Opinion
CRIMINAL ACTION NO: 02-93, SECTION: "J" (2)
January 13, 2003
ORDER AND REASONS
Before the Court is Defendant Guy W. Huffine's Motion in Limine to Exclude Evidence (Rec. Doc. 44). The Court took the motion under advisement after conducting oral argument on Thursday, January 9, 2003. The Government has filed a memorandum in opposition to the motion. The trial in this matter is to commence on Monday, January 13, 2003. Upon consideration of the memoranda submitted by counsel, the superseding indictment, and the applicable law, the Court concludes that Defendant's motion should be GRANTED.
BACKGROUND
The Government originally charged Defendant with four counts of mail fraud in violation of 18 U.S.C. § 1341-1342 and six counts of tax evasion in violation of 18 U.S.C. § 2 and 26 U.S.C. § 7202 7206. The original indictment alleged that Huffine, through his roofing and construction company, created a scheme to defraud the Jefferson Parish School Board (JPSB) by fraudulently obtaining payments through the submission of inflated payment invoices. The original indictment did not allege that part of Huffine's scheme was to use the fraudulently-obtained funds for his personal use.
On June 26, 2002, the Court severed the mail fraud and tax evasion offenses. Rec. Doc. 18. The Court concluded that the indictment failed to allege sufficient commonality between Defendant's underlying acts with respect to the mail fraud counts and the tax evasion counts. In granting the severance, the Court found that the Government failed to specifically allege what role, if any, the income derived from the alleged mail fraud played in the tax evasion charges.
Subsequently, the Government obtained two separate superseding indictments-one including only the mail fraud counts and the second including only the tax evasion counts. As part of the superseding indictment on the mail fraud counts, the Government now alleges that part of Defendant's scheme was to defraud the JPSB with the intention of using the fraudulently-obtained funds for personal use. See Rec. Doc. 25. In proving its mail fraud case against Defendant, the Government plans to use evidence of Defendant's alleged expenditures of corporate funds, including those alleged to have been fraudulently obtained from the JPSB, for his personal expenses. The Government plans to introduce such evidence at trial "as intrinsic to the offenses charged . . . and as proof of motive." Rec. Doc. 44, exhibit C.
Defendant's motion seeks to exclude such evidence as irrelevant under Federal Rules of Evidence 401 and 402 and unduly prejudicial, confusing, and misleading under Rule 403. Specifically, Defendant argues that such evidence is irrelevant because it is not necessary to prove that he committed mail fraud under 18 U.S.C. § 1341-42. The Government responds by arguing that the purported evidence is relevant because it helps prove an essential part of the scheme and helps prove that Defendant had the requisite specific intent to defraud.
DISCUSSION
The Court must first inquire into whether the purported evidence is relevant under Federal Rules of Evidence 401 402. If the evidence is relevant, it still may be inadmissible under Rule 403.
I. Relevancy of Purported Evidence Under Rules 401 402
In order to be admissible, evidence must be relevant. FED. R. EVID. 402. Evidence is relevant when it has "any tendency to make the existence of any fact that is of consequence to the determination of the action more or less probable than it would be without the evidence." FED. R. EVID. 401.
To determine facts that are of consequence, it is necessary to interpret the elements of the offense of mail fraud. The Fifth Circuit has stated that there are three basic elements. United States v. Caldwell, 302 F.3d 399, 406 (5th Cir. 2002). The defendant must have (1) devised or intended to devise a scheme to defraud, or to perform specified fraudulent acts and (2) used the mail for the purpose of executing, or attempting to execute, the scheme, or the specified fraudulent acts. Id. The defendant must also have had a specific intent to commit fraud. United States v. RICO Industries, Inc., 854 F.2d 710, 712 (5th Cir. 1988).
In the instant case, Defendant does not contest that his actions meet the requirements of the first two elements. Defendant does contest that he had the requisite specific intent. An intent to defraud requires both an intent to deceive and to cause some harm to result from the deceit.United States v. Jimenez, 77 F.3d 95, 97 (5th Cir. 1996). A defendant has an intent to defraud if he "acts knowingly with the specific intent to deceive for the purpose of causing financial loss to another or bringing about some financial gain to himself." Id. The requisite intent can be shown by examining the scheme itself. United States v. Green, 745 F.2d 1205, 1207 (9th Cir. 1985); United States v. Bruce, 488 F.2d 1224, 1229 (5th Cir. 1973).
The Government cites United States v. Jensen, 41 F.3d 946 (5th Cir. 1994), as controlling authority on the issue at bar. In Jensen, the defendant was convicted of participating in various different fraudulent schemes and conspiracies. Id. at 952. As part of its case against the defendant, the Government introduced evidence of how the defendant spent the money acquired through the fraudulent transactions at issue. Id. at 958. The defendant argued that the evidence was inadmissible under Federal Rules of Evidence 401 and 403. The Fifth Circuit affirmed the district court's ruling that the evidence was relevant because it tended to prove the defendant's intent to further the overall fraudulent scheme and to prove the funds were illegally obtained. Id. at 958. Specifically, the Court stated that "in regard to the evidence of large expenditures of money, such evidence is relevant to prove the funds were obtained illegally." Id.
The Court does not agree with the Government that Jensen compels the admissibility of the purported evidence in this case. In Jensen, the Fifth Circuit relied on the fact that the Government was using evidence of extremely large sums of personal expenditures to prove that the defendant actually received the money fraudulently and illegally. Id. The evidence was necessary to prove that the defendant participated in a scheme to defraud. In the instant case, it is not contested that Defendant submitted fraudulently-inflated invoices in furtherance of his intent to deceive the JPSB.
Furthermore, the amounts alleged to have been obtained fraudulently inJensen far outweigh those alleged to have been obtained by Defendant in the instant case. The substantial amount obtained by the defendant inJensen furthered the conclusion sought by the Government in that case that the defendant knowingly obtained the funds fraudulently and had the requisite specific intent. In comparison the amount alleged to have been fraudulently obtained and spent by Defendant in the instant case is relatively small. The purported evidence is much less likely to lead to the conclusion that Defendant intended to cause some harm to another or bring about financial gain for himself.
As a result, the Court is not required to admit the evidence underJensen. Thus, the Court is left with the question under Rule 401 whether the purported evidence tends to make it any more probable or less probable that Defendant had the requisite specific intent to defraud. Defendant does not contest that he specifically intended to deceive the JPSB when he submitted the inflated invoices. However, he does contest that he intended to either cause a financial injury to another party or to personally obtain a financial gain.
The Court finds it important that Defendant is the sole shareholder and owner of his roofing and construction company. Therefore, any money or revenue obtained by the company, whether legally or illegally, is Defendant's money. In other words, any financial gain to the corporation is a financial gain to Defendant. There is nothing illegal about an owner using corporate accounts for his own personal expenses as long as he properly accounts for those expenditures as income in both his corporate and personal tax returns. Defendant's usage of the fraudulently-obtained funds is more relevant to the tax evasion charges that have been severed from the mail fraud charges. This conclusion is supported by the fact that the Government did not include the allegations of personal expenditures in its original indictment. The Government did not make this part of its mail fraud case against Defendant until after the Court severed the tax counts.
This does not mean that Defendant's alleged usage of the corporate fund for personal expenses has no relevance to the mail fraud charges. However, the purported evidence's relevance to the instant matter is marginal. To carry its burden on the element of specific intent, the Government need only prove that Defendant intended to cause financial harm to JPSB or another party or that he intended to obtain a financial benefit for his company. As discussed during oral argument, the Government can attempt to do this by showing that Defendant obtained funds earlier than he was entitled to. The Government is doing this by introducing evidence of the inflated invoices. The scheme to inflate invoices created a financial benefit f or Defendant under the theory that a dollar today is worth more than a dollar a year from now. Conversely, the Government can also show that the JPSB was harmed under that same theory. What Defendant subsequently did with the funds is evidence that pertains more so to the tax evasion charges and has little material relevance to the Government's case presently before the Court.
While the Court concludes that the purported evidence is marginally relevant, the question of admissibility under Rule 403 is a much closer call.
II. The Purported Evidence and Rule 403
Defendant also challenges the admissibility of the purported evidence under Federal Rule of Evidence 403. Under Rule 403, even 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." The purpose behind Rule 403 is to allow district courts to exclude evidence with scant probative value. United States v. McRae, 593 F.2d 700, 707 (5th Cir. 1979).
The purported evidence at issue has little probative value to the mail fraud charges. In contrast, the evidence has the potential to cause Defendant unfair prejudice. If presented with the purported evidence, the jury may be persuaded to convict Defendant because it believes that it is illegal to use corporate funds to pay personal expenditures. The jury may be improperly persuaded to convict on these grounds, even though an owner of a corporation is entitled to do so without necessarily committing a crime.
Furthermore, and of greatest to concern to the Court, is the tremendous potential that the purported evidence has for confusing and misleading the jury. As demonstrated by the lengthy and complex presentations made yesterday during oral argument, the issues involved with this portion of the Government's case are not easy to grasp. Additionally, the amount of trial time both sides will need to present this portion of the case will likely overwhelm the amount needed to address all other issues of the case. Both of these factors could potentially confuse and mislead the jury into thinking that this issue will decide the outcome of the case. As shown above, the materiality of the purported evidence is extremely limited. It is not necessary to burden the jury and the Court with this potentially confusing and misleading evidence.
As a result, it is clear to the Court that the probative value of the purported evidence is substantially outweighed by the danger of unfair prejudice, confusion of the issues, and the misleading of the jury. Presentation of such evidence would also result in the expenditure of a great deal of unnecessary time by the Court and the jury. The Government's purported evidence of Defendant's alleged use of corporate funds for personal expenses is inadmissible under Federal Rule of Evidence 403.
Therefore;
It is HEREBY ORDERED that Defendant's Motion in Limine (Rec. Doc. 44) is GRANTED.