Daugerdas Attorneys Respond to Government Sentencing Memorandum

We write on behalf of defendant Paul Daugerdas in response to the government's sentencing memorandum, dated June 16, 2014. Specifically, we seek to correct factual misstatements in the government's submission and to rebut legal arguments that are lacking merit. We also write to urge the Court to avoid a grave injustice.

The government is wrong on both counts.

First, Mr. Daugerdas has not asked the Court to consider the views of the jurors to determine the scope of the conspiracy "for Sentencing Guidelines purposes." Indeed, it was the limited scope and mandatory nature of the Guidelines that caused the Supreme Court to conclude that the Guidelines should be just one factor of many to be considered by a sentencing court. See United States v. Booker, 543 U.S. 220 (2005). Those limitations no longer apply.

Mr. Daugerdas respectfully asks the Court to consider the relevant views of the actual fact-finders at his trial under the Court's more considerable sentencing discretion under 18 U.S.C. §§ 3553(a) and 3661. The views of the jurors are absolutely relevant in fashioning a "substantively reasonable" sentence according to the mandates of Gall and Kimbrough. Gall v. United States, 128 S.Ct. 586, 596-97 (2007) (laying out the procedures to be taken by a federal district court in determining a reasonable sentence in light of the decision in Booker); Kimbrough v. United States, 128 S.Ct. 558, 564, 570 (2007) (holding that while a district court must "include the Guidelines range in the array of factors warranting consideration" and "give respectful consideration to the Guidelines," the Court "may vary [from Guidelines ranges] based solely on policy considerations, including disagreement with the Guidelines")(quotation marks omitted). Thus, pursuant to Gall and Kimbrough, the Court is not bound to follow the Guidelines treatment of acquitted conduct if the Court disagrees with the underlying policy considerations or its application in this case.

Post-Booker, the Court is directed to follow Congress's true mandate to ensure that "[n]o limitation shall be placed on the information concerning the background, character, and conduct of a person convicted of an offense which a court of the United States may receive and consider for the purpose of imposing an appropriate sentence." 18 U.S.C. § 3661.¹ Indeed, disregarding the jury's acquittals in this case -- and what those verdicts conveyed as to the government's lack of proof on the economic substance fraud -- would actually violate three separate statutory factors the Court is mandated to consider at Section 3553(a). Specifically, ignoring the acquitted conduct would: (1) disrespect the law and the long and powerful historical, constitutional, empirical and policy justifications for a jury, and not judges, to determine the criminal offense; (2) not provide just punishment for the actual offense of conviction; and (3) not further general deterrence because sentencing based on acquitted conduct engenders disrespect for a legal system that cannot be relied upon. See 18 U.S.C. § 3553(a).

Second, the government's claim that the jury's findings of guilt on the conspiracy count is "the only jury specification that is legally deserving of respect" (Gov't Sent. Mem. at 22), is quite simply, offensive. The government asks this Court to ignore the jury's nine counts of acquittal in this case -- as if they never happened. Indeed, the extent to which the government goes to avoid the fact of the acquittals is truly remarkable. In a 45-page sentencing submission, the government does not refer to these nine acquittals even once. It is as if by a magician's wand, they were wiped out of existence. The government even has a subsection in its memorandum entitled "The Indictment and Jury Verdict," (pp. 10-12), that purports to recount the jury's verdict, and does not report the fact of the acquittals at all. In the government's worldview, the jury's acquittals should be completely disregarded, and in its words, are not "legally deserving of respect." (Id. at 22.) This Court should not countenance this utter disregard to the jury system. See Duncan v. Louisiana, 391 U.S. 145, 156 (1968) ("[T]he jury trial provisions . . . reflect a fundamental decision about the exercise of official power -- a reluctance to entrust plenary powers over the life and liberty of the citizen to one judge or to a group of judges. Fear of unchecked power, so typical of our State and Federal Governments in other respects, found expression in the criminal law in this insistence upon community participation in the determination of guilt or innocence.") (emphasis added).

The jury's verdicts of acquittals are as meaningful as its verdicts of conviction. Otherwise, why even bother with the jury system at all? The government asks this Court to accept some Orwellian façade of purpose for the jury, asking them to give up their lives for eight weeks and hear evidence and argument by the parties, only to have their ultimate verdict be ignored. See May 16, 2008 Letter from Juror #6 to the Honorable Richard W. Roberts, reprinted in United States v. White, 551 F.3d 381, 396-97 (6th Cir. 2008) (en banc) ("It appears to me that these defendants are being sentenced not on the charges for which they have been found guilty but on the charges for which the District Attorney's Office would have liked them to have been found guilty.").

The Supreme Court disagrees with the government's view of jury acquittals. It has infused district courts with the authority, and indeed the mandate, to interpret a jury's acquittals. In Yeager v. United States, [cite], in the context of examining the defendant's claim of collateral estoppel, the Court instructed:

In addition to giving authority to decipher acquittals, the Supreme Court has reinvigorated the foundational protections of the Fifth and Sixth Amendments over the last several years with groundbreaking decisions in Apprendi, Blakely, Booker, Gall, Rita, and Kimbrough to breathe new life in the role of due process and jury determination of culpability in our criminal system. This evolution of the law cannot be reconciled with the government's position to ignore the acquittals as if they have no legitimacy at sentencing at all. Judge Nancy Gertner, formerly a trial judge in the United States District Court for the District of Massachusetts, has written and lectured extensively on the acquitted conduct issue. Her seminal decision in United States v. Pimenthal, 367 F.Supp.2d 143, 152 (D. Mass. 2005), is still cited as one of the more thoroughly researched and thoughtful decisions on the interplay of the Fifth and Sixth Amendments and the Supreme Court's reasoning in Apprendi and Booker. Judge Gertner concluded that sentencing judges retain discretion at sentencing to reject the consideration of acquitted conduct in determining a "reasonable" sentence. Id. Judge Gertner found that she could not be faithful to the Constitution by ignoring the jury's acquittals, and that a sentencing court should base its pronouncement of loss of liberty on another citizen based on what the jury found -- and not what she believed -- the government proved to be the crime. In summing up her analysis, Judge Gertner returned to fundamental logic:

Another judge, Judge Fletcher from the Ninth Circuit Court of Appeals, also provided persuasive reasoning for this Court to exercise its discretion and not ignore the jury's acquittals at sentencing. Judge Fletcher wrote, in a dissenting opinion, in United States v. Mercado:

The evidence presented in Mr. Daugerdas's sentencing memorandum provides this Court with overwhelming justification not to sentence Mr. Daugerdas to 20 years or life imprisonment for crimes that the jury acquitted him of, including: (1) the split results of the general verdict (nine acquittals of felony tax evasion in which no evidence of "backdating" was introduced, and four tax evasion counts of conviction in which evidence of "backdating" was introduced; this split should not be brushed aside as mere coincidence)²; (2) the information obtained from two of the jurors in this case who represented the results of the entire jury, that it convicted only on grounds of "backdating" and acquitted on economic substance fraud³; and (3) the fact that this result is precisely the verdict that the government itself asked the jury to find in its summation. See Gov't Rebuttal Summation, Tr. 7578-79 (10/28/2013), attached to Defendant's Sent. Mem. at Exhibit B.⁴

A sentence based upon "the charges for which the [Prosecutors] would have liked [Mr. Daugerdas] to have been found guilty" (see Juror #6 Ltr., supra) is not reasonable; it is not just; it is not what our criminal justice system should countenance.

The government intentionally set up this result: have the jury find guilt based on an alternative theory of "backdating," affecting one or a few tax returns, and once this conviction was in hand, turn and ask the judge to sentence based on a billion dollar fraud. This was the government's plan. See Vergil's Aeneid, Book II (translated by A.S. Kline) ("O unhappy citizens, what madness? Do you think the enemy's sailed away? . . . . it hides some other trick: Trojans, don't trust this horse. Whatever it is, I'm afraid of Greeks even those bearing gifts."). This Court should not reward the government's effort.

The government should be estopped from advocating in favor of a sentence based on what it called in its sentencing memorandum "the most prolific, pernicious, and utterly unrepentant tax cheat[ing] in United States history," (Gov't Sent. Mem. at 2), when it told the jury it "can find Paul Daugerdas guilty based solely on his involvement in the backdating of [Michael Toporek's] transaction." Tr. 7578. The government's Trojan Horse seeks to undermine the legitimacy and fundamental role of the jury. Justice Holmes was the first jurist to observe that concepts of estoppel should apply to criminal cases, as much as civil ones. He found: "It cannot be that the safeguards of the person, so often and so rightly mentioned with solemn reverence, are less than those that protect from a liability in debt." United States v. Oppenheimer, 242 U.S. 85, 87 (1916). This Court should apply these concepts of "issue preclusion" at Mr. Daugerdas's sentencing. See Restatement (Second) of Judgments, § 27 (1993).

By manipulating the charges, arguing to the jury that it should convict based on a tiny "subset" of conduct, and then seeking to punish Mr. Daugerdas on the entirety of the tax shelter scheme charged in the Indictment, the government seeks an end-run around the entire jury system. This is constitutional mischief. If the Court allows the government to get away with this conduct, prosecutors will retain the unfettered ability to link a factually weak charge of a serious offense with a relatively strong charge of a more modest offense -- or perhaps not even formally charge the more serious offense at all -- knowing that so long as it prevails at trial on the lesser charge that it can still in effect punish the defendant for the far more serious offense. As a result, the crime the defendant will actually be punished for is something substantially different from the offense of conviction. Allowing this pernicious practice to prevail here would leave a dark stain on our criminal justice system.

This Court is about to pass judgment on another human being's conduct. Mr. Daugerdas has to spend the rest of his life knowing that the jury did not convict him of massive economic substance fraud, but rather only participating in the "backdating," or "as of" dating, on a handful of tax returns. If the Court sentences Mr. Daugerdas on the former and not the latter, how will that punishment further the goals of federal sentencing? How will that sentence square with a system of justice that has always been based on a foundation of community judgment? Such a sentence cannot be "reasonable" if it is untethered from what the jury found the crime to be. We beseech the Court to protect our jury system and not undermine the criminal law's normative and societal force.

We ask the Court to impose its sentence on the criminal offense for which Mr. Daugerdas was convicted, and not on the conduct for which he was acquitted. See Judge James S. Gwin, "Juror Sentiment on Just Punishment: Do the Federal Sentencing Guidelines Reflect Community Values?", 4 Harvard Law & Policy Review 173, 175 (2010) ("As a general matter, community sentiment must be an important part of any just system of sentencing. Without some connection to community values, sentencing results in public misunderstanding of the relative seriousness of criminal conduct, undermines the criminal law's moral standing, and diminishes the criminal law's normative force.") (electronic copy avail. at: http://ssrn.com/abstract=1556347).

Finally, we ask the Court not to credit the government's efforts to avoid the results it urged the jury to find.

² If the government asked its statistical expert at trial, Dr. DeRosa, to perform a probability analysis of this result, he would certainly return findings that the government would not be able to defend. Mr. Daugerdas challenges the government to seek such a probability analysis from Dr. DeRosa, regarding the random chance that all tax evasion counts involving backdating resulted in convictions and all counts involving only economic substance fraud resulted in unanimous acquittals.

³ We submit at Exhibit A hereto, a Supplemental Declaration of Counsel to further particularize the statements of jurors who voluntarily agreed to speak with defense counsel after the verdict (and with authorization of the Court). The government asks this Court to ignore "what two unnamed jurors may have said." (Gov't Sent. Mem. at 23.) To clarify, these are not any "two unnamed jurors." The statements identified in counsel's original declaration and in the one added here are of two jurors (Jurors #1 and #7) who sat through eight weeks of evidence presented at this trial, and are statements which represent the findings of a unanimous jury. The jurors told us that the jury found that the government failed to prove the "economic substance" tax shelter fraud, which comprised the majority of its charges against Mr. Daugerdas, but proved beyond a reasonable doubt those charges related to the "backdating" of transactions on some specific clients' tax returns. (See Exhibit A.) Fed. R. Evid. 606(b) does not restrict consideration of this evidence at the sentencing phase of criminal proceedings, and hearsay evidence is also admissible at sentencing. See United States v. Fell, 360 F.3d 135, 144 (2d Cir. 2004) ("The Federal Rules of Evidence are inapplicable in numerous contexts, including ordinary sentencing proceedings before a trial judge.") (citing Fed. R. Evid. 1101(d)). The government faults Mr. Daugerdas for not "cit[ing] to any case holding that the post-verdict views of one or more jurors should be given weight" at sentencing. (Gov't Sent. Mem. at 22.) The more relevant point, however, is that the government failed to present any law that precludes the Court from considering this information in the context of sentencing. Indeed, there is a federal statute that compels the opposite result. See 18 U.S.C. § 3661 ("No limitation shall be placed on information concerning the . . . conduct of a person convicted of an offense which a court of the United States may receive and consider for the purpose of imposing an appropriate sentence.")

By now, this Court should not be surprised to find that this litigation presents issues of first impression in this Circuit.

⁴ The Prosecutor instructed the jury that "[t]here are a whole series of charges to consider," (Tr. 7578), and "[w]hat that means, ladies and gentlemen, you can find Paul Daugerdas guilty based solely on his involvement in the backdating of that transaction [referring to Michael Toporek's tax return] . . . [t]hat's conspiracy to defraud the Internal Revenue Service. It's also a conspiracy to commit mail fraud. . . [i]t also constitutes an obstruction of the IRS . . . because if you find even a subset of that activity that they are involved in, it can constitute [the] mail fraud violation, or a conspiracy violation, or an obstruction. Id. at 7578-79 (emphasis added).