribes to secure favorable contracts and bonuses for T.J. The prosecutor’s questions
clearly intimated a link between the payments to Paas and T.J.’s increased performance bonus.
From the testimony elicited on direct examination, the jury probably could infer a link between the
payments/bribes and the favorable contracts T.J. was awarded without competitive bidding.
Kosinski is simply wrong, however, to assert that the payments were clearly outside the
time-frame of the conspiracy. Although the testimony is somewhat conflicting, at one point Paas
was asked if he knew where the money from the $7,600,000 in cash generated during 1995 to 1999
was spent. He eventually conceded that some of it went to pay him. There is apparently
contradictory testimony elsewhere, but the jury reasonably could have concluded that the payments
occurred during the relevant time-frame.
The testimony was probative because the $5,000 cash payments themselves were tax
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evasions. Kosinski paid the $5,000 without witholdings, and Paas never reported the payments.
Paas testified that the money was used for expenses or given to charity, but there is no evidence to
support this and the jury could conclude the $5,000 payments were unreported income. This would
make Paas a participant, if a minor one, in the conspiracy to avoid reporting income and paying
taxes. The favorable treatment from Paas, such as the increased performance bonus, is thus relevant
to showing why the bribes were paid and why the jury should disbelieve the claim that the money
was for expenses and charity.
The bribery testimony was not unduly prejudicial. Obviously, evidence that Kosinski paid
bribes casts his general moral character in an unfavorable light. But the testimony showed both that
Paas was participating in the conspiracy by personally evading taxes and by facilitating or
acquiescing to the rest of the scheme. Therefore, we conclude the district court did not abuse its
discretion in admitting the testimony.
B. Constructive Amendment of the Indictment
Kosinski claims that the indictment was constructively amended so that it was possible that
the jury convicted him of bribery, rather than the charges on which he was indicted. He argues that
the evidence of bribery was improperly introduced, and the jury instructions on Count One
(Conspiracy) permitted a guilty verdict even if the jury found that defrauding the IRS was only a
collateral or incidental effect of the conspiracy. This claim is without merit.
The Fifth Amendment guarantees that an accused be tried only on those offenses presented
in an indictment and returned by a grand jury. Stirone v. United States, 361 U.S. 212, 217-19
(1960). “[A]n amendment involves a change, whether literal or in effect, in the terms of the
indictment.” United States v. Barrow, 118 F.3d 482, 488 (6th Cir. 1997). “This Circuit has held that
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a variance rises to the level of a constructive amendment when the terms of an indictment are in
effect altered by the presentation of evidence and jury instructions that so modify essential elements
of the offense charged that there is a substantial likelihood that the defendant may have been
convicted of an offense other than that charged in the indictment.” United States v. Chilingirian,
280 F.3d 704, 711 (6th Cir. 2002). We review the question of whether there was an amendment to
the indictment de novo. Id. at 709.
As we concluded above, the evidence of bribery was properly admitted. Even though
properly admitted, however, it may still have created the possibility of conviction on an uncharged
count. To determine whether this could have occurred, we look to the jury instructions. See United
States v. Campbell, 317 F.3d 597, 607 (6th Cir. 2004) (juries are presumed to follow instructions
of the trial judge).
Kosinski’s claim here is without merit because the jury instructions make clear that the jury
must find intent and agreement to defraud the IRS. The district court started its jury instructions by
reading from the indictment, which stated that the jury must find it was “an object of the conspiracy
that [the conspirators] would and did defraud the United States for the purpose of impeding,
impairing, obstructing, and defeating the lawful functions of the Internal Revenue Service . . . .”
(emphasis added). The court drove the point home by repeating several times during the instructions
that the jury must find that Kosinski was part of a conspiracy that intended to defraud the IRS:
A conspiracy to defraud the United States reaches any conspiracy for the purpose of
impeding, impairing, obstructing or defeating the lawful function of the government. I
instruct you that the Internal Revenue Service is an agency of the Department of Treasury
of the United States.
....
[You must find] that two or more persons conspired, or agreed, to defraud the United States,
or one of its agencies or departments, by dishonest means.
....
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[T]he Government must prove beyond a reasonable doubt that there was a mutual
understanding . . . between two or more people, to cooperate with each other to defraud the
United States . . . . This is essential.
(emphasis added). The district court also reiterated that to convict Kosinski the jury must find that
he knowingly and purposefully joined the conspiracy and acted to further its aim of defrauding the
IRS:
[T]he Government must prove that the Defendant knew and agreed to the purposes of the
conspiracy and knowingly and voluntarily joined the conspiracy.
....
[J]ust because the Defendant may have done something that happened to help a conspiracy
does not make him a conspirator.
....
What the Government must prove beyond a reasonable doubt is that the Defendant knew the
conspiracies [sic] main purpose, and that he voluntarily joined it intending to help advance
or achieve its goals.
Finally, the jury form itself made clear that purpose was a necessary element of the Conspiracy
Count:
As to the first object other conspiracy charged in Count One, that the defendant conspired
to defraud the United States for the purpose of impeding and impairing the lawful functions
of the Internal Revenue Service, we the jury unanimously find the defendant Timothy
Kosinski: Guilty.
(emphasis added). Consistent with these instructions, the jury could convict only if it found that the
purpose of the conspiracy was to defraud the IRS.
C. Jury Instruction
Kosinski argues that the district court erroneously rejected his proposed jury instruction with
respect to Count One (Conspiracy). Kosinski had asked the district court to include the following
instruction: “the Government must prove that Dr. Kosinski had the actual intent to frustrate or
impede the IRS, not merely that impeding the IRS was a foreseeable consequence of the
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conspiracy.” He argues that in the absence of this instruction, the jury may have convicted even
if defrauding the IRS was only a collateral or incidental effect of the conspiracy. This claim has the
same basis as the constructive amendment claim, and we reject it for the same reason.
This court reviews jury instructions as a whole to determine whether they fairly and
adequately inform the jury of relevant considerations and explain the applicable law to assist the jury
in reaching its decision. United States v. Layne, 192 F.3d 556, 574 (6th Cir. 1999). “Trial courts
have broad discretion in drafting jury instructions, and we reverse only for abuse of discretion.”
United States v. Prince, 214 F.3d 740, 761 (6th Cir. 2000) (citations omitted). “A district court’s
refusal to deliver a requested jury instruction amounts to reversible error only if the instruction (1)
is a correct statement of the law, (2) was not substantially covered by the charge actually delivered
to the jury, and (3) concerns a point so important in the trial that the failure to give it substantially
impairs the defendant's defense.” United States v. Jackson, 347 F.3d 598, 606 (6th Cir. 2003)
(citations omitted).
The district court did not err because Kosinski’s requested instruction was “substantially
covered by the charge actually delivered to the jury.” As the discussion of jury instructions in the
previous section indicates, the district court not only covered this point, but did so in a highly
repetitive fashion. The court then repeated that purpose requirement – by a conservative count – at
least three times while giving jury instructions. Finally, the jury form also stated that the jury must
find purpose to convict on Count One.
D. Legal Sufficiency of Count One
Kosinski argues that Count One (Conspiracy) of the indictment is insufficient as a matter of
law and the district court erred by denying his motion to dismiss the Count. Kosinski asserts that
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“[a]llegations of failure to report income are not sufficient to make out a conspiracy to impair and
impede the IRS.” Kosinski is vague as to which elements of the conspiracy charge are left out, but
he states that the indictment “allege[s] only consequences of cash transactions and structuring.”
From this we infer that he is making an allegation that the indictment does not allege either purpose
to defraud the IRS or an agreement to defraud the IRS.
We review de novo the sufficiency of an indictment. United States v. DeZarn, 157 F.3d
1042, 1046 (6th Cir. 1998). An indictment is legally sufficient “if it, first, contains the elements of
the offense charged and fairly informs a defendant of the charge against which he must defend, and
second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same
offense.” United States v. Superior Growers Supply, Inc., 982 F.2d 173, 176 (6th Cir. 1992).
The essential elements of a conspiracy are:
(1) the conspiracy described in the indictment was wilfully formed, and was existing at or
about the time alleged; (2) that the accused willfully became a member of the conspiracy;
(3) that one of the conspirators thereafter knowingly committed at least one overt act charged
in the indictment at or about the time and place alleged; and (4) that such overt act was
knowingly done in furtherance of some object or purpose of the conspiracy as charged.
United States v. Kraig, 99 F.3d 1361, 1368 (6th Cir. 1996) (citations omitted).
The indictment states all of these elements. It alleges that Kosinski willfully and knowingly
joined with others to defraud the IRS. It names several other individuals and alleges that they
committed a number of acts with the purpose of defrauding the IRS. The indictment also lists
hundreds of overt acts that it alleges were in furtherance of the conspiracy – mostly bank
transactions, but also payments to workers and others. Although the indictment does not charge any
substantive offense, that is unnecessary for a conspiracy to defraud under 18 U.S.C. § 371. United
States v. Khalife, 106 F.3d 1300, 1303 (6th Cir. 1997) (because there is no substantive offense
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underlying a conspiracy to defraud under 18 U.S.C. § 371, an indictment need not refer to any
substantive offense). We therefore reject this claim.
E. Judgment of Acquittal on Count One (Conspiracy)
Kosinski claims that denial of his motion for acquittal with respect to Count One
(Conspiracy) was in error. He argues that the evidence, viewed in the light most favorable to the
prosecution, failed to establish that impeding and impairing the IRS was an object of the conspiracy.
After two pages summarizing case law, the entirety of Kosinski’s argument is the following two
sentences:
In this case, evidence that Mr. Phillips did not pay taxes for his employees or provide 1099's
for his subcontractors did not establish evidence of Mr. Phillips [sic] conspiracy with Dr.
Kosinski. A conclusion that an agreement was proved is contrary to the jury instruction that
a general contractor has no legal obligation for taxes of his subcontractors.
This argument is without merit.
We must uphold a jury verdict if there is substantial evidence, viewed in the light most
favorable to the government, to support it. United States v. Wells, 211 F.3d 988, 1000 (6th Cir.
2000). We allow the government to benefit from all reasonable inferences. Ibid.
The evidence did not show merely that Phillips did not pay taxes or withholding for his
employees. It showed that he conspired with Kosinski to do this. Kosinski was not free to conspire
with Phillips to avoid paying Phillips’s employees’ taxes merely because he was not responsible for
those taxes in the first instance. Moreover, evading withholding and taxes for employees was only
one part of the conspiracy. Evidence was introduced showing that Kosinski conspired with others
to claim illegal deductions for T.J., to conceal revenue from the project, to structure financial
transactions so as to avoid reporting, and many other illegal acts. If the jury found credible the
evidence on any one of these allegations, it would have been sufficient to convict on Count One
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even if the jury completely discounted the evidence that Kosinski and Phillips conspired to avoid
paying their employees’ taxes.
F. Tax Loss Calculations in Sentencing
Kosinski argues he was sentenced incorrectly. He argues that his offense level should be
determined by U.S.S.G. §2S1.3 instead of U.S.S.G. §2T1.9. He also argues that the calculation of
tax loss was erroneous.
Although we review interpretations of the Guidelines de novo, the determination of the
amount of loss is a finding of fact that we will not disturb unless clearly erroneous. United States
v. Guthrie, 144 F.3d 1006, 1011 (6th Cir. 1998). “When a district court calculates the amount of
loss caused by a crime involving fraud or deceit, the court need not determine the amount of loss
with precision. The guidelines require a district court to make a reasonable estimate . . . .” United
States v. Kohlbach, 38 F.3d 832, 835 (6th Cir. 1994).
The district court correctly applied U.S.S.G. §2T1.9 to the conspiracy charge in Count One.
The guideline applicable to structuring, U.S.S.G. §2S1.3(c)(1), states that “if the offense was
committed for the purpose of violating the Internal Revenue laws, apply the most appropriate
guideline from Chapter 2, Part T (Offenses Involving Taxation) if the resulting offense level is
greater than that determined above.” The offense level under U.S.S.G. §2S1.3 is 6; whereas under
U.S.S.G. §2T1.9 the minimum offense level is 10. Thus, U.S.S.G. §2T1.9 applies.
The defendant argues that we cannot be sure the offense was committed for the “purpose
of violating” tax laws, noting that Count One identified two aims of the conspiracy (to structure and
to defraud the IRS), and asserting that the jury was not asked to return a verdict on whether the
conspiracy was to structure or to defraud the IRS (or both). This is simply a misrepresentation; the
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jury form breaks out the two purposes of the conspiracy in Count One and the jury found defendant
guilty with respect to both.
The district court did not commit clear error in calculating the amount of tax loss. The
district court began with the $5,635,000 in cash between 1996 and 1998 that was paid to Melvin
Phillips. At Phillips’s (separate) sentencing, it was estimated that 40% of the cash payment Phillips
received was used for the cash payroll, and the district court used the same assumption here. That
put the unreported payroll at $2,254,000; the district court then took 28% of that figure as an
estimate of tax loss, pursuant to U.S.S.G. §2T1.1. This produced a tax loss of $631,176, which was
used to calculate Kosinski’s offense level. Kosinski argues that because he was not legally
responsible for the taxes of Phillips’s subcontractors, he should be assessed only the unreported
wages of Phillips’s direct employees, excluding subcontractors. However, even if Kosinski was not
responsible for the subcontractors’ taxes, he was part of a conspiracy to avoid payment of taxes for
Phillips’s employees and subcontractors alike. Thus, it was reasonable for the district court to
include the unpaid taxes of the subcontractors as part of the tax loss associated with the conspiracy.
Finally, Kosinski challenges the tax loss calculations of the district court with respect to
Counts Two through Six (Subscribing a False Tax Return). Kosinski argues that the checks made
out to Phillips, but deposited in Kosinski’s personal account, are loan repayments and should not
be included as unreported income. But since there is no evidence of this loan agreement, the district
court did not commit clear error by concluding otherwise. Kosinski also claims that the court erred
because $342,000 of the amount considered as tax loss was really diverted income, and should be
multiplied by 28% to get tax loss. Kosinski does not explain why this is so, except by citation to
motions filed below, and therefore waives this claim.
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G. Sentencing under the Guidelines
Kosinski also argues that the district court erroneously sentenced him based on facts not
found by the jury, in contravention of United States v. Booker, 125 S. Ct. 738 (2005). He argues that
this case should be remanded for resentencing. We agree.
In Booker, the Supreme Court concluded that judicial fact-finding which led to a sentence
under the Guidelines greater than that authorized by the jury verdict alone violated the Sixth
Amendment. Id. at 755-56. The Court’s solution was to strike 18 U.S.C. § 3553(b)(1), which is the
provision making the Guidelines mandatory. Id. at 756-57. The Court left intact the remainder of
the Guidelines, instructing that they must be consulted by a sentencing court but are no longer
binding. Ibid. The Supreme Court has instructed us to apply Booker to cases on direct review using
“ordinary prudential doctrines, determining, for example, whether the issue was raised below and
whether it fails the ‘plain-error’ test.” Id. at 769.
Although Kosinski did not raise a Sixth Amendment objection in the sentencing court, he
did object to the factual determinations made by the judge. Before this court, he filed briefs with
Sixth Amendment arguments based first on Blakely v. Washington, 124 S. Ct. 2531 (2004), and then
on Booker, as those cases were decided. We are satisfied that the objection below to judicial fact-
finding preserved the Sixth Amendment issue for review.
This case is factually indistinguishable from Booker itself and thus resentencing is required.
Booker was convicted by a jury of possessing at least 50 grams of cocaine. 125 S. Ct. at 746. At
sentencing, the district court determined that Booker possessed at least 616 grams of cocaine and
sentenced him accordingly. Ibid. Had Booker been sentenced on the jury’s finding alone, the
Guideline range would have been 210 to 262 months. Ibid. Instead, based on the district court’s
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finding that Booker possessed more cocaine, Booker received a sentence of 360 months. Ibid. The
Supreme Court concluded that because only 50 grams was argued to the jury, the sentence exceeded
that authorized by the jury verdict and thus violated the Sixth Amendment. Id. at 756. In this case,
Kosinski was sentenced based on the amount of tax loss determined by the district court. The jury
was never asked to determine tax loss. Without the district court’s factual determination of tax loss,
the offense level would be 10, corresponding to a sentence of 6 to 12 month. U.S.S.G. §2T1.9.
Applying the reasoning of Booker, the 30-month sentence Kosinski received plainly went beyond
that authorized by the jury. We therefore conclude that Kosinski was sentenced in violation of the
Sixth Amendment.
III
For the reasons set forth above, we AFFIRM Kosinski’s convictions, but VACATE his
sentence and REMAND for resentencing consistent with Booker and this opinion.
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