Opinion
1 CA-CR 97-0707
Filed April 1, 1999
Appeal from the Superior Court of Maricopa County, Cause No. CR 89-02607
The Honorable B. Michael Dann, Judge
AFFIRMED IN PART; REVERSED IN PART
Janet Napolitano, Attorney General, by Paul J. McMurdie, Chief Counsel, Criminal Appeals Section and Consuelo M. Ohanesian, Assistant Attorney General, Attorneys for Appellee, Phoenix
J. Douglas McVay, Attorney for Appellant, Phoenix.
OPINION
¶ 1 Edwin Cohen ("Cohen") appeals his convictions on four counts of commercial bribery, a class 5 felony under Arizona Revised Statutes Annotated ("A.R.S.") section 13-2605, one count of fraudulent schemes and artifices, a class 2 felony under A.R.S. section 13-2310, one count of conspiracy to commit illegally conducting an enterprise, a class 3 felony under A.R.S. sections 13-1003 and 13-2312, and one count of illegally conducting an enterprise, a class 3 felony under A.R.S. section 13-2312 For the following reasons, we must reverse the fraud conviction. We affirm the other convictions.
FACTUAL AND PROCEDURAL BACKGROUND
¶ 2 Cohen was involved with numerous corporations as a director, officer, shareholder, owner, manager, independent contractor, or combination thereof in businesses peripherally connected to Arizona Physicians Independent Practice Association ("IPA"), a health care provider contracting with the Arizona Health Care Cost Containment System ("AHCCCS"). In 1989, a Maricopa County grand jury indicted Cohen and two others on 42 felony charges relating to IPA and AHCCCS. A trial jury convicted him on four counts of commercial bribery and one count each of fraudulent schemes/artifices, illegally conducting an enterprise, and conspiring to illegally conduct an enterprise. The trial court imposed restitution, suspended sentencing, and placed Cohen on probation for concurrent three, five and seven year periods.
¶ 3 Cohen timely appealed. This court has jurisdiction to adjudicate the appeal. Ariz. Const. art. VI, § 9; A.R.S. §§ 12-120(A) (1), 13-4031, 13-4033(A) (1) (Supp. 1997).
ISSUES
1. Whether a fact-finder can infer "economic loss" under A.R.S. section 13-105(14) from evidence of kickbacks;
2. Whether the trial court correctly instructed the jury that reliance by the victim is not an element of fraudulent schemes and artifices;
3. Whether the trial court was within its discretion in precluding testimony by David Childers.
ANALYSIS
1. The trial court correctly instructed the jury that it could infer economic loss from evidence that Cohen paid Shelton a kickback.
¶ 4 The commercial bribery charges, four of which resulted in convictions, arose from Cohen's payment of kickbacks to Bruce Shelton, one of the co-defendants. A person commits the crime of commercial bribery under A.R.S. section 13-2605(A) (1) if
[s]uch person confers any benefit on an employee without the consent of such employee's employer, corruptly intending that such benefit will influence the conduct of the employee in relation to the employer's commercial affairs, and the conduct of the employee causes economic loss to the employer.
The statute imposes three elements of proof:
1. The defendant acted with corrupt intent; and
2. The defendant conferred any benefit on an employee without the consent of such employee's employer with the understanding that such benefit would influence the conduct of the employee regarding the employer's commercial affairs; and
3. The conduct of the employee caused economic loss to the employer.
¶ 5 Shelton was an IPA employee. Cohen covertly paid money to Shelton in four circumstances allegedly to bribe Shelton to manipulate IPA's actions. Count III arose from Cohen transferring approximately $373,000 to Shelton after IPA purchased Health Management International of Arizona ("HMIA"), a corporation in which Shelton held a 25 percent ownership interest.
¶ 6 Count V arose from a $3,834.10 kickback from Cohen to Shelton as a "finder's fee" that Cohen (acting as an officer of HMIA) received for procuring an acceptable bid for a reinsurance contract between IPA and Lloyds of London. Counts VII and VIII arose from covert payments of $4,166.66 and $2,281.33, respectively, from Cohen to Shelton as part of fees received by Allied Employee Benefit Administrators ("Allied"), a corporation wholly owned by Cohen, under a contract between IPA and Allied whereby Allied received 30 percent of monies recovered for IPA, through Allied's efforts, from third-party insurers.
¶ 7 The state did not produce independent evidence of economic loss suffered by IPA apart from the amount of the kickbacks. In moving for a directed verdict, Cohen argued that payment of kickbacks is insufficient as a matter of law to support the economic loss element of commercial bribery and that the trial court erred by denying this motion.
¶ 8 This case presents an issue of first impression regarding economic loss and kickbacks. The economic loss element has been part of the bribery statute from its inception. Laws 1979, Ch. 194, § 3. However, the legislature did not enact a statutory definition of the term "economic loss" until 1986. Laws 1986, Ch. 248, § 1. The definition is not included among the provisions of the bribery statute but appears among the general definitions in A.R.S. section 13-105:
"Economic loss" means any loss incurred by a person as a result of the commission of an offense. Economic loss includes lost interest, lost earnings and other losses which would not have been incurred but for the offense. Economic loss does not include losses incurred by the convicted person, damages for pain and suffering, punitive damages or consequential damages.
¶ 9 Cohen argues that the foregoing definition equates with "actual damages" and that proof of actual damages requires more than one can infer from payment of a kickback. He also argues that the trial court erred in failing to define economic loss for the jury as A.R.S. section 13-105 defined it, and by instructing the jury that it could infer economic loss if it found that he paid kickbacks to Shelton.
Applicability of A.R.S. section 13-105(14)
¶ 10 The state asserts that the definition of economic loss in A.R.S. section 13-105(14) is inapplicable because (1) the prefatory language of the section states that the definitions are to apply "unless the context otherwise requires," (2) the interpretive case law is limited to economic loss in the context of fixing restitution, and (3) the definition is limited to loss resulting from a criminal offense as opposed to constituting such an offense.
¶ 11 Nothing intrinsic to the context of bribery removes the term "economic loss" from the ambit of A.R.S. section 13-105 The state offers State v. Walker, 185 Ariz. 228, 242, 914 P.2d 1320, 1334 (App. 1995), in support of its position, where the trial court separately defined "corrupt," apparently without resort to A.R.S. section 1-215(5), which defined the term "corruptly." This court found that "'corruptly' means about the same as 'with corrupt intent.'" Walker found the trial court's instruction "about the same" as the general statutory definition.
¶ 12 Here the trial court's instruction, clearly based on the statutory definition, merely pared down the statutory definition to eliminate terms that did not apply, tailoring it to the evidence presented. That practice is acceptable. See State v. Schneider, 148 Ariz. 441, 444-45, 715 P.2d 297, 300-01 (App. 1985); State v. Coleman, 147 Ariz. 578, 580, 711 P.2d 1251, 1253 (App. 1985); State v. deBoucher, 135 Ariz. 220, 226, 660 P.2d 471, 477 (App. 1982).
¶ 13 Without exception, Arizona cases discussing the statutory definition of economic loss are restitution cases. However, it would be improper to extrapolate from that fact that the definition does not apply in other contexts. The bribery statute uses the term "economic loss." The state would have us distinguish economic loss "that occur[s] as a result of criminal behavior" from economic loss "that exists as an element of an offense," citing the portion of the statutory definition that states that economic loss means any loss incurred "as a result of the commission of an offense." Surely, any economic loss that is an element of a criminal offense also results from commission of that offense. We see no reason to draw this distinction, and the state offers none. Accordingly, the definition of economic loss set forth at A.R.S. section 13-105(14) applies in commercial bribery cases.
A Kickback as Evidence of Economic Loss
¶ 14 Applying the definition of economic loss in A.R.S. section 13-105(14), we must decide whether evidence of kickbacks paid and received satisfies the economic loss element of commercial bribery. This court treats economic loss as it would treat "actual damages," which "rest on a causal connection between the criminal conduct and the claimed loss," as opposed to consequential damages. State v. Morris, 173 Ariz. 14, 17, 839 P.2d 434, 437 (App. 1992). Cohen asserts there is no claimed loss because his payment of kickbacks to Shelton proves benefit only to Shelton but not any loss to IPA. Presumably, this argument arises because IPA received the benefit of its bargain in contracting with Cohen's third-party corporations, notwithstanding his and Shelton's hidden ownership and Cohen's kickbacks to Shelton.
¶ 15 Cohen relies on State v. Barrett, 177 Ariz. 46, 864 P.2d 1078 (App. 1993), a fraud case in which the defendant used a bad check to purchase a car from a dealership. The issue in Barrett, however, was whether the victim "would have sustained its purported loss but for defendant's criminal conduct." 177 Ariz. at 48, 864 P.2d at 1080. This court answered in the negative because the dealer was merely speculating that it could have sold the car to a legitimate buyer in the brief period between the fraudulent purchase and the time the new blue book was published. The dealer furnished no information concerning when it acquired the vehicle, how much it had paid, or whether similar vehicles were sold in the same period. Here the issue is not whether IPA would have sustained its loss "but for" Cohen's bribery payments to Shelton but whether the kickbacks harmed IPA economically.
¶ 16 The state argues that kickbacks cause actual loss by subverting the employee's loyalty and judgment, citing United States v. Duvall, 846 F.2d 966, 972 (5th Cir. 1988). Although the state makes varying arguments to support the assertion that kickbacks cause actual loss, we need to address only the core idea that an employer, like any other buyer, suffers an economic loss when it pays something for nothing.
¶ 17 An employer such as IPA exchanges something for nothing whenever it pays a seller such as HMIA to obtain a benefit, and the seller uses part of the payment for a purpose other than furnishing the benefit (direct costs), furthering the lawful purposes of the seller's business (indirect costs or "overhead"), or realizing a profit. The buyer knows the seller's profit motive and legitimate business expenses, both of which must be satisfied if the seller is to survive in the marketplace, and bargains accordingly. Legitimate expenses of doing business include items such as the cost of goods sold, the wages earned by employees, advertising budgets, and the like. They do not include kickbacks.
¶ 18 A claim that the vendor's prices were not inflated by the kickback is of no avail. It does not matter that [the subcontractor] might have settled for a lower profit to 'absorb' the cost of the kickbacks. We can assume that [the general contractor] bargained to pay [the subcontractor] for what (labor, materials, permit fees, etc.) and its profit (whatever profit [the subcontractor] was willing to accept). But, regardless of whether [the subcontractor's] price appeared to be reasonable and competitive, we cannot assume that [the general contractor] bargained to also pay money to its own employee. . . . Ranke v. United States, 873 F.2d 1033, 1039-40 (7th Cir. 1989).
¶ 19 The kickback does not further the buyer's interests in any way. Though the buyer overlooks the kickback, does not factor it into the contract, and does not benefit from it, nevertheless he pays for it. It is reasonable to characterize such a payment as an actual loss.
¶ 20 Federal fraud defendants and commercial bribery defendants in New York have challenged the sufficiency of economic loss evidence in cases where, as here, the state offers no proof that the contract price was affected by the bribery or fraud. Such challenges are generally rejected. In People v. Reynolds, 667 N.Y.S.2d 591, 596 (Sup. 1997), a New York court held that when an employee accepts kickbacks, the amount of the monies paid "constitutes, in most cases, the amount of actual pecuniary harm suffered by the employer."
¶ 21 A number of federal decisions construe "economic harm" in fraud prosecutions. The Fifth Circuit concluded that the employer was deprived of "the economic value of possibly being able to [obtain a rental contract] for less, had it known that [the defendant] was willing to accept less." United States v. Fagan, 821 F.2d 1002, 1011, n. 6 (5th Cir. 1987). The Seventh Circuit concluded that an economic loss occurred even though the seller absorbed the cost of paying the buyer's employee a kickback, thereby not inflating the contract price, because "[t]here was a very real and tangible harm to [the employer] in losing the discount or losing the opportunity to bargain with a relevant fact before it." United States v. George, 477 F.2d 508, 513 (7th Cir. 1973).
¶ 22 The state cites additional Seventh Circuit cases to the same effect based on the same reasoning, most notably United States v. Briscoe, 65 F.3d 576, 584 (7th Cir. 1995), and United States v. Richman, 944 F.2d 323, 330 (7th Cir. 1991). We agree with the reasoning in these cases. We note, too, that Shelton's corruption, occasioned by Cohen's bribery, makes it difficult or impossible to determine whether other competitors could have delivered the same services for a lower price. We are unwilling to require the state to prove what would have happened in an uncorrupted market when Cohen's criminal conduct corrupted the market in the first place.
¶ 23 For these reasons, we conclude the trial court properly permitted the jury to infer economic harm based on the kickback.
2. Reliance by the victim as an element of fraudulent schemes and artifices.
¶ 24 Amended Count IV charged Cohen with fraudulent schemes and artifices based on an undisclosed commission he received for procuring a reinsurance policy for IPA and on the fact that he kicked back a portion of that commission to codefendants Shelton and Sidney Pearce. Cohen contends that the trial court erred by failing to require proof that IPA relied on his false statements or material omissions.
¶ 25 The fraudulent schemes and artifices statute under which Cohen was convicted states in relevant part:
A. Any person who, pursuant to a scheme or artifice to defraud, knowingly obtains any benefit by means of false or fraudulent pretenses, representations, promises or material omissions is guilty of a class 2 felony.
B. Reliance on the part of any person shall not be a necessary element of the offense described in subsection A of this section.
¶ 26 The trial court issued the following instructions among others:
The charge of fraudulent schemes requires proof beyond a reasonable doubt of the following three (sic) things:
1. That defendant Cohen used false or fraudulent pretenses, representations, promises or material omissions; and
2. The defendant acted with the intent to defraud; and
3. The defendant acted pursuant to a scheme or artifice to defraud; and
4. As a result, the defendant knowingly obtained a benefit, as did Bruce Shelton.
Something is fraudulent when it is reasonably calculated to deceive persons of ordinary prudence and comprehension. It is not necessary to prove that the alleged victim was actually influenced by the defendant's representations or omissions. It is necessary that the State prove that a defendant sought to deceive by means of false statements and omissions.
An omission is material if it has a propensity or capacity to influence or affect another person's decision at the time of the transaction; it is not necessary that the decision was actually influenced by the representation or omission.
* * *
Injury to or reliance by a victim is not a necessary element that the prosecution must prove for this crime.
(Emphasis added.)
¶ 27 Cohen's initial contention is that the phrase "by means of" in subsection A of the statute imposes a requirement that the defendant's scheme or artifice cause the victim to convey a benefit, i.e., that the victim relied on the fraudulent scheme or artifice. We see no material distinction between being "influenced by" and "relying upon" a defendant's representations or omissions.
¶ 28 Subsection B directly conflicts with the term "by means of" in subsection A, which became part of the statute under Laws 1980, Ch. 229, § 25. We ordinarily presume that when the legislature expressly alters the language of a statute it intends to change or clarify the existing law. See Lemons v. Superior Ct. of Gila Cty., 141 Ariz. 502, 505, 687 P.2d 1257, 1260 (1984); Rowe Int'l, Inc. v. Arizona Dep't of Rev., 165 Ariz. 122, 127, 796 P.2d 924, 929 (App. 1990); State v. Kozlowski, 143 Ariz. 137, 138, 692 P.2d 316, 317 (App. 1984).
¶ 29 However, in adding subsection B to the statute, the legislature did not strike the words "by means of" from subsection A. In State v. Johnson, 179 Ariz. 375, 378, 880 P.2d 132, 135 (1994), our state's supreme court, citing Kansas and Nebraska case law, stated: "The statute's [A.R.S. § 13-2310] language means that the false pretense must actually cause the victim to rely and, as a result, give property or money to the defendant." However, in Johnson, our supreme court did not discuss the meaning of subsection B.
¶ 30 Subsection A indeed requires the state to prove that a defendant has "obtain[ed] any benefit by means of" any of several forms of fraudulent scheme or artifice. To meet this burden, the state must show that the defendant has induced another sufficiently to rely upon the scheme or artifice as to make a benefit accessible to the defendant. However, subsection B is incompatible with the words "by means of" in subsection A. The former might arguably control as the more recently enacted, but "an amendment ought not to be interpreted so broadly as to destroy the entire objective of the statutory scheme." Kadish v. Arizona State Land Dep't, 155 Ariz. 484, 491, 747 P.2d 1183, 1190 (1987). To strike "by means of" from subsection A eliminates the only causal nexus established in § 13-2310 between the fraudulent conduct condemned and the benefit knowingly received thereby. Indeed, to strike "by means of" eliminates the essence of the crime, for a fraudulent scheme or artifice is by its nature a means to extract a benefit from another: the benefit is the end, the scheme or artifice the means.
¶ 31 What sense then may we make of the legislature's decision to retain "by means of" in subsection A along with the contradictory proviso in subsection B that reliance "shall not be a necessary element of the offense?" We lack the luxury to throw our hands up and declare the statute meaningless. See Felix Frankfurter, Some Reflections on the Reading of Statutes, 47 Col. L. Rev. 533-34 (1947) (Judges may not say, like Alice's King, "'If there is no meaning in it, . . . that saves a world of trouble, you know, as we needn't try to find any.' Legislative words presumably have meaning and so we must try to find it."). We must interpret the two subsections in some way that departs from literalism and still permits us, if possible, to make sense of both.
¶ 32 A court seeking to harmonize subsections of a statute that seem to conflict must envision the purpose that each subsection is meant to serve:
If reasonably practical, a statute should be explained in conjunction with other statutes to the end that they may be harmonized and consistent. . . . As they must be construed as one system governed by one spirit and policy, the legislative intent therefor must be ascertained not alone from the literal meaning of the wording of the statutes but also from the view of the whole system of related statutes.
State v. Buhman, 181 Ariz. 52, 55, 887 P.2d 582, 585 (App. 1994) (quoting State ex rel. Larson v. Farley, 106 Ariz. 119, 122, 471 P.2d 731, 734 (1970)).
¶ 33 The words "by means of" in subsection A serve, as indicated, to provide a causal nexus for the statute; subsection B cannot sensibly be read as meant to eliminate the statute's causal core. See State v. Weible, 142 Ariz. 113, 118, 688 P.2d 1005, 1010 (1984) ("pragmatic construction is required if technical construction would lead to absurdity"). Instead, to construe subsection B to achieve its purpose, we now read it as precluding a defendant charged with fraudulent schemes from mounting a defense that attacks the reasonableness or quality of a victim's reliance. Subsection B, in this reading, assures that the naive and the gullible, however unreasonable their credulity, do not escape from the law's protection against fraudulent schemes and artifices. Subsection B advances this point, albeit inartfully, by framing discussion of causation in terms of means and steering the focus away from the potential sidetrack of reliance. We conclude that the statute, so interpreted, avoids the claim of fatal self-contradiction.
The Instruction
¶ 34 If the two subsections of the statute thus may be harmonized, trial courts could satisfy its purpose by framing jury instructions on causation in terms of means and avoiding any discussion of reliance, reasonable or unreasonable. Instead of harmonizing and simplifying this contradictory language, the trial court's fraud instruction here, cited and highlighted above, conveys in nearly literal terms both of the statute's contradictory parts. The jury was told that the prosecution must prove beyond a reasonable doubt that the defendant obtained a benefit as a result of his fraudulent scheme but need not prove the victim's reliance on the fraudulent scheme. This instruction contradicts itself on the necessity of reliance. We must reverse the fraud conviction for this reason.
3. The trial court was within its discretion in precluding expert testimony by defense witness David Childers.
¶ 35 We discuss the following issue in the event of a retrial.
¶ 36 In 1983, the accounting firm of Deloitte, Haskins Sells ("Deloitte") conducted a financial audit of HMIA in connection with a proposed initial public offering of a corporation to be formed by combining IPA, HMIA, and other businesses. In the course of the audit Cohen revealed Shelton's 25 percent ownership interest in HMIA to Deloitte. He introduced evidence tending to show that a draft report of the audit was made available to IPA board members. He contended at trial that his disclosure of Shelton's ownership interest to Deloitte, reflected in the draft audit report, refutes the state's claim that he concealed Shelton's ownership interest in HMIA.
¶ 37 Cohen proffered expert testimony by David Childers, a Phoenix attorney, to establish that Cohen's disclosure to Deloitte was sufficient to fulfill his disclosure obligations in connection with the securities offering. Specifically, Cohen offered Childers' testimony to inform the jury that disclosure to certified public accountants working for both Cohen's company and for IPA would effectively result in disclosure to officers of IPA and its directors. Further, Cohen intended Childers to explain Cohen's duty to disclose under corporate law. This testimony, Cohen argued, would assist the jury in determining whether he had that fraudulent intent alleged by the indictment.
¶ 38 The state opposed the testimony on the grounds it was irrelevant, was not a proper subject of expert opinion, was an opinion regarding particularized, disputed facts, and was more confusing and time-wasting than probative. The trial court precluded the testimony on the ground that an expert's opinion on the duty of disclosure under civil laws was inapplicable to proof of facts in this criminal case. Cohen made an offer of proof. He now assigns error to the trial court's refusal to admit Childers' testimony.
¶ 39 Cohen argues that the testimony was relevant and admissible for three purposes:
1. to show that in the ordinary course of business Defendant could reasonably expect his disclosure to Deloitte regarding Shelton to be disseminated to IPA's directors;
2. to establish that Defendant had no legal "disclosure obligation" to IPA's directors concerning Shelton's interest in HMIA; and
3. to establish under principles of agency that the agent's (Deloitte's) knowledge regarding Shelton's ownership interest in HMIA was imputable to its principal (IPA).
¶ 40 Childers' proposed testimony was offered to raise the inference that Cohen did not intend to conceal Shelton's interest in HMIA. Cohen's ostensible compliance with disclosure obligations under securities, contract, tort, or any other civil laws, however, has no bearing on his own intent to conceal. IPA's putative knowledge of Shelton's interests under agency law is likewise irrelevant to Cohen's intent. Commission of a crime does not necessarily imply violation of civil statutes or breach of common law duties. Accordingly, Childers' expertise in these unrelated matters of civil disclosure could not have aided the jury in its fact finding.
¶ 41 Similarly, if imputation of the auditor's knowledge to IPA was legally relevant, the judge — not Childers — would decide whether imputation existed as a matter of law. Smith v. Lucia, 173 Ariz. 290, 298, 842 P.2d 1303, 1311 (App. 1992) ("[T]estimony of attorney experts will not support a finding of probable cause. Probable cause is a matter of law. Because 'it is the responsibility of the trial judge to say whether the facts give rise to probable cause, the expressions of opinions by others are not relevant and are wholly immaterial to the decision in the case'") (quoting Carroll v. Kalar, 112 Ariz. 595, 599, 545 P.2d 411, 415 (1976)).
¶ 42 Childers' proposed testimony concerning what disclosures occur in the ordinary course of business was also inadmissible. Such testimony would simply have informed the jury that Cohen's behavior was consistent with that of someone who did not intend to conceal material facts. "The expert may not explain that, based on the characteristics and behavior he has described, a person's conduct is consistent or inconsistent with the crime having occurred." State v. Tucker, 165 Ariz. 340, 346, 798 P.2d 1349, 1355 (App. 1990); see also State v. Briggs, 112 Ariz. 379, 382, 542 P.2d 804, 807 (1975) (a psychiatrist cannot qualify as an expert in the area of specific intent). Testimony concerning what occurs in the ordinary course of business is meaningless absent some foundational testimony that Cohen actually knew such disclosure would occur or intended to disclose it in this manner.
¶ 43 Childers cannot testify to what Cohen actually knew or intended with respect to the preliminary audit. The jury would not have learned anything relevant from testimony establishing that disclosure to Deloitte would lead to disclosure to HMIA board members in the ordinary course of similar transactions. The offer of proof did not address whether Cohen knew that the ownership would be disclosed in the audit or knew that the board members would get a copy of the audit with that information. The evidence at trial already established that HMIA board members had access to the information via the preliminary audit report.
¶ 44 It was unnecessary to explain to the jury what the auditor's obligations were; only Cohen's obligations were at issue. Cohen's knowledge of the audit process had to be linked up with the expert's testimony for the latter to be relevant.
¶ 45 Competent evidence of Cohen's intent would include his own statements or confession, his actions, his testimony on the subject, or other facts reasonably implying his intent. State v. Routhier, 137 Ariz. 90, 99, 669 P.2d 68, 77 (1983) (defendant's comments and conduct are evidence of his state of mind); State v. Allen, 111 Ariz. 546, 548, 535 P.2d 3, 5 (1975) (confession admissible to prove criminal intent); State v. Quatsling, 24 Ariz. App. 105, 108, 536 P.2d 226, 229 (1975) ("Intent may be inferred from all the facts and circumstances disclosed by the evidence . . . and need not be established by direct proof"). Without such foundational evidence, expert testimony regarding what someone else, similarly situated, probably intended would not be competent. Childers had no personal knowledge of Cohen's statements or actions or other facts surrounding the transactions giving rise to the charges. Childers' testimony, in its overriding purpose, appears to have been intended to supply an innocent mental state to Cohen based not on Cohen's own behavior but on the behavior of third parties in different business situations. See also United States v. Johnson, 558 F.2d 744 (5th Cir. 1977) (supporting exclusion of expert testimony regarding mental state of defendant in false tax filing).
CONCLUSION
¶ 46 For the foregoing reasons, we affirm Cohen's convictions with the exception of the fraud conviction based on A.R.S. section 13-2910
__________________________________ Rudolph J. Gerber, Presiding Judge Department A
CONCURRING:
_________________________________ Sarah D. Grant, Judge
I concur in the court's disposition of issues one and two, but respectfully dissent from its disposition of issue three. I would hold that the trial court committed further reversible error when it precluded Cohen from introducing expert testimony from witness Childers. I would direct the trial court to permit such testimony upon remand, although not all of the testimony for which Cohen contends.
Defendant Cohen sought through Childers, a competent witness on the subject, to introduce expert testimony concerning a requisite feature of an independent financial audit. Childers would have testified, if permitted to do so, that, by disclosing Shelton's ownership interest to the accounting firm conducting an independent financial audit of HMIA at the behest of IPA, Cohen obliged the auditors to include that information in their report to the IPA directors. This testimony would have supported the inference that an experienced business person such as Cohen would have anticipated that his revelation to the auditors would be disclosed to the directors. That inference would in turn have permitted the further and critical inference that Cohen lacked an intention to conceal what he knew would be disclosed.
I cannot agree with the majority's assertion that an expert's explanation of auditing procedures and requirements could not have aided the jury. Experienced business persons may understand the obligations of independent auditors; average jurors do not. Such "specialized knowledge" is a proper subject of expert testimony pursuant to Rule 702 of the Arizona Rules of Evidence.
Nor do I agree that such evidence was meaningless without foundational testimony that Cohen actually knew such disclosure would occur. The evidence at trial established that Cohen was widely experienced in business; indeed, the majority describes him as a "director, officer, shareholder, owner, [and] manager" of numerous corporations. Childers proposed to describe what he said was a standard business practice and procedure when a company commissions an independent financial audit. A jury could reasonably have inferred that Cohen, as an experienced corporate veteran, was aware of this standard practice and procedure. Cohen was not obliged to waive his right to silence and take the witness stand to testify to a fact that he could establish instead by inference.
In summary, Childers's evidence was relevant, through a process of inference, to the element of intent to conceal, and it tended to support an exculpatory chain of inference that Cohen was entitled to advance in his defense. The jury might or might not have followed that chain to the ultimate inference that Cohen wished. But Cohen had a right to advance it, and the trial court committed reversible error by denying him a material link in his defense.
___________________________ Noel Fidel, Judge