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United States of America v. Rao Desu
Date: 01-22-2022
Case Number: 20-2962
Judge: David James Porter
Court: center>
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
On appeal from The USDC for the District of New Jersey
Plaintiff's Attorney: Mark E. Coyne
John F. Romano
Office of the United States Attorney
Defendant's Attorney:
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Description:
Philadelphia, PA - Criminal defense lawyer represented defendant with a tax fraud charge.
For several years, Desu co-owned Heights Pharmacy
with Darshna Desai. Desai managed the pharmacy's operations. Each day, Desai would collect the pharmacy's cash earnings and deposit only a small portion of that cash into the pharmacy's bank account, leaving the rest undeposited. After paying for certain items out of the undeposited cash, such as part
of Desai's salary and unused vacation time, Desai split the
remaining undeposited cash between herself and Desu. Desai
delivered Desu's portion to Desu's home. By keeping the cash
out of the Heights Pharmacy bank account, Desu and Desai
kept the cash earnings off Heights Pharmacy's general ledger.
In turn, Heights Pharmacy's accountants underreported the
pharmacy's revenue on Heights Pharmacy's tax returns by
relying on the revenue figures found in the general ledger. This
underreporting on Heights Pharmacy's tax returns led to
underreported net income on Desu's individual income tax
returns.
To keep track of their undeposited cash earnings, Desai
recorded the amount of undeposited cash on a copy of each
4
day's bank deposit slip using a coding system. Desai retained
the copies for a period of time before destroying them. Desai
also maintained a notebook in which she recorded the cash split
between her and Desu. Following a government investigation,
Desai and her husband, Pritesh Desai, pleaded guilty and
agreed to testify against Desu.
In addition to Heights Pharmacy, Desu co-owned a second pharmacy, Arthur Avenue Pharmacy, with Manish Pujara.
Similar to the scheme at Heights Pharmacy, Desu and Pujara
kept the cash earnings off Arthur Avenue Pharmacy's general
ledger by not depositing the cash into Arthur Avenue Pharmacy's bank account. The general ledger's understatement of
revenue enabled Desu to underreport his income on his individual tax return. Like the Desais, Pujara testified against Desu
to obtain a favorable outcome with the government.
A grand jury indicted Desu on six counts, including two
counts of violating 18 U.S.C. § 371 for conspiracy to
"imped[e], impair[], obstruct[], and defeat[] the lawful government functions of the IRS to ascertain, compute, assess, and
collect income taxes.†App. 94, 100. It also indicted Desu on
four counts of willfully assisting in the preparation and presentation of materially false tax returns. A jury convicted Desu on
all counts. Desu timely appealed.1
Desu makes six arguments on appeal: (1) the jury
received a faulty government exhibit for use in its deliberations, thus entitling him to a new trial; (2) two counts in the
indictment fail to state an offense under Marinello v. United
1 The District Court had jurisdiction under 18 U.S.C. § 3231.
We have jurisdiction under 28 U.S.C. § 1291 and 18 U.S.C.
§ 3742.
5
States, 138 S. Ct. 1101 (2018); (3) the District Court erred in
excluding testimony regarding the Desais' cash transactions on
relevancy grounds; (4) the District Court erred in denying an
evidentiary hearing under Franks v. Delaware; (5) the government constructively amended the indictment; and (6) the
District Court erred at sentencing by failing to account for certain deductions and exclusions in Desu's income when calculating the tax loss incurred by the government. All six arguments fail.
II
A
Desu first argues that he should have received a new
trial because the jury received a faulty copy of Exhibit 450 for
use in its deliberations. Exhibit 450 was a DVD that was supposed to contain thousands of pages of bank records for
Heights Pharmacy's bank account. But the copy was missing
records for several years in the relevant time period.
At the close of evidence and before deliberations began,
Desu's counsel signed a statement addressed to the District
Court affirming that "[c]ounsel for the . . . Defendant . . . have
reviewed the exhibits and agree that all exhibits in the Court's
possession are the exhibits that have been admitted and moved
into evidence and should therefore be provided to the jury for
deliberations.†App. 2283. After trial, the government realized
that Exhibit 450 was incomplete and notified the District Court
and Desu.
Desu moved for a new trial based on the government's
revelation. He argued that two exhibits summarizing the total
cash skimmed, Exhibits 503 and 505, should not have been
6
admitted because they relied on the records missing from
Exhibit 450. Desu also argued that the missing bank records
would have shown cash deposits appearing in Heights
Pharmacy's bank account. Evidence of these deposits allegedly
would have rebutted the government's theory that Desu and
Desai skimmed most of the cash from Heights Pharmacy. The
District Court held that Desu had waived his two arguments
concerning Exhibit 450's defect when his counsel certified that
they had reviewed the exhibits.
B
When a defendant fails to "lodge a contemporaneous
objection†and instead "raise[s] the issue for the first time in
[a] motion for a new trial,†we review the district court's ruling
for plain error. United States v. Kolodesh, 787 F.3d 224, 230
n.4 (3d Cir. 2015). Under that standard, we will grant relief to
Desu if:
(1) there is an "errorâ€; (2) the error is "clear or
obvious, rather than subject to reasonable disputeâ€; (3) the error "affected the appellant's substantial rights, which in the ordinary case meansâ€
it "affected the outcome of the district court proceedingsâ€; and (4) "the error seriously affect[s]
the fairness, integrity or public reputation of
judicial proceedings.â€
United States v. Marcus, 560 U.S. 258, 262 (2010) (alteration
in original) (quoting Puckett v. United States, 556 U.S. 129,
135 (2009)).
Waiver is an "intentional relinquishment or abandonment of a known right.†United States v. Olano, 507 U.S. 725,
7
733 (1993) (internal quotation marks omitted) (quoting Johnson v. Zerbst, 304 U.S. 458, 464 (1938)). We will reverse the
District Court only if it clearly or obviously erred by ruling that
Desu's counsel's certification was an intentional relinquishment of a known right. See Marcus, 560 U.S. at 262. The
District Court ruled that Desu's counsel's certification demonstrated knowledge of the right to object to the use of Exhibit
450 ("[we] have reviewed the exhibits,†App. 2283) and the
intent to forego an objection (the exhibits should "be provided
to the jury for deliberations,†App. 2283). Even assuming an
error by the District Court, the error was not clear or obvious.
See United States v. James, 955 F.3d 336, 344–45 (3d Cir.
2020) (holding that a defendant had waived an argument by
failing to object to the admission of a demonstrative aid when
the government allowed the defendant to review the aid in
advance of trial and the defendant objected to a similar demonstrative aid). Given our holding on the second Olano prong, we
do not need to address the remaining steps of the plain-error
standard.
III
A
Desu next argues that the two counts in the indictment
alleging violations of 18 U.S.C. § 371 fail to state an offense.
In those counts, the government alleges that Desu conspired
"to defraud the IRS by impeding, impairing, obstructing, and
defeating the lawful government functions of the IRS to ascertain, compute, assess, and collect income taxes,†a crime
known as a Klein conspiracy.2 App. 94, 100. Desu claims that
2 The counts allege that Desu violated 18 U.S.C. § 371, which
prohibits conspiring "to defraud the United States, or any
8
both counts fail to state an offense under Marinello v. United
States, 138 S. Ct. 1101 (2018). In Marinello, the Supreme
Court held that to convict someone of obstructing or impeding
the administration of the Internal Revenue Code under 26
U.S.C. § 7212(a), the government must prove that a '"nexus'
[existed] between the defendant's conduct and a particular
administrative proceeding, such as an investigation, an audit,
or other targeted administrative action.†Id. at 1109. Desu
claims that both counts fail to state an offense because they do
not allege that an investigation was pending when he committed the conspiracies as required by Marinello in the separate
but similar statute.
According to Federal Rule of Criminal Procedure
12(b)(3), a party must raise a claim for "failure to state an
offense†by "pretrial motion if the basis for the motion is then
reasonably available and the motion can be determined without
a trial on the merits.†"If a party does not meet the deadline for
making a Rule 12(b)(3) motion, the motion is untimely. But a
court may consider the defense, objection, or request if the
party shows good cause.†Fed. R. Crim. P. 12(c)(3).
The grand jury indicted Desu on October 11, 2018,
nearly seven months after the Supreme Court issued Marinello
agency thereof in any manner or for any purpose.†The
language in the indictment differs from the statutory language
and comes from United States v. Klein, 247 F.2d 908 (2d Cir.
1957), which held that "obstruct[ing] one of [the IRS's] lawful
governmental functions by deceit†is a crime under 18 U.S.C.
§ 371. Id. at 916 (internal quotation marks omitted) (quoting
Hammerschmidt v. United States, 265 U.S. 182, 188 (1924));
see also United States v. McKee, 506 F.3d 225, 239 (3d Cir.
2007) (recognizing the so-called Klein conspiracy).
9
in March 2018. Desu did not raise his Marinello argument until
he filed a post-conviction motion for acquittal, so it was
untimely under Rule 12. The District Court refused to consider
Desu's Marinello argument because he failed to raise it before
trial and Desu did not show "good cause†for his untimeliness.
B
We review a district court's good cause ruling for abuse
of discretion. Davis v. United States, 411 U.S. 233, 245 (1973).
If we uphold a district court's "good cause†ruling, we will not
consider the defendant's argument. See United States v. Fattah,
858 F.3d 801, 807 (3d Cir. 2017) ("[W]e will not consider any
unpreserved arguments absent 'good cause.'†(quoting Fed. R.
Crim. P. 12(c)(3))).
To establish good cause for his untimeliness, Desu
argued that he needed to wait to use his Marinello argument
while "lower courts determine[d] the implications of Marinello
on Klein conspiracies.†App. 2292. The District Court did not
err, let alone abuse its discretion, in rejecting Desu's excuse.
Desu waited for months to use an argument that he knew he
could make at any time prior to the deadline imposed by Rule
12. Holding out for a more favorable legal landscape is not an
appropriate excuse for delay. See United States v. Daniels, 803
F.3d 335, 352 (7th Cir. 2015) ("That additional case law later
is handed down which may better support an argument does
not constitute 'good cause.'â€).
10
IV
A
For his third argument, Desu claims the District Court
erred by denying his motion in limine "to permit evidence relevant to the disposition of cash.†App. 160. Desu wanted
Desai, Pritesh Desai, and "third-party witnesses†who
"engaged in monetary transactions with the Desais†to testify
about the cash transactions. App. 160. Desu argued that the testimony about the Desais' disposal of their cash was "relevant
as it goes to the heart of [Desu's] defense that the stream of
cash that is alleged to have been 'skimmed' and unreported
from [Heights Pharmacy] is significantly less than the ocean of
cash with which the Desais were flooded.†App. 160.
According to Desu, there was a discrepancy between the
amount of cash Desai allegedly collected from the cash skim
and the amount of cash located in the Desais' bank accounts.
This discrepancy could have meant that Desai actually
skimmed more cash from Heights Pharmacy than the government alleged she did. Assuming the total cash skim from
Heights Pharmacy remained the same, if Desai skimmed more
cash than the government alleged, then Desu skimmed less, or
none at all. This inference could have suggested that Desai did
all the skimming and falsely implicated Desu in the scheme.
Alternatively, the discrepancy between the alleged cash
skimmed by Desai and the total cash in the Desais' bank
accounts could have suggested that "there is some yet unexplained alternative source of the Desais' laundered cash which
has not been disclosed.†App. 163. To avoid scrutiny of this
undisclosed source of cash, the Desais "point[ed] the finger at
[Desu].†App. 163.
11
Before ruling on the motion, the District Court pressed
Desu's counsel for the names of the third-party witnesses and
their cash transactions with the Desais. Desu's counsel listed
the following individuals:
1. Tom Rillo: "He will testify that he received
$50,000 of cash from the Desais.†App. 1307.
2. Pritesh Desai's father: "[H]e would . . . testify to
the fact that he received cash from the Desai family. I believe it was . . . $10,000, approximately.â€
App. 1307.
3. Mukesh Desai: This person "received money
from the Desais for . . . the purchase of a home.â€
App. 1308.
4. Saumil Patel: "He received about $42,000 in
cash from the Desais.†App. 1309.
The government opposed Desu's motion in limine,
arguing that Desu sought to use the evidence of the cash transactions not to examine "the source of the [Desais'] money,†but
instead to examine "how the Desais spent their share of the
money.†App. 1311. The District Court agreed with the government and denied Desu's motion in limine on relevancy
grounds.
B
"Evidence is relevant if: (a) it has any tendency to make
a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the
action.†Fed. R. Evid. 401. "We review evidentiary rulings for
abuse of discretion.†United States v. DeMuro, 677 F.3d 550,
12
557 (3d Cir. 2012) (citation omitted).
Evidence of a discrepancy between the amount of cash
Desai skimmed and the amount of cash in the Desais' bank
accounts might have been relevant to the case. Evidence of the
discrepancy could also imply that the Desais wanted to point
the finger at Desu to avoid scrutiny of their wrongdoing. But
Desu was not seeking to introduce evidence of two amounts of
cash and the resulting disparity between them. Rather, he was
seeking to introduce evidence of how the Desais disposed of a
small amount of the cash they possessed. Desu wanted four
third-party witnesses to describe instances where the Desais
disposed of a few hundred thousand dollars in a conspiracy in
which the government accused Desai of skimming over one
million dollars. Evidence of how the Desais disposed of a fraction of the cash skim does not suggest how much money they
had in their bank accounts. Further, this evidence does not indicate that any numerical discrepancy existed between the bankaccount total and the cash-skim total. Thus, the evidence of the
Desais disposing of their cash had no "tendency†to make a
consequential "fact more or less probable.†Fed. R. Evid. 401.
3
V
A
Desu also argues that the District Court erred in refusing
to grant him an evidentiary hearing under Franks v. Delaware,
3 Desu argues that the District Court abused its discretion in
denying his motion in limine under Federal Rule of Evidence
404(b). We do not need to reach this argument because the
District Court properly denied the motion in limine on
relevancy grounds.
13
438 U.S. 154 (1978). During the investigation of Desu prior to
his indictment, Kenneth Connaughton, a special agent with the
Department of Justice, applied for a warrant to search Desu's
home. To establish probable cause for the warrant,
Connaughton submitted an affidavit detailing evidence of
Desu's wrongdoing. The affidavit relied on evidence seized
from Desai's residence under a previous search warrant; witness interviews with Desai, Pritesh Desai, and others; a notebook provided by Desai containing a record of the cash skim;
an interview with Desu; and an audio-recording of a conversation between Desu and Desai. A magistrate judge issued the
warrant. After the government executed the search warrant,
Desu filed a motion for a Franks hearing with the goal of suppressing the evidence seized as a result of the search. Desu
argued that Connaughton made material omissions and misstatements in the affidavit with reckless disregard for the truth.
The District Court orally denied Desu's motion for a Franks
hearing. It found that each of the supposed omissions or misstatements was not made with reckless disregard for the truth
or was not material.
B
To obtain a Franks hearing, a defendant must establish
(1) that a warrant application contained false statements made
with reckless disregard for the truth and (2) that the remaining
truthful statements, standing alone, do not establish probable
cause. Franks, 438 U.S. at 171–72. The defendant must prove
his allegations by a "substantial preliminary showing.†Id. at
170. To carry his burden, Desu cannot "rest on mere conclusory allegations or a 'mere desire to cross-examine,' but rather
must present an offer of proof contradicting the affidavit,
including materials such as sworn affidavits or otherwise reliable statements from witnesses.†United States v. Yusuf, 461
14
F.3d 374, 383 n.8 (3d Cir. 2006) (quoting Franks, 438 U.S. at
171). If a defendant succeeds in obtaining a hearing, he must
then prove the allegations by a "preponderance of the evidence†at the hearing itself in order for a judge to suppress
evidence obtained as a result of the warrant. Franks, 438 U.S.
at 156.
We categorize false statements as "omissions†or
"assertions.†"[O]missions are made with reckless disregard
for the truth when an officer recklessly omits facts that any reasonable person would know that a judge would want to know.â€
Wilson v. Russo, 212 F.3d 781, 783 (3d Cir. 2000). "[A]ssertions are made with reckless disregard for the truth when an
officer has obvious reasons to doubt the truth of what he or she
is asserting.†Id.
We have previously declined to say what standard of
review applies to a denial of a motion for a Franks hearing.
See, e.g., United States v. Pavulak, 700 F.3d 651, 665–66 (3d
Cir. 2012). Nonetheless, our precedent implicitly provides an
answer to this question. Two different lines of cases provide
our standard of review for the two elements a defendant must
establish to obtain a Franks hearing: (1) whether a warrant
application contains false statements made with reckless disregard for the truth and (2) whether the remaining truthful statements could establish probable cause by themselves.
Regarding the first element, we have held that "a district
court's resolution of the question whether a particular false
statement in a warrant affidavit was made with reckless disregard for the truth is subject to reversal only upon a finding of
clear error.†United States v. Brown, 631 F.3d 638, 642 (3d Cir.
15
2011).4 Additionally, our precedent reviewing lower court
probable cause determinations provides our standard of review
for the second element. As explained in United States v. Stearn,
a magistrate judge determines that probable cause exists before
issuing a warrant. 597 F.3d 540, 554 (3d Cir. 2010). When a
defendant files a motion to suppress evidence, a district court
ensures that "a substantial basis†existed for the magistrate
judge's probable cause determination. Id. (quoting Illinois v.
Gates, 462 U.S. 213, 238 (1983)). We then review de novo the
district court's review of the magistrate judge. Id.
Taken together, our precedent reveals the standard of
review we should apply to a district court's denial of a motion
for a Franks hearing. We review for clear error a district court's
determination regarding whether false statements in a warrant
application were made with reckless disregard for the truth.
Next, after putting aside any false statements made with reckless disregard for the truth, we review de novo a district court's
substantial-basis review of a magistrate judge's probable cause
determination.
Desu provided eighteen examples of Connaughton's
allegedly material omissions or false assertions in the affidavit.
4 Brown adopted clear-error review of the reckless-disregard
element on an appeal from a suppression order produced after
a Franks hearing. Brown, 631 F.3d at 641. Desu appeals from
a denial of a motion for a Franks hearing. But the question of
whether an affiant acted with reckless disregard for the truth is
the same at both the motion stage and the hearing stage of
Franks. Only the burden of proof changes from a "substantial
preliminary showing†at the motion stage to a "preponderance
of the evidence†at the hearing stage. Franks, 438 U.S. at 155–
56.
16
But the District Court did not clearly err in finding that
Connaughton did not act with reckless disregard for the truth
when he made these supposedly material omissions and false
assertions. For ease of reference, we will discuss the examples
using the number given to each by Desu in his briefing before
the District Court. Further, we will group the examples into
four categories and address each category in turn.
1
Examples #4, #5, #6, #8, #9, #12, #13, #14, and #15 do
not qualify as omissions because they were not "facts that any
reasonable person would know that a judge would want to
know.†Wilson, 212 F.3d at 783. At Example #4, Desu faults
Connaughton for failing to mention that Desai "had approximately $2.1 million at various financial institutions . . . which
far exceeded the approximately $750,000 in cash that the affidavit asserted [Desai] skimmed from [Heights Pharmacy].â€
App. 113. Examples #14 and #15 essentially repeat Example
#4. That Desai had more money in her bank accounts than she
allegedly skimmed from Heights Pharmacy does not contradict
the claim that the cash-skimming scheme existed. A judge
would not want to know about an irrelevant, additional sum of
Desai's money in order to determine whether probable cause
existed to search Desu's home.
Example #5 states that the "affidavit omitted the fact
that the FBI had a motive to pursue the theory that [Desai] and
[Pritesh Desai]'s cash came from [Heights Pharmacy] rather
than from a source related to [Pritesh Desai]'s work as an FBI
Special Agent.†App. 113. Desu then describes how Pritesh
Desai allegedly laundered the skimmed cash through cash
transactions with his co-workers at the FBI. Example #6 elaborates on Example #5. That Pritesh Desai may have laundered
17
some of the couple's cash through his co-workers does not
reveal that another "source†existed for the cash which the FBI
had a "motive†to cover up. If anything, the evidence of money
laundering reinforces the veracity of the affidavit. Examples
#8, #9, #12, and #13 discuss irrelevant information that has
nothing to do with the cash-skim scheme described in the affidavit. For example, the motion points out that the accountant
for Heights Pharmacy accidentally recorded an intercompany
transfer as revenue during one year of the scheme. This
accounting error has nothing to do with whether Desu skimmed
cash.
2
At Examples #1, #7, and #16, Desu blames
Connaughton for omitting the fact that the Desais "faced
numerous other potential charges†besides the Klein conspiracy to which Desai and Pritesh Desai pleaded guilty. App.
110–11. Connaughton also omitted the fact that the government agreed to make a departure motion for substantial assistance at the Desais' sentencing. These omissions allegedly
made it appear that the Desais did not have a motivation to lie
to obtain a better result for their own criminal cases. The affidavit and its supporting documents, however, described the
Desais' wrongdoing in detail, including their false statements,
structuring, and money laundering. A court reviewing the affidavit would understand the full extent of the Desais' motivation to lie.
3
For Examples #2, #3, and #10, Desu claims
Connaughton falsely stated that Desu pocketed undeposited
cash earnings even though Desu and Desai spent cash on lot-
18
tery payouts, petty expenses, and Desai's salary. Rather than
underreporting revenue by pocketing cash, Desu asserts that
they were spending the cash to run the pharmacy. Even assuming Desu and Desai spent some cash on lottery payouts, petty
expenses, and Desai's salary, they could have also pocketed
additional cash as alleged in the affidavit. As the District Court
noted, Desu's accusations showed a "mere desire to crossexamine,†rather than demonstrating Connaughton made a
false assertion. Yusuf, 461 F.3d at 383 n.8 (internal quotation
marks omitted) (quoting Franks, 438 U.S. at 171).
4
At Examples #11, #17, and #18, Desu complains of the
affidavit's misstatement of some of the numbers from the notebook Desai used to record the cash skim at Heights Pharmacy
and a misquote of Desu from the audio recording between him
and Desai. The District Court did not clearly err in finding
these errors to be immaterial and not made with reckless disregard for the truth. App. 7.
VI
A
For his fifth argument, Desu complains that the government constructively amended the indictment. Desu states that
the grand jury indicted him for "conspiring to defraud the IRS,
and for aiding and assisting in filing false tax returns, by allegedly understating the 'net business income' of Heights
Pharmacy and Arthur Avenue Pharmacy . . ., but the government's evidence [at trial] focused on the Pharmacies' unaccounted-for 'gross income,' thereby constructively amending
the Indictment.†Appellant's Br. 56. He elaborates that the gov-
19
ernment convicted him of understating "gross income†(i.e.,
revenue) when the grand jury indicted him for understating
"net business income†(i.e., profit).
According to Desu, the government could not convict
of him of underreporting net business income as charged in the
indictment. Any underreporting of revenue via the cash skim
came with an equivalent underreporting of expenses since the
cash would have been deducted as part of Desu's and Desai's
salaries. Thus, net business income would remain unchanged
with or without the unreported cash earnings. Faced with this
problem, the government shifted course from the indictment
and convicted Desu for understating revenue, only the first half
of the net-business-income equation.
B
The government constructively amends an indictment
when "the evidence and jury instructions at trial modify essential terms of the charged offense in such a way that there is a
substantial likelihood that the jury may have convicted the
defendant for an offense differing from the offense the indictment returned by the grand jury actually charged.†United
States v. Vosburgh, 602 F.3d 512, 532 (3d Cir. 2010) (internal
quotation marks omitted) (quoting United States v. Daraio,
445 F.3d 253, 259–60 (3d Cir. 2006)). We exercise de novo
review "over properly preserved claims of constructive amendment or variance.†Id. at 531.
The language in the indictment demonstrates that the
government did not constructively amend it. As the indictment
explained, "An S Corporation's net business income as
reported on IRS Form 1120S [is] determined by subtracting its
total deductions from its total income.†App. 92–93. For the
20
Heights Pharmacy scheme, the indictment alleged that Desu
impeded the IRS's ability to "ascertain, compute, assess, and
collect income taxes,†by "the skimming of cash . . . obtained
from the operation of Heights Pharmacy.†App. 94–95. Thus,
Desu filed a corporate tax return that "did not report the correct
amount of net business income received†because the return
did not contain the correct amount of cash revenue. App. 99.
The indictment repeated the same allegations for Desu's conspiracy with Pujara. The indictment reads exactly how Desu
describes the government's theory at trial: Desu understated
his revenue by skimming cash, thus leading to an understatement of net business income.5
VII
In his final argument, Desu says that the District Court
erred at sentencing when calculating the total tax loss the government suffered. He argues that the District Court failed to
reduce the tax loss by certain "unclaimed deductions at the
Pharmacies' S Corporation level.†Appellant's Br. 60. The
District Court also failed to reduce the tax loss by items accidentally recorded as revenue by Desu's accountants. These
exclusions included intercompany transfers and a shareholder
loan repayment.
The Sentencing Guidelines commentary concerning the
calculation of tax losses provides, "[T]he court should account
5
In the alternative, Desu complains that the District Court
erred in refusing to use his curative proposed jury instruction
to "only consider evidence of net business income.†App. 170.
Since the indictment alleged the conduct that the government
proved at trial, the District Court did not need to cure any error
with Desu's proposed jury instruction.
21
for any unclaimed credit, deduction, or exemption that is
needed to ensure a reasonable estimate of the tax loss, but only
to the extent that . . . the credit, deduction, or exemption is reasonably and practicably ascertainable.†U.S.S.G § 2T1.1 n.3.
Further, "[t]he burden is on the defendant to establish any such
credit, deduction, or exemption by a preponderance of the evidence.†Id.
At sentencing, the District Court rejected Desu's
claimed deductions and revenue exclusions because Desu
"provide[d] very little information from which the Court could
evaluate the deductions for their reliability and therefore their
probable accuracy.†App. 55. We review the District Court's
factual findings with respect to the calculation of a defendant's
sentence for clear error. United States v. Richards, 674 F.3d
215, 220 (3d Cir. 2012).
To support his claimed deductions and exclusions at
sentencing, Desu submitted a letter from an accounting firm.
The letter contained a spreadsheet with several rows showing
claimed deductions and exclusions that amounted to $214,410.
The letter did not cite any specific evidence admitted at trial
supporting these deductions and exclusions. The District Court
did not clearly err in rejecting a screenshot of a few rows of a
spreadsheet as reliable evidence of $214,410 in reduced
income.
Outcome:
We will affirm the judgment of the District Court.
Plaintiff's Experts:
Defendant's Experts:
Comments:
About This Case
What was the outcome of United States of America v. Rao Desu?
The outcome was: We will affirm the judgment of the District Court.
Which court heard United States of America v. Rao Desu?
This case was heard in center><h4><b> UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT </b>
<br><br>
<font color="green"><i>On appeal from The USDC for the District of New Jersey </i></font></center></h4>, PA. The presiding judge was David James Porter.
Who were the attorneys in United States of America v. Rao Desu?
Plaintiff's attorney: Mark E. Coyne
John F. Romano
Office of the United States Attorney. Defendant's attorney: Philadelphia, PA - Best Criminal Defense Lawyer Directory
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When was United States of America v. Rao Desu decided?
This case was decided on January 22, 2022.
Philadelphia, PA - Criminal defense lawyer represented defendant with a tax fraud charge.
For several years, Desu co-owned Heights Pharmacy
with Darshna Desai. Desai managed the pharmacy's operations. Each day, Desai would collect the pharmacy's cash earnings and deposit only a small portion of that cash into the pharmacy's bank account, leaving the rest undeposited. After paying for certain items out of the undeposited cash, such as part
of Desai's salary and unused vacation time, Desai split the
remaining undeposited cash between herself and Desu. Desai
delivered Desu's portion to Desu's home. By keeping the cash
out of the Heights Pharmacy bank account, Desu and Desai
kept the cash earnings off Heights Pharmacy's general ledger.
In turn, Heights Pharmacy's accountants underreported the
pharmacy's revenue on Heights Pharmacy's tax returns by
relying on the revenue figures found in the general ledger. This
underreporting on Heights Pharmacy's tax returns led to
underreported net income on Desu's individual income tax
returns.
To keep track of their undeposited cash earnings, Desai
recorded the amount of undeposited cash on a copy of each
4
day's bank deposit slip using a coding system. Desai retained
the copies for a period of time before destroying them. Desai
also maintained a notebook in which she recorded the cash split
between her and Desu. Following a government investigation,
Desai and her husband, Pritesh Desai, pleaded guilty and
agreed to testify against Desu.
In addition to Heights Pharmacy, Desu co-owned a second pharmacy, Arthur Avenue Pharmacy, with Manish Pujara.
Similar to the scheme at Heights Pharmacy, Desu and Pujara
kept the cash earnings off Arthur Avenue Pharmacy's general
ledger by not depositing the cash into Arthur Avenue Pharmacy's bank account. The general ledger's understatement of
revenue enabled Desu to underreport his income on his individual tax return. Like the Desais, Pujara testified against Desu
to obtain a favorable outcome with the government.
A grand jury indicted Desu on six counts, including two
counts of violating 18 U.S.C. § 371 for conspiracy to
"imped[e], impair[], obstruct[], and defeat[] the lawful government functions of the IRS to ascertain, compute, assess, and
collect income taxes.†App. 94, 100. It also indicted Desu on
four counts of willfully assisting in the preparation and presentation of materially false tax returns. A jury convicted Desu on
all counts. Desu timely appealed.1
Desu makes six arguments on appeal: (1) the jury
received a faulty government exhibit for use in its deliberations, thus entitling him to a new trial; (2) two counts in the
indictment fail to state an offense under Marinello v. United
1 The District Court had jurisdiction under 18 U.S.C. § 3231.
We have jurisdiction under 28 U.S.C. § 1291 and 18 U.S.C.
§ 3742.
5
States, 138 S. Ct. 1101 (2018); (3) the District Court erred in
excluding testimony regarding the Desais' cash transactions on
relevancy grounds; (4) the District Court erred in denying an
evidentiary hearing under Franks v. Delaware; (5) the government constructively amended the indictment; and (6) the
District Court erred at sentencing by failing to account for certain deductions and exclusions in Desu's income when calculating the tax loss incurred by the government. All six arguments fail.
II
A
Desu first argues that he should have received a new
trial because the jury received a faulty copy of Exhibit 450 for
use in its deliberations. Exhibit 450 was a DVD that was supposed to contain thousands of pages of bank records for
Heights Pharmacy's bank account. But the copy was missing
records for several years in the relevant time period.
At the close of evidence and before deliberations began,
Desu's counsel signed a statement addressed to the District
Court affirming that "[c]ounsel for the . . . Defendant . . . have
reviewed the exhibits and agree that all exhibits in the Court's
possession are the exhibits that have been admitted and moved
into evidence and should therefore be provided to the jury for
deliberations.†App. 2283. After trial, the government realized
that Exhibit 450 was incomplete and notified the District Court
and Desu.
Desu moved for a new trial based on the government's
revelation. He argued that two exhibits summarizing the total
cash skimmed, Exhibits 503 and 505, should not have been
6
admitted because they relied on the records missing from
Exhibit 450. Desu also argued that the missing bank records
would have shown cash deposits appearing in Heights
Pharmacy's bank account. Evidence of these deposits allegedly
would have rebutted the government's theory that Desu and
Desai skimmed most of the cash from Heights Pharmacy. The
District Court held that Desu had waived his two arguments
concerning Exhibit 450's defect when his counsel certified that
they had reviewed the exhibits.
B
When a defendant fails to "lodge a contemporaneous
objection†and instead "raise[s] the issue for the first time in
[a] motion for a new trial,†we review the district court's ruling
for plain error. United States v. Kolodesh, 787 F.3d 224, 230
n.4 (3d Cir. 2015). Under that standard, we will grant relief to
Desu if:
(1) there is an "errorâ€; (2) the error is "clear or
obvious, rather than subject to reasonable disputeâ€; (3) the error "affected the appellant's substantial rights, which in the ordinary case meansâ€
it "affected the outcome of the district court proceedingsâ€; and (4) "the error seriously affect[s]
the fairness, integrity or public reputation of
judicial proceedings.â€
United States v. Marcus, 560 U.S. 258, 262 (2010) (alteration
in original) (quoting Puckett v. United States, 556 U.S. 129,
135 (2009)).
Waiver is an "intentional relinquishment or abandonment of a known right.†United States v. Olano, 507 U.S. 725,
7
733 (1993) (internal quotation marks omitted) (quoting Johnson v. Zerbst, 304 U.S. 458, 464 (1938)). We will reverse the
District Court only if it clearly or obviously erred by ruling that
Desu's counsel's certification was an intentional relinquishment of a known right. See Marcus, 560 U.S. at 262. The
District Court ruled that Desu's counsel's certification demonstrated knowledge of the right to object to the use of Exhibit
450 ("[we] have reviewed the exhibits,†App. 2283) and the
intent to forego an objection (the exhibits should "be provided
to the jury for deliberations,†App. 2283). Even assuming an
error by the District Court, the error was not clear or obvious.
See United States v. James, 955 F.3d 336, 344–45 (3d Cir.
2020) (holding that a defendant had waived an argument by
failing to object to the admission of a demonstrative aid when
the government allowed the defendant to review the aid in
advance of trial and the defendant objected to a similar demonstrative aid). Given our holding on the second Olano prong, we
do not need to address the remaining steps of the plain-error
standard.
III
A
Desu next argues that the two counts in the indictment
alleging violations of 18 U.S.C. § 371 fail to state an offense.
In those counts, the government alleges that Desu conspired
"to defraud the IRS by impeding, impairing, obstructing, and
defeating the lawful government functions of the IRS to ascertain, compute, assess, and collect income taxes,†a crime
known as a Klein conspiracy.2 App. 94, 100. Desu claims that
2 The counts allege that Desu violated 18 U.S.C. § 371, which
prohibits conspiring "to defraud the United States, or any
8
both counts fail to state an offense under Marinello v. United
States, 138 S. Ct. 1101 (2018). In Marinello, the Supreme
Court held that to convict someone of obstructing or impeding
the administration of the Internal Revenue Code under 26
U.S.C. § 7212(a), the government must prove that a '"nexus'
[existed] between the defendant's conduct and a particular
administrative proceeding, such as an investigation, an audit,
or other targeted administrative action.†Id. at 1109. Desu
claims that both counts fail to state an offense because they do
not allege that an investigation was pending when he committed the conspiracies as required by Marinello in the separate
but similar statute.
According to Federal Rule of Criminal Procedure
12(b)(3), a party must raise a claim for "failure to state an
offense†by "pretrial motion if the basis for the motion is then
reasonably available and the motion can be determined without
a trial on the merits.†"If a party does not meet the deadline for
making a Rule 12(b)(3) motion, the motion is untimely. But a
court may consider the defense, objection, or request if the
party shows good cause.†Fed. R. Crim. P. 12(c)(3).
The grand jury indicted Desu on October 11, 2018,
nearly seven months after the Supreme Court issued Marinello
agency thereof in any manner or for any purpose.†The
language in the indictment differs from the statutory language
and comes from United States v. Klein, 247 F.2d 908 (2d Cir.
1957), which held that "obstruct[ing] one of [the IRS's] lawful
governmental functions by deceit†is a crime under 18 U.S.C.
§ 371. Id. at 916 (internal quotation marks omitted) (quoting
Hammerschmidt v. United States, 265 U.S. 182, 188 (1924));
see also United States v. McKee, 506 F.3d 225, 239 (3d Cir.
2007) (recognizing the so-called Klein conspiracy).
9
in March 2018. Desu did not raise his Marinello argument until
he filed a post-conviction motion for acquittal, so it was
untimely under Rule 12. The District Court refused to consider
Desu's Marinello argument because he failed to raise it before
trial and Desu did not show "good cause†for his untimeliness.
B
We review a district court's good cause ruling for abuse
of discretion. Davis v. United States, 411 U.S. 233, 245 (1973).
If we uphold a district court's "good cause†ruling, we will not
consider the defendant's argument. See United States v. Fattah,
858 F.3d 801, 807 (3d Cir. 2017) ("[W]e will not consider any
unpreserved arguments absent 'good cause.'†(quoting Fed. R.
Crim. P. 12(c)(3))).
To establish good cause for his untimeliness, Desu
argued that he needed to wait to use his Marinello argument
while "lower courts determine[d] the implications of Marinello
on Klein conspiracies.†App. 2292. The District Court did not
err, let alone abuse its discretion, in rejecting Desu's excuse.
Desu waited for months to use an argument that he knew he
could make at any time prior to the deadline imposed by Rule
12. Holding out for a more favorable legal landscape is not an
appropriate excuse for delay. See United States v. Daniels, 803
F.3d 335, 352 (7th Cir. 2015) ("That additional case law later
is handed down which may better support an argument does
not constitute 'good cause.'â€).
10
IV
A
For his third argument, Desu claims the District Court
erred by denying his motion in limine "to permit evidence relevant to the disposition of cash.†App. 160. Desu wanted
Desai, Pritesh Desai, and "third-party witnesses†who
"engaged in monetary transactions with the Desais†to testify
about the cash transactions. App. 160. Desu argued that the testimony about the Desais' disposal of their cash was "relevant
as it goes to the heart of [Desu's] defense that the stream of
cash that is alleged to have been 'skimmed' and unreported
from [Heights Pharmacy] is significantly less than the ocean of
cash with which the Desais were flooded.†App. 160.
According to Desu, there was a discrepancy between the
amount of cash Desai allegedly collected from the cash skim
and the amount of cash located in the Desais' bank accounts.
This discrepancy could have meant that Desai actually
skimmed more cash from Heights Pharmacy than the government alleged she did. Assuming the total cash skim from
Heights Pharmacy remained the same, if Desai skimmed more
cash than the government alleged, then Desu skimmed less, or
none at all. This inference could have suggested that Desai did
all the skimming and falsely implicated Desu in the scheme.
Alternatively, the discrepancy between the alleged cash
skimmed by Desai and the total cash in the Desais' bank
accounts could have suggested that "there is some yet unexplained alternative source of the Desais' laundered cash which
has not been disclosed.†App. 163. To avoid scrutiny of this
undisclosed source of cash, the Desais "point[ed] the finger at
[Desu].†App. 163.
11
Before ruling on the motion, the District Court pressed
Desu's counsel for the names of the third-party witnesses and
their cash transactions with the Desais. Desu's counsel listed
the following individuals:
1. Tom Rillo: "He will testify that he received
$50,000 of cash from the Desais.†App. 1307.
2. Pritesh Desai's father: "[H]e would . . . testify to
the fact that he received cash from the Desai family. I believe it was . . . $10,000, approximately.â€
App. 1307.
3. Mukesh Desai: This person "received money
from the Desais for . . . the purchase of a home.â€
App. 1308.
4. Saumil Patel: "He received about $42,000 in
cash from the Desais.†App. 1309.
The government opposed Desu's motion in limine,
arguing that Desu sought to use the evidence of the cash transactions not to examine "the source of the [Desais'] money,†but
instead to examine "how the Desais spent their share of the
money.†App. 1311. The District Court agreed with the government and denied Desu's motion in limine on relevancy
grounds.
B
"Evidence is relevant if: (a) it has any tendency to make
a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the
action.†Fed. R. Evid. 401. "We review evidentiary rulings for
abuse of discretion.†United States v. DeMuro, 677 F.3d 550,
12
557 (3d Cir. 2012) (citation omitted).
Evidence of a discrepancy between the amount of cash
Desai skimmed and the amount of cash in the Desais' bank
accounts might have been relevant to the case. Evidence of the
discrepancy could also imply that the Desais wanted to point
the finger at Desu to avoid scrutiny of their wrongdoing. But
Desu was not seeking to introduce evidence of two amounts of
cash and the resulting disparity between them. Rather, he was
seeking to introduce evidence of how the Desais disposed of a
small amount of the cash they possessed. Desu wanted four
third-party witnesses to describe instances where the Desais
disposed of a few hundred thousand dollars in a conspiracy in
which the government accused Desai of skimming over one
million dollars. Evidence of how the Desais disposed of a fraction of the cash skim does not suggest how much money they
had in their bank accounts. Further, this evidence does not indicate that any numerical discrepancy existed between the bankaccount total and the cash-skim total. Thus, the evidence of the
Desais disposing of their cash had no "tendency†to make a
consequential "fact more or less probable.†Fed. R. Evid. 401.
3
V
A
Desu also argues that the District Court erred in refusing
to grant him an evidentiary hearing under Franks v. Delaware,
3 Desu argues that the District Court abused its discretion in
denying his motion in limine under Federal Rule of Evidence
404(b). We do not need to reach this argument because the
District Court properly denied the motion in limine on
relevancy grounds.
13
438 U.S. 154 (1978). During the investigation of Desu prior to
his indictment, Kenneth Connaughton, a special agent with the
Department of Justice, applied for a warrant to search Desu's
home. To establish probable cause for the warrant,
Connaughton submitted an affidavit detailing evidence of
Desu's wrongdoing. The affidavit relied on evidence seized
from Desai's residence under a previous search warrant; witness interviews with Desai, Pritesh Desai, and others; a notebook provided by Desai containing a record of the cash skim;
an interview with Desu; and an audio-recording of a conversation between Desu and Desai. A magistrate judge issued the
warrant. After the government executed the search warrant,
Desu filed a motion for a Franks hearing with the goal of suppressing the evidence seized as a result of the search. Desu
argued that Connaughton made material omissions and misstatements in the affidavit with reckless disregard for the truth.
The District Court orally denied Desu's motion for a Franks
hearing. It found that each of the supposed omissions or misstatements was not made with reckless disregard for the truth
or was not material.
B
To obtain a Franks hearing, a defendant must establish
(1) that a warrant application contained false statements made
with reckless disregard for the truth and (2) that the remaining
truthful statements, standing alone, do not establish probable
cause. Franks, 438 U.S. at 171–72. The defendant must prove
his allegations by a "substantial preliminary showing.†Id. at
170. To carry his burden, Desu cannot "rest on mere conclusory allegations or a 'mere desire to cross-examine,' but rather
must present an offer of proof contradicting the affidavit,
including materials such as sworn affidavits or otherwise reliable statements from witnesses.†United States v. Yusuf, 461
14
F.3d 374, 383 n.8 (3d Cir. 2006) (quoting Franks, 438 U.S. at
171). If a defendant succeeds in obtaining a hearing, he must
then prove the allegations by a "preponderance of the evidence†at the hearing itself in order for a judge to suppress
evidence obtained as a result of the warrant. Franks, 438 U.S.
at 156.
We categorize false statements as "omissions†or
"assertions.†"[O]missions are made with reckless disregard
for the truth when an officer recklessly omits facts that any reasonable person would know that a judge would want to know.â€
Wilson v. Russo, 212 F.3d 781, 783 (3d Cir. 2000). "[A]ssertions are made with reckless disregard for the truth when an
officer has obvious reasons to doubt the truth of what he or she
is asserting.†Id.
We have previously declined to say what standard of
review applies to a denial of a motion for a Franks hearing.
See, e.g., United States v. Pavulak, 700 F.3d 651, 665–66 (3d
Cir. 2012). Nonetheless, our precedent implicitly provides an
answer to this question. Two different lines of cases provide
our standard of review for the two elements a defendant must
establish to obtain a Franks hearing: (1) whether a warrant
application contains false statements made with reckless disregard for the truth and (2) whether the remaining truthful statements could establish probable cause by themselves.
Regarding the first element, we have held that "a district
court's resolution of the question whether a particular false
statement in a warrant affidavit was made with reckless disregard for the truth is subject to reversal only upon a finding of
clear error.†United States v. Brown, 631 F.3d 638, 642 (3d Cir.
15
2011).4 Additionally, our precedent reviewing lower court
probable cause determinations provides our standard of review
for the second element. As explained in United States v. Stearn,
a magistrate judge determines that probable cause exists before
issuing a warrant. 597 F.3d 540, 554 (3d Cir. 2010). When a
defendant files a motion to suppress evidence, a district court
ensures that "a substantial basis†existed for the magistrate
judge's probable cause determination. Id. (quoting Illinois v.
Gates, 462 U.S. 213, 238 (1983)). We then review de novo the
district court's review of the magistrate judge. Id.
Taken together, our precedent reveals the standard of
review we should apply to a district court's denial of a motion
for a Franks hearing. We review for clear error a district court's
determination regarding whether false statements in a warrant
application were made with reckless disregard for the truth.
Next, after putting aside any false statements made with reckless disregard for the truth, we review de novo a district court's
substantial-basis review of a magistrate judge's probable cause
determination.
Desu provided eighteen examples of Connaughton's
allegedly material omissions or false assertions in the affidavit.
4 Brown adopted clear-error review of the reckless-disregard
element on an appeal from a suppression order produced after
a Franks hearing. Brown, 631 F.3d at 641. Desu appeals from
a denial of a motion for a Franks hearing. But the question of
whether an affiant acted with reckless disregard for the truth is
the same at both the motion stage and the hearing stage of
Franks. Only the burden of proof changes from a "substantial
preliminary showing†at the motion stage to a "preponderance
of the evidence†at the hearing stage. Franks, 438 U.S. at 155–
56.
16
But the District Court did not clearly err in finding that
Connaughton did not act with reckless disregard for the truth
when he made these supposedly material omissions and false
assertions. For ease of reference, we will discuss the examples
using the number given to each by Desu in his briefing before
the District Court. Further, we will group the examples into
four categories and address each category in turn.
1
Examples #4, #5, #6, #8, #9, #12, #13, #14, and #15 do
not qualify as omissions because they were not "facts that any
reasonable person would know that a judge would want to
know.†Wilson, 212 F.3d at 783. At Example #4, Desu faults
Connaughton for failing to mention that Desai "had approximately $2.1 million at various financial institutions . . . which
far exceeded the approximately $750,000 in cash that the affidavit asserted [Desai] skimmed from [Heights Pharmacy].â€
App. 113. Examples #14 and #15 essentially repeat Example
#4. That Desai had more money in her bank accounts than she
allegedly skimmed from Heights Pharmacy does not contradict
the claim that the cash-skimming scheme existed. A judge
would not want to know about an irrelevant, additional sum of
Desai's money in order to determine whether probable cause
existed to search Desu's home.
Example #5 states that the "affidavit omitted the fact
that the FBI had a motive to pursue the theory that [Desai] and
[Pritesh Desai]'s cash came from [Heights Pharmacy] rather
than from a source related to [Pritesh Desai]'s work as an FBI
Special Agent.†App. 113. Desu then describes how Pritesh
Desai allegedly laundered the skimmed cash through cash
transactions with his co-workers at the FBI. Example #6 elaborates on Example #5. That Pritesh Desai may have laundered
17
some of the couple's cash through his co-workers does not
reveal that another "source†existed for the cash which the FBI
had a "motive†to cover up. If anything, the evidence of money
laundering reinforces the veracity of the affidavit. Examples
#8, #9, #12, and #13 discuss irrelevant information that has
nothing to do with the cash-skim scheme described in the affidavit. For example, the motion points out that the accountant
for Heights Pharmacy accidentally recorded an intercompany
transfer as revenue during one year of the scheme. This
accounting error has nothing to do with whether Desu skimmed
cash.
2
At Examples #1, #7, and #16, Desu blames
Connaughton for omitting the fact that the Desais "faced
numerous other potential charges†besides the Klein conspiracy to which Desai and Pritesh Desai pleaded guilty. App.
110–11. Connaughton also omitted the fact that the government agreed to make a departure motion for substantial assistance at the Desais' sentencing. These omissions allegedly
made it appear that the Desais did not have a motivation to lie
to obtain a better result for their own criminal cases. The affidavit and its supporting documents, however, described the
Desais' wrongdoing in detail, including their false statements,
structuring, and money laundering. A court reviewing the affidavit would understand the full extent of the Desais' motivation to lie.
3
For Examples #2, #3, and #10, Desu claims
Connaughton falsely stated that Desu pocketed undeposited
cash earnings even though Desu and Desai spent cash on lot-
18
tery payouts, petty expenses, and Desai's salary. Rather than
underreporting revenue by pocketing cash, Desu asserts that
they were spending the cash to run the pharmacy. Even assuming Desu and Desai spent some cash on lottery payouts, petty
expenses, and Desai's salary, they could have also pocketed
additional cash as alleged in the affidavit. As the District Court
noted, Desu's accusations showed a "mere desire to crossexamine,†rather than demonstrating Connaughton made a
false assertion. Yusuf, 461 F.3d at 383 n.8 (internal quotation
marks omitted) (quoting Franks, 438 U.S. at 171).
4
At Examples #11, #17, and #18, Desu complains of the
affidavit's misstatement of some of the numbers from the notebook Desai used to record the cash skim at Heights Pharmacy
and a misquote of Desu from the audio recording between him
and Desai. The District Court did not clearly err in finding
these errors to be immaterial and not made with reckless disregard for the truth. App. 7.
VI
A
For his fifth argument, Desu complains that the government constructively amended the indictment. Desu states that
the grand jury indicted him for "conspiring to defraud the IRS,
and for aiding and assisting in filing false tax returns, by allegedly understating the 'net business income' of Heights
Pharmacy and Arthur Avenue Pharmacy . . ., but the government's evidence [at trial] focused on the Pharmacies' unaccounted-for 'gross income,' thereby constructively amending
the Indictment.†Appellant's Br. 56. He elaborates that the gov-
19
ernment convicted him of understating "gross income†(i.e.,
revenue) when the grand jury indicted him for understating
"net business income†(i.e., profit).
According to Desu, the government could not convict
of him of underreporting net business income as charged in the
indictment. Any underreporting of revenue via the cash skim
came with an equivalent underreporting of expenses since the
cash would have been deducted as part of Desu's and Desai's
salaries. Thus, net business income would remain unchanged
with or without the unreported cash earnings. Faced with this
problem, the government shifted course from the indictment
and convicted Desu for understating revenue, only the first half
of the net-business-income equation.
B
The government constructively amends an indictment
when "the evidence and jury instructions at trial modify essential terms of the charged offense in such a way that there is a
substantial likelihood that the jury may have convicted the
defendant for an offense differing from the offense the indictment returned by the grand jury actually charged.†United
States v. Vosburgh, 602 F.3d 512, 532 (3d Cir. 2010) (internal
quotation marks omitted) (quoting United States v. Daraio,
445 F.3d 253, 259–60 (3d Cir. 2006)). We exercise de novo
review "over properly preserved claims of constructive amendment or variance.†Id. at 531.
The language in the indictment demonstrates that the
government did not constructively amend it. As the indictment
explained, "An S Corporation's net business income as
reported on IRS Form 1120S [is] determined by subtracting its
total deductions from its total income.†App. 92–93. For the
20
Heights Pharmacy scheme, the indictment alleged that Desu
impeded the IRS's ability to "ascertain, compute, assess, and
collect income taxes,†by "the skimming of cash . . . obtained
from the operation of Heights Pharmacy.†App. 94–95. Thus,
Desu filed a corporate tax return that "did not report the correct
amount of net business income received†because the return
did not contain the correct amount of cash revenue. App. 99.
The indictment repeated the same allegations for Desu's conspiracy with Pujara. The indictment reads exactly how Desu
describes the government's theory at trial: Desu understated
his revenue by skimming cash, thus leading to an understatement of net business income.5
VII
In his final argument, Desu says that the District Court
erred at sentencing when calculating the total tax loss the government suffered. He argues that the District Court failed to
reduce the tax loss by certain "unclaimed deductions at the
Pharmacies' S Corporation level.†Appellant's Br. 60. The
District Court also failed to reduce the tax loss by items accidentally recorded as revenue by Desu's accountants. These
exclusions included intercompany transfers and a shareholder
loan repayment.
The Sentencing Guidelines commentary concerning the
calculation of tax losses provides, "[T]he court should account
5
In the alternative, Desu complains that the District Court
erred in refusing to use his curative proposed jury instruction
to "only consider evidence of net business income.†App. 170.
Since the indictment alleged the conduct that the government
proved at trial, the District Court did not need to cure any error
with Desu's proposed jury instruction.
21
for any unclaimed credit, deduction, or exemption that is
needed to ensure a reasonable estimate of the tax loss, but only
to the extent that . . . the credit, deduction, or exemption is reasonably and practicably ascertainable.†U.S.S.G § 2T1.1 n.3.
Further, "[t]he burden is on the defendant to establish any such
credit, deduction, or exemption by a preponderance of the evidence.†Id.
At sentencing, the District Court rejected Desu's
claimed deductions and revenue exclusions because Desu
"provide[d] very little information from which the Court could
evaluate the deductions for their reliability and therefore their
probable accuracy.†App. 55. We review the District Court's
factual findings with respect to the calculation of a defendant's
sentence for clear error. United States v. Richards, 674 F.3d
215, 220 (3d Cir. 2012).
To support his claimed deductions and exclusions at
sentencing, Desu submitted a letter from an accounting firm.
The letter contained a spreadsheet with several rows showing
claimed deductions and exclusions that amounted to $214,410.
The letter did not cite any specific evidence admitted at trial
supporting these deductions and exclusions. The District Court
did not clearly err in rejecting a screenshot of a few rows of a
spreadsheet as reliable evidence of $214,410 in reduced
income.
We will affirm the judgment of the District Court.
About This Case
What was the outcome of United States of America v. Rao Desu?
The outcome was: We will affirm the judgment of the District Court.
Which court heard United States of America v. Rao Desu?
This case was heard in center><h4><b> UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT </b> <br><br> <font color="green"><i>On appeal from The USDC for the District of New Jersey </i></font></center></h4>, PA. The presiding judge was David James Porter.
Who were the attorneys in United States of America v. Rao Desu?
Plaintiff's attorney: Mark E. Coyne John F. Romano Office of the United States Attorney. Defendant's attorney: Philadelphia, PA - Best Criminal Defense Lawyer Directory Tell MoreLaw About Your Litigation Successes and MoreLaw Will Tell the World. Re: MoreLaw National Jury Verdict and Settlement Counselor: MoreLaw collects and publishes civil and criminal litigation information from the state and federal courts nationwide. Publication is free and access to the information is free to the public. MoreLaw will publish litigation reports submitted by you free of charge Info@MoreLaw.com - 855-853-4800.
When was United States of America v. Rao Desu decided?
This case was decided on January 22, 2022.