Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

United States v. Hoffman

United States Court of Appeals, Fifth Circuit

August 28, 2018

UNITED STATES OF AMERICA, Plaintiff - Appellee Cross-Appellant
v.
PETER M. HOFFMAN Defendant - Cross-Appellee MICHAEL P. ARATA; SUSAN HOFFMAN, Defendants - Appellants Cross-Appellees UNITED STATES OF AMERICA, Plaintiff - Appellee-Cross- Appellant
v.
PETER M. HOFFMAN, Defendant - Appellant-Cross- Appellee UNITED STATES OF AMERICA, Plaintiff - Appellant
v.
PETER M. HOFFMAN; MICHAEL P. ARATA, Defendants - Appellees UNITED STATES OF AMERICA, Plaintiff - Appellee Cross-Appellant
v.
PETER M. HOFFMAN, Defendant - Appellant Cross-Appellee MICHAEL P. ARATA; SUSAN HOFFMAN, Defendants - Cross Appellees

          Appeals from the United States District Court for the Eastern District of Louisiana

          Before KING, DENNIS, and COSTA, Circuit Judges.

          GREGG COSTA, CIRCUIT JUDGE

         We withdraw the prior panel opinion and substitute the following:

         With its colorful history and rich cultural stew, Louisiana has long been a popular setting for works of fiction, including movies. In recent years the state has also tried to become a place where films are made. That effort enjoyed considerable success. The Curious Case of Benjamin Button, Django Unchained, Twelve Years a Slave, The Dallas Buyer's Club, and Dawn of the Planet of the Apes are some recent films of note shot in New Orleans. Believe it or not, in one recent year (2013) Louisiana surpassed even California as the most popular locale for filming major-studio productions. Mike Scott, Louisiana Outpaces Los Angeles, New York, and All Others in 2013 Film Production, Study Shows, TIMES-PICAYUNE (Mar. 10, 2014). This development led some to call New Orleans “Hollywood South.” Id.

         State tax credits for the film industry spurred much of this growth. Id. (“[M]ake no mistake: The state's tax-credit program . . . is largely responsible for the surge in local productions.”). They also provided an incentive for fraud. A jury found that to be the case for Peter Hoffman, Michael Arata, and Susan Hoffman. It credited the government's allegations that they submitted fraudulent claims for tax credits, mostly by (1) submitting false invoices for construction work and film equipment or (2) using “circular transactions” that made transfers of money between bank accounts look like expenditures related to movie production. Their principal challenge to those convictions is an argument that the tax credits are not property within the meaning of the mail and wire fraud statutes but are instead akin to the video poker licenses the Supreme Court rejected as a basis for federal prosecution in Cleveland v. United States, 531 U.S. 12 (2000). If we conclude that the credits are property subject to the federal fraud statutes, defendants also contend that the evidence was insufficient to convict because they made a good-faith effort to comply with a state program riddled with gray areas.

         While the defendants seek to undo their convictions, the government is unhappy with the sentences of probation that all three received. So it too appeals, arguing that the substantial downward variances exceeded the district court's discretion. The government also contends that the district court improperly vacated a number of the jury's guilty verdicts.

         I.

         The Hoffmans and Arata owned and jointly operated Seven Arts Pictures Louisiana, LLC (Seven Arts). Each of them was also involved in several other film-related ventures. Through their companies, defendants purchased a “dilapidated mansion” at 807 Esplanade in New Orleans, intending to renovate the structure and turn it into a postproduction facility where films are edited and prepared for final release. To offset the cost of this project, Seven Arts applied for film infrastructure tax credits with the state.

         A.

         Louisiana enacted the Motion Picture Incentive Tax Credit in 1992 to encourage local development of the movie and television industry. La. Rev. Stat. § 47:6007. In its initial form, the law authorized investors to claim a credit for 50% to 70% of losses sustained during in-state film production. In other words, it was a “safety net” for bad film investments. John Grand, Motion Picture Tax Incentives: There's No Business Like Show Business, STATE TAX NOTES at 791 (Mar. 13, 2006). The state legislature extended the program in 2002, permitting investors to claim tax credits for money spent on profitable projects. La. Rev. Stat. § 47:6007(C)(1) (2002). The next year saw further amendment, this time allowing investors to sell or transfer the tax credits. Id. § 47:6007(C)(4) (2003). This was an important innovation because many investors-those like Peter Hoffman who resided in California-did not themselves owe Louisiana taxes. Nontransferable credits had been of little value to these numerous out-of-state producers.

         The program was again amended in 2005 (and extended in 2007), when the legislature authorized income tax credits for state-certified infrastructure and production projects.[1]See generally La. Rev. Stat. § 47:6007(C) (2005). Projects with total base investment exceeding $300, 000 could qualify for tax credits worth up to 40% of in-state expenditures. Id. § 47:6007(C)(1)(b)(i), (iii); see also Dep't of Revenue, Policy Servs. Div., 2005 Regular Legislative Session: Legislative Summaries 5 (Jan. 13, 2006), http://www.rev.state.la.us/ publications/lsls(2005).pdf.

         Louisiana's Office of Entertainment Industry Development, a component of the Department of Economic Development, administered the program. Issuance of film tax credits was a two-step process. First, the applicant had to file an initial application for tax credits and obtain a precertification letter from the state agencies. See Red Stick Studio Dev., L.L.C. v. Louisiana, 56 So.3d 181, 183-84 (La. 2011). After receiving that authorization, the applicant still had to submit a cost report tallying its expenditures, accompanied by an audit from an independent accountant. Id. at 183 n.4. After a review of those materials, the same state agencies determined whether the expenditures should be certified and tax credits issued.

         For infrastructure projects, qualifying expenditures could include the purchase, construction, and use of tangible items directly related to Louisiana film production. The law defined “base investment” as the “actual investment made and expended, ” while “expended in the state” meant “property which is acquired from a source within the state and . . . services procured and performed in the state.” La. Rev. Stat. § 47:6007(B)(1), (3) (2007). And the state could recapture tax credits if it found that “monies for which an investor received tax credits . . . [we]re not invested in and expended with respect to a state-certified production . . . and with respect to a state-certified infrastructure project.” Id. § 47:6007(E)-(F) (2007).

         B.

         Such was the statutory and administrative landscape facing Peter, Arata, and Susan as they sought to develop 807 Esplanade.[2]A bank loaned them $3.7 million for the project, $1.7 million of which was earmarked to purchase the property while the remainder was placed in an account that could be drawn on to make payments for construction and renovation. From its inception, Seven Arts sought to lower the cost of the 807 Esplanade project via various tax credits. Beyond the film credits, for example, it sought “historic rehabilitation tax credits.” In October 2007, Arata submitted the company's initial film credit application to the state, which included a cost estimate of $9 million, a business plan, and a contractor's agreement.

         The state issued a precertification letter in May 2008. The letter contained a caveat that it did not guarantee any tax credits would be issued. But it did note that the project as described “appear[ed] to meet the criteria of a State-Certified Infrastructure Project, ” subject to administrative rules that may be released at a future date. The letter also placed certain restrictions on the tax credit certification. Namely, Seven Arts had until the end of 2008 to earn credits on the project, unless it spent $4.5 million prior to that date (in which case future credits might be possible). It also mentioned that before any credits could be “certified and released” at least $2.25 million (25%) in base investment must have been spent on film-related infrastructure. That 25% had to be used for “the creation of infrastructure specifically designed for motion picture production, ” not on the purchase of land or preexisting facilities. But tax credits could be earned on so-called “multiple-use facilities” once the production facility was complete.

         C.

         As the precertification letter emphasized, it did not authorize the issuance of tax credits. That could only occur based on the “actual amount expended by the project, ” verification of that amount by an independent auditor, and final approval by state authorities. To satisfy those critical final steps, the defendants submitted three cost reports and audits. Misrepresentations in those reports, the ones mentioned earlier that involved fake invoices and circular transactions, are what led to this prosecution.

         In October 2008, two months prior to the expenditure deadline, Peter and Arata hired an auditing firm to review project expenditures. Katherine Dodge, the auditor, requested additional information, like bank transactions showing the company's transfers to vendors. Arata emailed Regions Bank with a request to forward withdrawal and deposit slips to Dodge. But it was too late. The next day Dodge's firm withdrew based on her concerns.

         Seven Arts soon replaced her with auditor Katie Davis of the Malcom Dienes firm. Peter and Arata provided Davis with the company's general ledger, which noted a $7.42 million capital contribution from the parent company-Seven Arts Pictures, Inc.-along with vendor invoices and receipt of payment confirmations signed by Damon Martin and Leo Duvernay. These documents made it appear as though the company had made payments out of the capital contribution to Martin, owner of Departure Studios, for film equipment and to Duvernay, the project's general contractor, for construction. But bank statements, which were not included just as they had not been sent to the first auditor, revealed that those transactions were in reality withdrawals and deposits of the same funds. They were, in other words, “circular transactions” that the government argued were intended to trick state authorities into believing that Martin and Duvernay had been paid when they had not.

         In February 2009, Arata sent the first cost report, which claimed $6, 531, 202 in qualifying expenditures through October 2008, along with the auditor's statement verifying that amount, to the state. Lacking access to the bank records, the audit verified that $1, 027, 090 had been paid to Martin and $1, 749, 257 to Duvernay. The report also listed a $3.7 million payment to purchase and renovate 807 Esplanade, nearly the entire balance of the remaining expenditures claimed.

         Louisiana authorities certified and “paid out” tax credits worth $1, 132, 480.80 in June 2009. That amount was substantially below 40% of the claimed expenditures because the $3.7 million building purchase was “deemed multiuse” and therefore ineligible for credits until the project was complete. After certification, Seven Arts “cashed in, ” to use the district court's words, by selling the credits to third-party taxpayers.

         About two months after Louisiana issued the credits, concerns about Peter fabricating invoices led Arata to send a letter terminating his day-to-day participation in Seven Arts and other projects in which he acted as Peter's lawyer. Arata also reported his concerns about the invoices to the President and CFO of the Seven Arts parent company. He did not, however, report this to state authorities in accordance with ethics advice he received from a lawyer. Nor did he mention his concerns in his letter to Peter. Instead, he invoked the time-honored excuse of needing to devote more time to his family (his son), as well as to his other business interests. Because Arata retained an ownership stake in Seven Arts through his interest in Voodoo Studios, LLC, he stated in the letter to Peter that he would still “assist with the renovation and completion of 807 Esplanade as my time permits.”

         So Peter on his own submitted the company's second cost report to state authorities in January 2010. That report, audited by the Dienes firm, claimed almost $6 million in expenditures related to 807 Esplanade from November 2008 to September 2009, an amount in addition to that already certified in June 2009. The purported expenditures included $2, 302, 860 in construction costs paid to Duvernay, $807, 202 for audio equipment, $705, 587 for interest payments on a $10 million loan from Seven Arts Filmed Entertainment LA, LLC (SAFELA), $400, 000 in project management fees to Leeway Properties, Inc. (a Susan Hoffman entity), $350, 000 in legal and notary fees for Peter and Arata, $250, 000 for construction finance supervision, and $150, 000 for Leeway office space. For differing reasons, the government at trial challenged the legitimacy of these expenditures. For example, Seven Arts had supported the construction payments with a Duvernay-signed invoice that the company created only in anticipation of the Dienes audit. Duvernay testified that the fees were not actually paid to his company but that he signed the invoice anyway because Susan told him that the document “was just for [Peter's] own records.” The request for legal fees shows that Arata was not completely out of the loop despite sending the letter. After receiving an invoice for the legal fees relating to 807 Esplanade, Arata sent one of his business partners an email saying, “[Peter] wants to submit this for tax credits. Ha!” He continued, “And since I was not his lawyer for the deal, it makes it even better. What he could submit and what is actual are the bills he got from Guy Smith, even the Jones Walker bills. But instead, he . . . puts me down as receiving $150K in fees! Love it.”

         After Peter submitted the second cost report, state officials asked forensic accountant Michael Daigle to analyze both rounds. As part of his investigation, Daigle contacted the Dienes firm about concerns he had developed. As a result of that interaction, the firm took the “very unique” step of recalling its audits associated with both cost reports. It recalled the first audit over Peter's objection. Withdrawing the first audit, he thought, would be “extremely damaging to the purchasers for value of the credits already certified.” Those fears were not unfounded. After the Dienes firm withdrew its audits, the state revoked the previously issued credits, declined to issue new credits for the second cost report, and conveyed the problems unearthed during Daigle's investigation to the state inspector general.

         The company's attempts to earn film tax credits on 807 Esplanade were thus battered by the waves of the Daigle investigation, the audit withdrawal, and the tax credit revocation. Nevertheless, Seven Arts persisted. By June 2012, 807 Esplanade was complete and the site functioned as a film production and postproduction facility. The company retained a new firm, Silva Gurtner & Abney LLC, to conduct an audit for a third cost report, this one covering October 2007 to June 2012. In other words, Seven Arts wanted to claim tax credits not only for the period after September 2009 but also for the time covered in the first two (rejected) cost reports. Of the $11, 945, 184 in claimed expenditures, the Silva firm deemed $11, 785, 934 “qualified.” It even certified a number of expenditures that were similar or identical to those the state had rejected in the second cost report.

         At the state's request, Daigle also conducted a forensic review of the company's third cost report. After reviewing the Silva audit, Daigle concluded that the company's qualifying expenditures totaled $2, 743, 319.18 by the end of 2008, which would mean maximum allowable project expenditures of $5, 486, 638.36 for tax credit purposes, per the limitations outlined in the state's precertification letter. Daigle cast doubt on the $3, 842, 355 in related party transactions contained in the Silva audit. Even excluding that amount, however, the company's total qualifying infrastructure expenditures-based on the acquisition and construction costs for 807 Esplanade-exceeded that maximum allowable amount, making it eligible for up to $2, 194, 655.34 in tax credits.[3] Having apparently never faced a similar situation and relying on Daigle, the state decided to “reestablish” the tax credits issued after submission of the first cost report, thereby avoiding punishment of third-party purchasers of Seven Arts credits.

         The state inspector general enlisted the help of the FBI and began investigating the company's tax credits. This led the Silva firm to withdraw, revise, and then reissue its July 2012 audit in order to disclose uncertainties about the legitimacy of certain expenditures.

         D.

         The joint state and federal investigation led to the filing of criminal charges. No model of restraint, the indictment contains 25 counts. It charges Peter with one count of conspiracy to commit mail and wire fraud, nineteen counts of wire fraud, and one count of mail fraud. It charges Arata with one count of conspiracy, nineteen counts of wire fraud, one count of mail fraud, and four counts of making false statements to the FBI. And it charges Susan with one count of conspiracy, fifteen counts of wire fraud, and one count of mail fraud.

         During the two-week trial, the government sought to prove that the defendants fabricated invoices and shifted money in and out of accounts to make it appear as though Seven Arts had actually spent money on film infrastructure when it had not. The defendants countered that in the face of a difficult-to-interpret statutory regime they had made efforts to comply with state custom and practice as established by the acceptance of prior tax credit applications.

         The jury did not buy that defense. It convicted Peter on all 21 counts. It convicted Arata of 13 counts-conspiracy, seven counts of wire fraud, one count of mail fraud, and four counts of making a false statement. Reflecting that Susan's name was “scarcely mentioned” during the trial, the jury found her guilty only of one count each of conspiracy, wire fraud, and mail fraud.

         The defendants moved for judgments of acquittal. In a lengthy opinion, the district court granted Peter's motion with respect to five counts of wire fraud (Counts 2, 3, 4, 5, and 7) but denied the remainder; granted Arata's motion with respect to all but the conspiracy count (Count 1) and one count of wire fraud (Count 6); and denied Susan's motion. The district court then denied defendants' motions for new trial, both with respect to their remaining convictions and for all counts in the event that this court were to reverse the acquittals.

         The district court imposed sentences far below those suggested by the Sentencing Guidelines. The Guidelines recommended sentences of roughly 14 to 17 years for Peter, 9 to 11 years for Arata, and 4 to 5 years for Susan. But the district court placed all of them on probation-five years for Peter, [4]four for Arata, and three for Susan.

         The government also sought forfeiture of the issued tax credits and restitution on behalf of the state. The district court ordered forfeiture in the amount of $223, 434.25. But in a ruling not challenged on appeal, it denied the government's motion for restitution because the state, in its view, ended up suffering no “actual, pecuniary loss.” Even if it had initially suffered a loss in issuing tax credits due to fraud, the court concluded the state did not ultimately lose money because Seven Arts eventually made infrastructure expenditures on 807 Esplanade entitling the company to an amount of credits at least equal to those issued.

         II.

         The parties raise numerous issues in their cross appeals. We begin with the one that would wipe away all the conspiracy and fraud counts: defendants' contention that the Louisiana tax credits are not “property” covered by the federal fraud statutes. Their vehicle for raising this issue was a motion to dismiss the indictment, see FED. R. CRIM. P. 12(b)(3), the denial of which we review de novo, United States v. Cooper, 714 F.3d 873, 876-77 (5th Cir. 2013).

         The mail and wire fraud statutes, which have the same elements other than the jurisdictional hook of the mailing or interstate wire, criminalize schemes “to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” 18 U.S.C. §§ 1341, 1343. Property, as ordinarily understood, extends to every kind of valuable right and interest. See Pasquantino v. United States, 544 U.S. 349, 356 (2005) (citing Leocal v. Ashcroft, 543 U.S. 1, 9 (2004)). Under the common law of fraud, and the even more venerable law of common sense, “[t]he right to be paid money has long been thought to be a species of property.” Id. at 356 (citing BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND 153-55 (1768)). Common law fraud encompassed both defrauding a victim of money and of her entitlement to that money because of the “economic equivalence between money in hand and money legally due.” Id. That the victim happened to be the government, instead of a private party, did not negate that economic injury. Id.

         The Supreme Court set forth these principles in considering whether a scheme to defraud Canada of excise tax revenue by smuggling liquor into the country violated the wire fraud statute. Id. at 353. By evading taxes that would have been due had the liquor imports been declared, the defendants inflicted a “straightforward” economic injury akin to “embezzl[ing] funds from the Canadian treasury.” Id. at 356-57. Indeed, a country “could hardly have a more ‘economic' interest than in the receipt of tax revenue.” Id. at 357. Smuggling goods to deprive a government of tax revenue via a fraudulent scheme that used interstate wires was thus held to constitute wire fraud. Id. at 357. Although Pasquantino involved depriving a foreign government of tax revenue, prosecutors have also successfully used the mail and wire fraud statutes against schemes to defraud state and local governments of tax revenue. See Fountain v. United States, 357 F.3d 250, 260 (2d Cir. 2004) (deeming taxes owed to states and the federal government property within the meaning of the mail and wire fraud statutes); see also United States v. Louper- Morris, 672 F.3d 539, 557 (8th Cir. 2012); United States v. Frederick, 422 Fed.Appx. 404, 405 (6th Cir. 2011) (both involving schemes to defraud states of tax revenue); Matthew D. Lee, Chicago Restaurant Tax Case Highlights Broad DOJ Authority, LAW360 (May 25, 2016), https://www.law360.com/articles/ 800503/chicago-restaurant-tax-case-highlights-broad-doj-authority (discussing case in which restaurant owner pleaded guilty to wire fraud for failing to pay state taxes on cash transactions); cf. Hemi Grp., LLC v. City of New York, 559 U.S. 1, 4 (2010) (evaluating a suit in which New York City brought RICO charges, based on predicate acts of mail and wire fraud, because defendant allegedly caused the loss of “tens of millions of dollars in unrecovered cigarette taxes”).

         From Pasquantino's holding that tax revenue is property under the fraud statutes, it follows that Louisiana's tax credits can also be the object of a scheme to defraud. As tax credits reduce the dollars otherwise owed to the state, lying to obtain them has the same effect as lying to evade taxes: the state collects less money. Indeed, the drain on Louisiana finances caused by the film tax credit regime-$282.6 million in just one year (2016)-led the state to curtail the program. Tyler Bridges, New Study of Louisiana Film Tax Credit Program Again Finds Expensive, “Significant Hit” to Budget, ADVOCATE (Apr. 10, 2017).[5]Fraud in connection with obtaining those tax credits can affect the state's books as much as fraud used to evade paying Louisiana income taxes. Either situation implicates the state's interest in taxes owed that Pasquantino recognizes as property.

         Tax credits are also the functional equivalent of government spending programs. See Drew Desilver, The Biggest U.S. Tax Breaks, PEW RES. CTR. (Apr. 6, 2016), http://www.pewresearch.org/fact-tank/2016/04/06/the-biggest- u-s-tax-breaks/ (“[S]uch special-purpose breaks are effectively the same as directing spending”). That is why economists treat tax deductions and credits as “tax expenditures.” See Tax Policy Center, Briefing Book: A Citizen's Guide to the Fascinating (Though Often Complex) Elements of the Federal Tax System, BROOKINGS INSTITUTION, http://www.taxpolicycenter.org/briefing- book/what-are-tax-expenditures-and-how-are-they-structured. Viewing tax credits in this light further highlights their economic impact. Consider one of the largest tax expenditures in the federal tax code, the home mortgage interest deduction which totaled $77 billion in 2016. Desilver, supra. The impact on the government's coffers would be the same if, instead of offering that deduction, it sent taxpayers $77 billion in grants to help them pay their home loans. As defendants conceded at oral argument, fraud in connection with obtaining a state government grant is undoubtedly subject to wire fraud prosecution. Because there is no bottom-line difference between a government spending program and a tax credit, there is no economic rationale for treating the former as property but not the latter. When it comes to depriving the government of revenue-property under Pasquantino-there thus is no meaningful distinction between fraudulently claiming a tax credit, fraudulently obtaining a public grant, or fraudulently failing to report income.

         The congruity of these three situations involving the public fisc is further evident from looking to an example from the private sector. Everyone would recognize that plane tickets are property of an airline. That means obtaining them via deceit is fraud. See United States v. Morris, 348 Fed.Appx. 2, 3-4 (5th Cir. 2009) (discussing wire fraud conviction of an airline employee who fraudulently issued 1, 011 tickets and sold them for her benefit). But so too, we have recognized, is swindling reward miles that can be redeemed for free flights. United States v. Loney, 959 F.2d 1332, 1336 (5th Cir. 1992); see also United States v. James, 616 Fed.Appx. 753, 755 (5th Cir. 2015) (affirming wire fraud conviction for “discount fraud” that allowed defendant to purchase less expensive computers). The reason is that revenue lawfully owed the airline is taken in both situations. Loney, 959 F.2d at 1336-37; cf. Felder's Collision Parts, Inc. v. All Star Advertising Agency, Inc., 777 F.3d 756, 763 (5th Cir. 2015) (reducing a seller's revenue by the amount of a rebate in a predatory pricing case). A tax credit is the public sector equivalent of a coupon; it reduces the amount that is otherwise owed.

         In an attempt to avoid these basic economic principles, the defendants invoke Cleveland v. United States, 531 U.S. 12 (2000). It does not give us much pause. Another federal fraud prosecution out of Louisiana, Cleveland involved misrepresentations on applications for state video poker licenses. The Court held that the license was not property in the regulator's hand. Id. at 20. It rejected the argument that a state's “intangible rights” to decide who is eligible to operate poker machines created a property interest; that interest “amount[ed] to no more and no less than Louisiana's sovereign power to regulate.” Id. at 23. As for the government's attempt to fit the licenses into the traditional category of an economic property interest, it could not show any financial harm resulting from the effort to trick the state into issuing a license. Id. at 22 (“Tellingly . . . the Government nowhere alleges that Cleveland defrauded the State of any money to which the State was entitled by law.”). Quite the opposite in fact: the company that misrepresented its eligibility for the license paid the state more than $1.2 million. Id. So unlike lies to obtain tax credits, Cleveland's lies to establish eligibility for the poker license generated revenue for Louisiana even though they resulted in the regulatory harm of allowing those deemed unworthy to operate the machines. Cleveland's rejection of that regulatory harm as property does not undermine the conclusion that the drain on a state's treasury resulting from schemes to unlawfully obtain tax credits deprives the state of a classic property interest. See, e.g., Louper-Morris, 672 F.3d at 557 (affirming mail and wire fraud convictions involving scheme to defraud Minnesota of education tax credits); United States v. Lefkowitz, 125 F.3d 608, 614, 617 (8th Cir. 1997) (affirming mail and wire fraud convictions for a scheme to falsely obtain tax credits for low-income housing); Frederick, 422 Fed.Appx. at 405 (addressing mail fraud prosecution for scheme to obtain Michigan Homestead Property Tax Credits).

         A case we decided after Cleveland does seem closer to this one at first blush because it involves tax credits. See United States v. Griffin, 324 F.3d 330, 354 (5th Cir. 2003). Griffin held that “unissued” federal tax credits were not property of a state agency under the mail and wire fraud statutes. Id. at 355.But the unique nature of the program it considered, in which the state merely allocated federal tax credits, means no state property was at risk. The state agency, the Texas Department of Housing and Community Affairs, did not have a property interest in the tax credits that offset federal income tax obligations. Id. at 338. Under that program, the federal government allotted a certain amount of tax credits to Texas; the state housing agency's job was to then assign those credits to low-income housing developments within the state. Id. at 338, 354. The fraud arose in connection with a preapplication to the state agency seeking an allocation of some of the credits. Id. at 352-54. The credits would not actually issue until years later, if and when the project was completed. Id. at 355. We emphasized this feature of the Griffin fraud-that it did not result in the issuance of any tax credits, only an allocation of them. Id. at 354-55. We also noted the more fundamental point that even if the credits had issued, their fraudulent issuance would not have caused economic harm to Texas because the credits “offset [] federal income tax obligations.” Id. at 355.

         Unraveling the cooperative federalism arrangement in Griffin shows that it follows directly from Cleveland. The state's role as an allocator of federal tax credits meant it was acting much like the licensor in Cleveland: deciding which applicants would best serve the state's regulatory interests, decisions that did not directly implicate the state's finances. If anything, as in Cleveland the fraud in Griffin netted money for the state because the company receiving the allocation had to pay an application fee and a $40, 000 commitment fee.[6]Id. at 340, 355. Griffin thus rightly recognized that the fraud to obtain an allocation of federal tax credits could not have deprived Texas of property.[7]

         Griffin does not provide a defense against this prosecution because the film tax credits do reduce state coffers. And the scheme alleged here did not end with misrepresentations in connection with obtaining precertification for the credits. It continued with falsehoods in the three Seven Arts cost reports, which caused Louisiana authorities to certify and actually issue transferable credits. Because Louisiana was administering its own tax credits, the fraudulent issuance of those credits would deplete the state treasury.[8]That means Louisiana has a property interest in the tax credits. Stealing them via fraud has the same economic effect on the state as “embezzle[ing] funds from the [] treasury.” Pasquantino, 544 U.S. at 356.

         We also reject the defendants' argument that application of the wire and mail fraud statutes to Louisiana's film tax credit program raises unprecedented federalism or due process concerns. As to the federalism issue, defendants concede that these federal statutes can combat fraud in connection with evading state taxes or obtaining state benefits. We do not see how state tax credits raise any greater concerns about federal intrusion in state policymaking than those far more prevalent traditional state tax and spending programs. Regulatory complexity is not limited to tax credits. And recourse to federalism is not a great fit with this case. The state did not indicate that it thought the defendants' creation of false invoices and use of circular transactions was allowed under state law. To the contrary, it sought the assistance of federal law enforcement to investigate potential crimes, which made sense as complex interstate schemes (the Hoffmans resided in California) are one of the more strongly rooted bases for federal criminal law.

         This prosecution also does not raise notice concerns under the Due Process Clause. The honest services aspect of mail fraud has given rise to vagueness challenges. See, e.g., Skilling v. United States, 561 U.S. 358, 367 (2010) (construing the honest-services statute beyond its “core meaning . . . would encounter a vagueness shoal”). But the classic property conception of fraud has not. See Daniel W. Hurson, Comment, Mail Fraud, the Intangible Rights Doctrine, and the Infusion of State Law: A Bermuda Triangle of Sorts, 38 HOUS. L. REV. 297, 303-10 (2001) (contrasting prosecutions for schemes “whose purpose was to deprive another of money or property, ” a “basic purpose[]” of the mail fraud statute since its inception, with courts' long struggle to define schemes that deprive another of intangible rights); cf. Skilling, 561 U.S. at 412 (“As to fair notice, whatever the school of thought concerning the scope and meaning of [scheme or artifice to defraud], it has always been as plain as a pikestaff that bribes and kickbacks constitute honest- services fraud.” (quoting Williams v. United States, 341 U.S. 97, 101 (1951)) (cleaned up)). That is because lying to cheat another party of money has been a crime since long before Congress passed the first mail fraud statute making it a federal offense in 1872. Courtney Chetty Genco, Note, What Happened to Durland?: Mail Fraud, RICO, and Justifiable Reliance, 68 NOTRE DAME L. REV. 333, 337, 345-47 (1992) (identifying the common law crime of “cheating” as a precursor to mail fraud). Although defendants focus on a lack of clarity in the administration of Louisiana's tax credit program, vagueness challenges look to whether the elements of the offense provide sufficient notice. See Connally v. Gen. Constr. Co., 269 U.S. 385, 391 (1926). The government did not have to prove violations of state law. United States v. Foshee, 606 F.2d 111, 113 (5th Cir. 1979). The elements the jury had to find included terms like misrepresentations and property that have deep roots in both criminal and civil law. As we once stated, fraud “needs no definition; it is as old as falsehood and as versable as human ingenuity.” Weiss v. United States, 122 F.2d 675, 681 (5th Cir. 1941). Defendants point to no court that has held that the elements of property-based mail fraud are vague, and we see no basis for being the first to do so.

         The district court correctly found the tax credits are property subject to prosecution under the mail and wire fraud statutes. This prosecution alleging the use of fabricated invoices and misleading bank transactions to obtain a financial benefit lies at the historic core of the federal fraud statutes and neither offends due process nor exceeds federal power.

         III.

         Having rejected the defendants' global challenge to the prosecution's theory, we consider their fact-based challenges to the specific counts of conviction. But our sufficiency review does not just entail the usual posture of a defendant seeking to set aside convictions. Because the district court granted judgment of acquittals on a number of counts-five for Peter and eleven for Arata-the government also appeals, seeking reinstatement of those convictions that it believes the evidence supported.[9]Whether we are looking at the verdicts the district court sustained or those it threw out, our standard of review is the same. We conduct a de novo review of the evidence in determining whether it was sufficient to convict. See United States v. Danhach, 815 F.3d 228, 235 (5th Cir. 2016). In conducting that review, we weigh the evidence “in a light most deferential” to the jury verdict and give the party that convinced the jury the benefit of all reasonable inferences. United States v. Lucio, 428 F.3d 519, 522 (5th Cir. 2005); see United States v. Ingles, 445 F.3d 830, 834-35 (5th Cir. 2006). Consequently, we “must affirm the verdict unless no rational juror could have found guilt beyond a reasonable doubt.” United States v. Sanjar, 876 F.3d 725, 744 (5th Cir. 2017).

         A.

         In assessing the sufficiency of the evidence, we first discuss conspiracy, then mail and wire fraud, and finally false statements.

         Count 1: The jury convicted all three defendants of conspiracy to commit mail and wire fraud. As this offense was charged under the general conspiracy statute (18 U.S.C. § 371) rather than the one specific to fraud offenses (18 U.S.C. § 1349), [10]the government had to prove an agreement to commit the fraud offense, the defendants' knowledge of the unlawful objective and willful agreement to join the conspiracy, and an overt act by a member of that conspiracy to further the unlawful goal. United States v. Mauskar, 557 F.3d 219, 229 (5th Cir. 2009). The district court upheld the conspiracy convictions. We too are of the opinion that the direct and circumstantial evidence was sufficient to prove ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.