UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
decided as amended april 10 1968.: February 23, 1968.
UNITED STATES OF AMERICA
MILTON H. L. SCHWARTZ, APPELLANT
Staley, Chief Judge, Hastie, Circuit Judge, and Sheridan, District Judge.
Opinion OF THE COURT
SHERIDAN, District Judge.
Defendant, Milton H. L. Schwartz, has appealed from a judgment of sentence following a guilty verdict in a jury trial on a one court indictment charging a violation of Section 7206(4)*fn1 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 7206(4). This section makes removal or concealment of property upon which a levy is authorized by Section 6331*fn2 of the Code a felony.
The indictment charged as follows:
"That on or about October 30, 1954, at Philadelphia, in the Eastern District of Pennsylvania, Rudolph R. Bregman and Milton H. L. Schwartz, with intent to evade and defeat the collection of taxes assessed against Rudolph Motor Service, Inc., did knowingly and unlawfully remove and conceal eighteen (18) Strick Trailers, property of Rudolph Motor Service, Inc., upon which a levy was authorized by Section 6331 of the Internal Revenue Code of 1954.
"In violation of 26 U.S.C. Section 7206(4)."
This trial in January 1966 was the second. In the first trial in June 1961, the jury disagreed as to defendant, but found Bregman guilty. The conviction was sustained on appeal. United States v. Bregman, 3 Cir. 1962, 306 F.2d 653.
The jury having returned a guilty verdict, the evidence must be viewed in the light most favorable to the Government. United States v. Boyance, 3 Cir. 1964, 329 F.2d 372. The evidence warranted the jury in finding the following facts. In 1951, defendant, an attorney experienced in taxation and corporate finance, became counsel for Rudolph Motor Service, Inc., an interstate trucking company in arrears in its tax liabilities to the United States. All the stock of Rudolph Motor was owned by its president, Rudolph Bregman. For several years defendant negotiated with the Internal Revenue Service in an attempt to prevent a seizure of the corporate property, particularly 18 trailers purchased from the Strick Company under a conditional sales contract and without which Rudolph Motor could not continue in business. Defendant, heavily in debt himself, received a large part of his income from Rudolph Motor and, consequently, it was in his interest as well as that of his client to protect the investment in the trailers. Beginning in January 1953, defendant and Bregman represented that planned expansion would produce revenues with which they promised to amortize the tax liabilities and urged Internal Revenue Service not to seize the corporate property. In October 1954, with payments to Strick in default and repossession threatened, defendant and Bregman negotiated an agreement with Strick under which the trailers were transferred to the books and records of Rising Sun Truck Rental Co., a corporation in which defendant and Bregman were shareholders, directors and officers. Rising Sun agreed to bring the account up to date and make all future payments to Strick. Rudolph Motor was to continue to use the trailers and pay Rising Sun a rental equal to the installments due Strick. On October 30, 1954, the bookkeeper made a false entry in the books and records of Rudolph Motor that the trailers had been repossessed by Strick.*fn3 The Government contended that this entry supported a finding of removal or concealment to avoid seizure, and that the defendant caused or directed the entry to be made or participated in its preparation and, therefore, was guilty as an aider or abettor under Section 2 of Title 18 U.S.C.
The principal question on this appeal concerns testimony by Bregman. When asked by the Assistant United States Attorney on direct examination whether he had directed the bookkeeper to record the 18 trailers in the books and records of Rudolph Motor as having been re possessed by Strick, he replied, "I could have. Anybody of the three officers of our corporation, because we --." At this point the Government pleaded surprise and was permitted to cross-examine on exhibit G-62, a written statement signed by Bregman on September 11, 1961, in which he stated:
"* * * As far as the alleged transfer of the 18 trailers to Rudolph Freight Lines from the Rudolph Motor Service, I am further sure that these entries were not made by me inasmuch as Milton H. L. Schwartz was representing me and taking a very active part in the operations of the business at that time; that the entries were directed to be made by him."*fn4
G-62 was prepared by counsel, signed by Bregman and mailed to Judge Van Dusen the day before Bregman was to be sentenced. Bregman did not remember signing it, although he admitted it was his signature, and he did not have any recollection of its accuracy. The court admitted the above part of G-62*fn5 as substantive evidence under the authority of United States v. De Sisto, 2 Cir. 1964, 329 F.2d 929. We think this was error.
In De Sisto evidence of prior identification by a witness which was inconsistent with his testimony at a second trial was admitted as substantive evidence. The witness was allowed to testify that on the day of the crime he had given a description of De Sisto to the F.B.I.; that four days later he had picked De Sisto out of a lineup; that 13 days later he had identified a photograph of De Sisto before the grand jury; that he identified De Sisto at the first trial held within three months; and that he had again identified a photograph of De Sisto shortly before the second trial. The court noted that the orthodox rule that prior inconsistent statements can be used only for impeachment and not as substantive evidence has been severely criticized.*fn6 It weighed this against allowing "men to be convicted on unsworn testimony of witnesses -- a practice which runs counter to the notions of fairness on which our legal system is founded." Bridges v. Wixon, 1945, 326 U.S. 135, 153-154, 65 S. Ct. 1443, 89 L. Ed. 2103 (footnotes omitted). The court emphasized that the prior statements were made or adopted under oath in a setting calculated to impress the witness with the gravity of the responsibilities assumed, with the important safeguards of the fear of prosecution for perjury, and that the testimony at the former trial had already been subjected to cross-examination. In United States v. Nuccio, 2 Cir. 1967, 373 F.2d 168, 172, a narcotics case, the court, referring to De Sisto, again emphasized the importance of these safeguards in upholding the district court which had refused to admit as substantive evidence the inconsistent testimony of a witness given at a trial of other defendants for a narcotics offense:
"* * * We thought that when the prior statements took the form of testimony to a grand jury or at a former trial on the very matter sub judice, the likelihood of a jury's short-cutting this process was so overwhelming that it was best to conform the instruction to the realities rather than confuse the jury by telling it to perform an impossible task, the opponent being adequately safeguarded by the circumstances under which the former testimony was given and the opportunity for immediate cross-examination. * * *
"* * * Moreover, and even more important, the earlier testimony here in question, unlike that in DeSisto, was not given at a former trial in the same case where the witness' mind was focused on the identical fact at issue in the later one. Although testimony at the trial of another case can properly be used for impeachment subject to such explanation as the witness may make, where the prior testimony was given in a different case with different parties involving different issues, a trial judge may properly consider the dangers to be too great to warrant the admission of the testimony as affirmative evidence. * * *"
In Taylor v. Baltimore & O.R.R., 2 Cir. 1965, 344 F.2d 281, the same court said:
"* * * At the last term we followed that view [Dean Wigmore's] to the extent of upholding the reception as substantive evidence of inconsistent testimony of the witness at a former trial and before a grand jury (and also prior identifications vouched for in such testimony). United States v. De Sisto, 329 F.2d 929 (2 Cir.), cert. denied, 377 U.S. 979, 84 S. Ct. 1885, 12 L. Ed. 2d 747 (1964). We went no further because we entertained doubts both as to whether we could, see Bridges v. Wixon, 326 U.S. 135, 153-54, 65 S. Ct. 1443, 89 L. Ed. 2103 (1945), and as to whether, having in mind the ease of putting thoughts into the minds of prospective witnesses, we should. * * *"
In its opinion the district court justified the admission of G-62 on the "principles underlying the hearsay rule and the exceptions to that rule." It found a real necessity because Bregman was evasive, unresponsive and rambling and apparently a very sick man. He had been in the hospital shortly before the trial and died a few days thereafter. The court did not base its ruling on Bregman's health, so there was no opportunity to cross-examine on it. The record does not suggest that Bregman's health affected his mental processes so as to undermine his testimony. The court also found guarantees of trustworthiness, citing Section 1422 of 5 Wigmore, Evidence (3d ed.), pages 204-205, in that G-62 was prepared by Bregman's attorney who, knowing it was to be submitted in connection with the sentencing, can be assumed to have prepared it carefully; Bregman's attorney presumably apprised him of the penalty of submitting a false statement (18 U.S.C. § 1001); it was signed by Bregman and Bregman admitted he would not sign something known by him to be false. We think that any such guarantees were greatly outweighed by the circumstances that G-62 was made almost seven years after the events therein, in an obvious effort to obtain a light sentence,*fn7 was not under oath, and there was no opportunity for cross-examination. The imminence of sentence alone was conducive to falsification rather than to truthfulness.*fn8 Even if we agreed with De Sisto, which we do not decide, the circumstances here would not permit its application.
The Government argues that Bregman adopted the statement. In its opinion the district court said:
"If a strictly legalistic approach is taken, the witness used language which the jury could have accepted as an adoption of the statement. See Harman v. United States, 199 F.2d 34, 36 (4th Cir. 1952); Finnegan v. United States, 204 F.2d 105, 115 (8th Cir. 1953); United States v. Barrow, 229 F. Supp. 722, 728 (E.D. Pa. 1964). For example, at N.T. 382, he testified: 'It [the statement] was * * * what happened.' However, he was looking at the floor, around the courtroom, and appeared visibly upset so that the trial judge did not believe the jury should be permitted to find he adopted the statement after considering his testimony as a whole and his appearance on the stand."
The refusal to permit the jury to find an adoption was a matter for the court's discretion, particularly in view of Bregman's testimony that he was "sky high," and very upset for a long time prior to and at the sentencing, he was attempting "to save his own skin," and he would "not let Milton Schwartz make any decisions for me or for my company. He would have to bring it up in front of me."
Another principal witness relied on by the Government to establish participation in the false entry was Eugene Girer, the bookkeeper for Rudolph Motor. Girer testified he made the entry at the direction of either Bregman or defendant. He could not recall which one told him the trailers had been repossessed or directed him to make the entry. Later he testified, "I -- I really can not right now testify that Mr. Schwartz specifically gave me instructions to make a single entry into a book." Defendant contends the court erred in permitting Girer to answer three questions on cross-examination with respect to prior statements made by him to the Internal Revenue Service in August and December of 1957.*fn9
Even if this testimony were in the record, we conclude there is insufficient evidence against defendant. There is ample evidence that Bregman removed and concealed the transfer of the 18 trailers with intent to avoid and defeat the collection of taxes. Bregman admitted the sufficiency of the evidence on his appeal, United States v. Bregman, supra. But the evidence against defendant is much different. Admittedly, defendant as counsel, negotiated the arrangements between Strick and Rising Sun under which Rising Sun paid Strick about $2,000 in back payments and made current payments of $500 a week. From time to time defendant made promises and proposals to the Government which his client did not keep. Defendant was a vice president and shareholder in Rising Sun, and counsel as well as financial adviser to Bregman and his companies. The evidence is clear that at all times the Government knew that defendant was acting in his professional capacity. As the court noted in its charge, most of the evidence was introduced as proof of intent. Participation in the false entry was critical to the Government's case. We have painstakingly searched the record and hold there was insufficient evidence of participation.
The indictment in March 1960 charged a criminal act on October 30, 1954. After two trials it must be presumed the Government has presented the best available evidence, and that it could not offer sufficient evidence in a third trial to sustain a conviction.
The judgment of the district court will be reversed with direction to enter a judgment of acquittal. See United States v. Weiler, 385 F.2d 63, 3 Cir., November 3, 1967.