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United States v. Knox Coal Co.

decided: June 21, 1965; As Amended June 25, 1965.


Author: Ganey

Before KALODNER, GANEY and FREEDMAN, Circuit Judges.

GANEY, Circuit Judge.

The Knox Coal Company ("Company") was indicted on March 10, 1961, along with four individuals named respectively Robert L. Dougherty, Josephine Sciandra, Louis Fabrizio and August J. Lippi. The indictment contained seven counts. Six of them were based on violations of 26 U.S.C.A. § 7201*fn1 ; the other on a transgression of 18 U.S.C.A. § 371, the general conspiracy section of the Criminal Code. Count I in substance charged the Company alone with willfully attempting to evade and defeat a large part of the taxes due and owing by it for the fiscal year ended June 30, 1957, by filing and causing to be filed a false income tax return for that period when it knew that the tax due was understated therein by $80,445.45. Count II accused the four individuals with having conspired from on or about July 1, 1956, to September 12, 1957, (the date of the filing of the return) to commit the offenses of willful attempts to evade and defeat the corporate income taxes of the Company for the fiscal year ended with June 30, 1957. Count III charged the same four individuals with the substantive offense of willfully attempting to evade and defeat the payment by the Company of $80,445.45 in income taxes for the fiscal year ended June 30, 1957, by causing to be entered on the payroll records of the Company the names of persons who were not employees of the Company; causing funds of the Company to be paid in the form of wages to or in the names of those persons; causing to be entered on the books and records of the Company, and causing funds of the Company to be paid in the form of costs and expenses which they knew were not in fact costs and expenses of the Company; and causing the Company to claim falsely in its Federal income tax return for the fiscal year ended June 30, 1957, income tax deductions for those payments. Counts IV and V averred that Sciandra did willfully attempt to evade and defeat income taxes owed by her for the years 1956 and 1957. Counts VI and VII claimed that Fabrizio did also willfully attempt to evade and defeat a large part of his income taxes for the same years.

Lippi's motion to dismiss the indictment for alleged insufficiency was denied by the district court. Each of the defendants except Lippi filed a motion for severance. These motions were denied. The Company, Dougherty, Sciandra and Lippi plead not guilty to the charges against them. Fabrizio plead guilty to Counts III and VI. Immediately prior to trial, counsel for the Company withdrew from the case. Additionally, Counts II and VII, against Fabrizio, with the consent of the Government, were severed; and the Court, apprised of Dougherty's being hospitalized, stated it would proceed without him with no objection from either the Government or Dougherty's counsel. The Company, unrepresented by counsel, went to trial under Count I, Sciandra and Lippi under Counts IV and III, and Sciandra under Counts IV and V. After a trial at Lewisburg, Pa., which began on April 2, 1961 and ended on April 13, the jury found the three defendants guilty on the counts under which they were tried.*fn2 Thereafter, Sciandra and Lippi filed motions for arrest of judgment, for judgment of acquittal and for a new trial. These motions were denied on December 20, 1962.*fn3 Lippi filed a motion for a new trial on the grounds of newly discovered evidence. This motion was denied on October 10, 1963.*fn4

The Company was fined $10,000. On Count II, Lippi was sentenced to pay a fine of $5,000 and to serve three years in prison. On Count III, imposition of sentence was suspended and he was placed on probation for three years to begin on his release from prison under Count II, "A condition of probation being that all delinquent taxes shall be paid." Sciandra and Fabrizio also received fines and sentences. With the consent of the district court, Counts II and VII were dismissed as to Fabrizio. Only Lippi has appealed.


Lippi's first contention is that the district court erred in denying his motion for arrest of judgment as to Count II because it failed to allege a crime against the United States. That motion was based on the ground that the count fails to charge a crime against the United States because it does not, excluding the last paragraph under the overt acts, allege, as is asserted under Counts I and III, that a tax in excess of that reported by the Company was due the United States.

Happily, the rule that an indictment, to be sufficient, must contain all the elements of a crime "and sufficiently apprise the defendant of what he must be prepared to meet" is still a vital part of our Federal criminal jurisprudence. *russell v. United States, 369 U.S. 749, 763-766, 82 S. Ct. 1038, 8 L. Ed. 2d 240 (1962); United States v. Deutsch, 243 F.2d 435 (C.A. 3, 1957); United States v. Tornabene, 222 F.2d 875, 878, (C.A. 3, 1955). At page 765, 82 S. Ct. at page 1047 of the Russell case, supra, the Supreme Court states:

"* * * 'In an indictment upon a statute, it is not sufficient to set forth the offence in the words of the statute, unless those words of themselves fully, directly, and expressly, without any uncertainty or ambiguity, set forth all the elements necessary to constitute the offence intended to be punished; * * *.' United States v. Carll, 105 U.S. 611, 612 [26 L. Ed. 1135]. 'Undoubtedly, the language of the statute may be used in the general description of an offense, but it must be accompanied with such a statement of the facts and circumstances as will inform the accused of the specific offense, coming under the general description, with which he is charged.' United States v. Hess, 124 U.S. 483, 487 [8 S. Ct. 571, 31 L. Ed. 516]. See also Pettibone v. United States, 148 U.S. 197, 202-204 [13 S. Ct. 542, 37 L. Ed. 419]; Blitz v. United States, 153 U.S. 308, 315 [14 S. Ct. 924, 38 L. Ed. 725]; Keck v. United States, 172 U.S. 434, 437 [19 S. Ct. 254, 43 L. Ed. 505]; Morissette v. United States, 342 U.S. 246, 270, n. 30 [72 S. Ct. 240, 96 L. Ed. 288]. Cf. United States v. Petrillo, 332 U.S. 1, 10-11 [67 S. Ct. 1538, 91 L. Ed. 1877]." Section 7201 of the Internal Revenue Code of 1954 proclaims that any person who willfully attempts to evade or defeat any tax imposed by Title 26 in any manner shall be guilty of a felony. In Sansone v. United States, 380 U.S. 343, p. 351, 85 S. Ct. 1004, p. 1010, 13 L. Ed. 2d 882 (March 29, 1965), the ourt states: "[The] elements of § 7201 are willfulness; the existence of a tax deficiency, Lawn v. United States, 355 U.S. 339, 361 [78 S. Ct. 311, 2 L. Ed. 2d 321]; Spies v. United States [317 U.S. 492, 63 S. Ct. 364, 87 L. Ed. 418 (1943)], supra, 317 U.S. at 496 [63 S. Ct. at 366]; and an affirmative act constituting an evasion or attempted evasion of the tax, Spies v. United States, supra."

In its introductory part, Count II names the Company as being a corporation with its business office at Exeter, Pa.; it identifies Dougherty as having been president of the Company during the conspiracy; Fabrizio as secretary and treasurer; Sciandra as a stockholder; and Lippi as president of District 1, United Mine Workers of America. It then goes on to charge that these four individuals did unlawfully, knowingly and willfully conspire together and with other persons unknown to commit certain offenses against the United States, to wit:

"(a) The offenses of wilful attempts to evade and defeat, corporate income taxes of Knxw Coal Company for the fiscal year ended June 30, 1957, a felony, in violation of Section 7201 of Title 26 of the United States Code." This quoted portion does not incorporate by reference or refer to any other part of the count or indictment. Of course, unless the charging part of a conspiracy count specifically refers to or incorporates by reference allegations which appear under the heading of the overt acts, resort to those allegations may not be had to supply the insufficiency in the charging language itself. Joplin Mercantile Co. v. United States, 236 U.S. 531, 535, 35 S. Ct. 291, 59 L. Ed. 705 (1915); United States v. Deutsh, supra, 243 F.2d at 436. Also see United States v. Apex Distributing Co., 148 F. Supp. 365, 370 (D.C.R.I. 1957). However, the failure of the charging part to declare that a tax in excess of that reported was due is not fatal. In a conspiracy count, the conspiracy is the gist of the offense. Where, as here, the purpose of the conspiracy is the performing of acts which are made an offense by another section of the Criminal Code, every element of that offense need not be set forth. A conspiracy count need not plead the substantive offense letter-perfect because the purpose of the conspiracy may have been accomplished even though such activity fell short of completing a substantive offense. United States v. Rabinowich, 238 U.S. 78, 86, 35 S. Ct. 682, 59 L. Ed. 1211 (1915).

Lippi also claims that the count does not fully and clearly set forth the purpose of the conspiracy.In Pettibone v. United States, 148 U.S. 197, p. 203 13 S. Ct. 542, p. 545, 37 L. Ed. 419, the Supreme Court observes:

"A conspiracy is sufficiently described as a combination of two or more persons, by concerted action, to accomplish a criminal or unlawful purpose, or some purpose not in itself criminal or unlawful, by criminal or unlawful means, and the rule is accepted * * * that when the criminality of a conspiracy consists of an unlawful agreement of two or more persons to compass or promote some criminal or illegal purpose, that purpose must be fully and clearly stated in the indictment * * *."

If Count II stated no more than that quoted in paragraph (a), though it restricts the charge to a single year, it would be insufficient. But the count does not stop there. It goes on to state that the Grand Jury further charges that the conspiracy was to be accomplished by the "means and method and in the manner following:". It was a part of the plan and conspiracy that false payroll records be created for the Company which would list as "corporate employees persons who would not, in fact, be employees of the corporation and who would perform no services for the corporation," and that funds of the Company would be "paid in the form of wages or salary payments to or in the name" of those persons, and that the Company on its payroll records and income tax returns for the fiscal year ended June 30, 1957, would claim Federal income tax deductions for wages or salaries paid and to be paid to or in the name of those persons. Then follows the listing of the overt acts in thirteen numbered paragraphs. The first four state that each of the four individual defendants respectively caused the name of a certain person to be listed on the payroll records of the Company. The next eight assert that Dougherty and Fabrizio disbursed funds of the Company to or in the name of eight separate individuals. The last paragraph avers that Dougherty filed or caused to be filed a knowingly false Federal income tax return for the Company for the fiscal year ended June 30, 1957, wherein the tax due was understated by $80,445.45. What the Grand Jury further charges, Lippi argues, may not be considered as a part of the charging part of the indictment. This argument is without merit.

Another important aspect, Lippi says, in which this count is fatally defective is that it charges a conspiracy to commit "the offenses of wilful attempts" - both terms being averred in the plural. Of course it was not necessary for the count to assert an agreement to commit the offense of willful attempt in the plural. But we fail to see how Lippi was harmed by this form of assertion. A conspiracy count may allege a purpose to commit multiple substantive offenses, and it is not duplicitous if it does so. Braverman v. United States, 317 U.S. 49, 54, 63 S. Ct. 99, 87 L. Ed. 23 (1942). As has been adverted to earlier, in a conspiracy count, the conspiracy is the gist of the offense, and though the count charges an agreement to commit several crimes or several acts, each one of which may be the basis for an indictment, the count charges but one offense under 18 U.S.C. § 371.

The indictment contains all the elements of a crime under 18 U.S.C. § 371 and sufficiently apprised Lippi of what he was to meet; and in case any other proceedings are taken against him for a similar offense, the record shows with accuracy to what extent he may plead his conviction under Count II. For example, see United States v, Jackson, 344 F.2d 158 (C.A. 3, 1965). The trial court did not err in denying his motion in arrest of judgment.


Lippi complains on three grounds that the trial court committed reversible error in denying his motion for a new trial. The first is the court's failure to instruct the jury to disregard certain declarations of an alleged co-conspirator made after the termination of the conspiracy. A brief summary of the pertinent facts shown by the Government in its case-in-chief, followed by some excerpts from the trial court's admonition and instructions to the jury about the statements in question will demonstrate, in our opinion, that they were properly admitted into evidence as far as Lippi is concerned, and are not to be considered as being prejudicial.

To prove the conspiracy involving Lippi, among others, the Government produced evidence to show that Lippi's relationship with the other three individually named defendants was more than appeared on the surface, and that he had received payments from the Company. This evidence showed the following: The Company was in the business of mining and selling coal. It maintained payroll and general fund checking accounts at The First National Bank of Exeter ("Bank"), Exeter, Pennsylvania, of which Lippi was either president or chairman of its board of directors and Dougherty was vice-president and a director from 1955 to about 1960. Checks issued by the Company were signed by Fabrizio and Dougherty. Although the Company's stock-book, as of December 18, 1950, showed Sciandra and Fabrizio as being the only stockholders and each owning 495 shares of the Class A stock, a trust agreement of the same date, signed by each of the individual defendants, lists the owners of that class of stock and the number of shares owned by each as follows: Sciandra, 280; Fabrizio, 330; and Lippi, 280. The trust agreement refers to these three as "Shareholders", and to Dougherty as "General Manager". It recited that the parties were desirous of entering into an agreement concerning the disposition of their shares on the respective deaths of any one of them, and securing the continued services of Dougherty as general manager by granting him rights to purchase shares of the Company. Upon the death of any shareholder, the surviving shareholders and Dougherty, if he is in the employ of the Company as general manager, agree to purchase in equal portions the shares of the deceased shareholder to be applied to the purchase price. No shareholder was to sell his shares without first offering them for sale in equal portions to other shareholders. Thus, it can be seen that Lippi was a substantial shareholder in the Knox Coal Company while, at the same time, he was president of the unions in whose district the Company was operating. Pursuant to the trust agreement, each of the shareholders took out insurance in the amount of $25,000 on the life of each of the other two shareholders; Dougherty also obtained insurance in the same amount on each of the lives of the three shareholders. Up until 1957, the Company paid the cost of the annual premiums amounting to $10,851.72 on these policies.

Upon an examination of the Company's records for the years 1955 and 1956 by an agent of the Internal Revenue Service, the payment of the cost of the insurance premiums was declared by him to be actually a dividend payment by the Company in the year 1956 to the three shareholders. In addition, two recorded cash dividends were declared by the Company: $2,500 in 1956, and $4,000 in 1957. During his investigation, the agent came across two checks, one for $2,500 dated October 16, 1956, and the other for $4,000 dated January 16, 1957. Both of them were made out to cash and canceled, without their having been endorsed, by the Bank. There was no evidence that these checks had been previously negotiated before they were presented to the Bank. One George J. Daileda, a former cashier at the Bank for many years and close associate of Lippi, testified that the latter had presented these checks to him for cashing at the Bank. Additionally, Lippi's Federal income tax return for the calendar year 1956 lists $6,117.52, which happens to be equal to the total of $2,500, the amount of the cash dividend just adverted to, and an amount equal to ...

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