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United States v. Vartanian

November 9, 2009


The opinion of the court was delivered by: Oliver W. Wanger United States District Judge



Before the Court is Petitioner Hagop Vartanian's "Motion to Vacate, Set Aside or Correct Sentence Pursuant to 28 U.S.C. § 2255," filed July 31, 2008.*fn1 The United States has filed opposition, to which Petitioner has replied.


On March 19, 2003, Petitioner was convicted by a jury on two counts of aiding and abetting the filing of a false tax return, in violation of 18 U.S.C. § 2 and 26 U.S.C. § 7206(1), and two counts of aiding and abetting the making of false statements on a loan application to a federally insured financial institution, in violation of 18 U.S.C. § 2 and 18 U.S.C. § 1014. The jury unanimously found that Petitioner had willfully filed false tax returns for the 1994 and 1995 tax years. (See Form of Verdict, Doc. 65, filed March 19, 2003.) The jury also found that Petitioner made false statements or reports on a loan or credit application for the purpose of influencing the action of Sierra Thrift, a federally insured institution. (Id.)

Following the jury verdicts, as part of the sentencing proceedings the District Court held a series of evidentiary hearings to determine the amount of the tax loss suffered by the United States as a result of Petitioner's violations.*fn2 The tax loss was determined to be in the amount of $25,093 for 1994 and $79,335 for 1995, aggregating a total tax loss of $104,428. (See "Order Re: Amount of Tax Loss," Doc. 160, filed July 13, 2005.) On July 6, 2005, Petitioner was sentenced to a concurrent sentence of fifteen months in federal prison, based on an adjusted offense level of fifteen.*fn3 (Doc. 156; Reporter's Tanscript ("RT"), July 6, 2005, 129:16-131:13.) Petitioner's sentence was not adjusted under § 3553.*fn4 (Id.)

On July 11, 2005, Petitioner filed a notice of appeal of his conviction and sentence to the Ninth Circuit. Petitioner's conviction and sentence were affirmed on appeal, United States v. Vartanian, 476 F.3d 1095 (9th Cir. 2007). The Ninth Circuit denied Vartanian's petition for a hearing en banc on May 15, 2007 and the United States Supreme Court denied his petition for writ of certiorari on October 1, 2007.

The instant motion to vacate, correct, or set aside the sentence pursuant to section 2255 was filed on July 31, 2008.


Section 2255 provides, in pertinent part: "A prisoner in custody under sentence of a court established by Act of Congress claiming the right to be released upon the ground that the sentence was imposed in violation of the Constitution or laws of the United States ... may move the court which imposed the sentence to vacate, set aside or correct the sentence." Under section 2255, "a district court must grant a hearing to determine the validity of a petition brought under that section, '[u]nless the motions and the files and records of the case conclusively show that the prisoner is entitled to no relief."' United States v. Blaylock, 20 F.3d 1458, 1465 (9th Cir. 1994) (quoting 28 U.S.C. § 2255). The court may deny a hearing if the petitioner's allegations, viewed against the record, fail to state a claim for relief or "are so palpably incredible or patently frivolous as to warrant summary dismissal." United States v. McMullen, 98 F.3d 1155, 1159 (9th Cir. 1996) (internal quotations omitted), cert. denied, 520 U.S. 1269 (1997). To earn the right to a hearing, therefore, the petitioner must make specific factual allegations which, if true, would entitle him to relief. Id. Mere conclusory statements in a section 2255 motion are insufficient to require a hearing. United States v. Hearst, 638 F.2d 1190, 1194 (9th Cir. 1980), cert. denied, 451 U.S. 938 (1981).


Petitioner's motion aaserts that his trial and sentencing counsel, Mr. Anthony Capozzi, rendered ineffective assistance by:

(a) failing to adequately comprehend and present evidence concerning the "bank deposit method" at trial; (b) failing to adequately comprehend and present evidence concerning tax loss at sentencing; and (c) failing to adequately provide the Court with "extraordinary circumstances" justifying a downward departure and a sentence of less than 12 months.*fn5

To establish a constitutional violation for the ineffective assistance of counsel, a defendant must demonstrate: (1) a deficient performance by counsel, and (2) prejudice to him.

Strickland v. Washington, 466 U.S. 668, 689 (1984); United States v. Cochrane, 985 F.2d 1027, 1030 (9th Cir. 1993). To prove deficient performance of counsel, Petitioner must demonstrate that her attorney "made errors that a reasonably competent attorney acting as a diligent and conscientious advocate would not have made." Butcher v. Marquez, 758 F.2d 373, 376 (9th Cir. 1985). Courts considering ineffective assistance of counsel claims "indulge a strong presumption that counsel's conduct falls within the wide range of reasonable professional assistance." Strickland, 466 U.S. at 689; United States v. Jeronimo, 398 F.3d 1149, 1155 (9th Cir. 2005).

To show prejudice, Petitioner must demonstrate that "there is a reasonable probability that, but for counsel's unprofessional errors, the result of the proceeding would have been different." Strickland, 466 U.S. at 694. A court addressing a claim of ineffective assistance of counsel need not address both prongs of the Strickland test if the petitioner's showing is insufficient as to one prong. Strickland, 466 U.S. at 697. "If it is easier to dispose of an ineffectiveness claim on the ground of lack of sufficient prejudice, which we expect will often be so, that course should be followed." Id.

A. Failure to Comprehend "Bank Deposit Method" at Trial

Petitioner's first challenge is that counsel was ineffective because he "lacked the basic competence to understand that Revenue Agent Gathright's grossly erroneous tax loss calculations resulted from an improper application of the bank deposits method." According to Petitioner, his counsel's material confusion over the bank deposits method caused counsel to be unable to "recognize what the government was attempting to do, and what the government did to defendant." Petitioner argues that his defense counsel was ineffective for failing to understand the bank deposit reconstruction method, and in failing to secure the necessary tax and accounting experts to rebut the testimony of Mr. Gathright, the government's trial witness on income reconstruction.*fn6

Petitioner's attack on his defense counsel's tax and accounting approach and the experts he presented at trial does not constitute deficient performance under the first prong of Strickland. As both parties point out, Petitioner's counsel retained a tax and accounting expert to rebut Gathright's trial testimony and to establish that there was no tax loss in 1994 or 1995. (Doc. 203, 19:5-20:9; Doc. 1, 23:3-24:23.*fn7 ) Petitioner's trial expert, Mr. Joseph Mastro, was a former IRS agent with twenty years of business and tax accounting experience. Mastro, a certified public accountant, was experienced in the field of income reconstruction and, specifically, with the bank deposit method. At trial, Mastro testified that he had previously used the bank deposit method "several hundred times," and that it was "almost a standard procedure:"

One of the first things you do is you total all of the deposits to the bank. That is just the starting point. Then you compare it to the tax return. If you come up with a difference, then the next step, that's where you begin, that's the beginning, not the end of it. Then you either have to sit down with the taxpayer and try to determine which items, discrepancies, everything. You would back out all the wages, loans, gifts, inheritances, anything like that that's a nonincome item.

Then once you resolve all of that, if there is still a difference, then you would proceed on. But it's -- you have to eliminate all nonincome items. But while you are doing that it's also the duty of the revenue agent to determine if any taxes, any expenses are missing. You can't be one-sided. It wouldn't be fair to say you omitted income but forget the expenses you omitted. That's one-sided and you are not allowed to do that. It has to be done simultaneously.

If you are doing this audit and you see that expenses are missing, you add that income on. It can't be one-sided.

(RT, March 13, 2003, 1510:11-1511:6.)

Petitioner's primary contention is that trial counsel rendered ineffective assistance by "failing to come up with the correct bank deposits calculation that would have resulted in little or no tax loss." (Doc. 203, 26:22-26:25.) Based on the trial record, however, this is the exact strategy developed during counsel's direct examination of Mastro on March 13, 2003.*fn8 On direct examination, Mastro testified that Petitioner had little or no tax loss in 1994 or 1995 and that the government's analysis was flawed. Mastro's critique of the government's analysis focused on the alleged improper inclusion of non-income items in "gross bank deposits" and undervaluing expenses, specifically, costs of goods sold. According to Mastro, these two miscalculations inflated (overstated) Petitioner's federal tax liability for tax years 1994 and 1995.

Concerning Petitioner's 1994 tax liability, trial counsel introduced a chart prepared by Mastro setting forth the errors in the government's bank deposit analysis.*fn9 Mastro concluded that total taxable income for 1994 was -159,796.34.*fn10 According to the government, Plaintiff's 1994 tax liability was $59,446, based primarily on deposits of 840,215.93 and costs of $530,944.*fn11 Mastro attributed the discrepancy to fundamental errors in calculating income and costs of goods sold:

Q: All right. And then you took that number and you start out with that number; is that correct?

A: That is correct.

Q: Then what did you do?

A: Then what you tried to do is reconcile that number, first of all, by trying to determine if all of the deposits that included in that item are an income item in fact.

Q: What do you mean by that?

A: Well, suppose like in that $157,000 there was loan proceeds. Well, that's not an income item. That should have been eliminated.

Q: A loan proceed is not income?

A: No, never has been.

Q: Then what about the next line here, you have -- tell us what that is.

A: The next line is cost of goods sold for Pacific Sales and Leasing. That referred to the cost of acquisition of autos for resale.

Q: Now, how did you determine that?

A: What I did is I tried -- I got information from third party sources like auto dealerships that he dealt with, and they provided me with the total amount of auto purchases for the year 1994 [...]

Q: And did you total those figures?

A: Correct, and I just ran a tape of all of the purchases and compared them to what was shown on the 1994 schedule C for Pacific Sales and Leasing [...]

Q: This number, 724,000, tell us what that is, that's the cost of all the purchasing goods or sales?

A: That represents the cost of automobiles purchased for the year 1994, and that was obtained from third-party sources [...]

Q: Okay. So the cost of goods for Pacific Sales was that amount. 700 and some thousand?

A: That is correct.

Q: Then you have a next line. What's the next line?

A: Cost of goods sold Pacific Sales and Leasing per 1994 tax return schedule C refers to a schedule that is on the tax return which shows, this is the amount of cost -- auto purchases for the year 1994

Q: I'm sorry, did that come the tax return filed with the IRS?

A: Correct [...]

Q: What did you do then?

A: I took the difference in the two numbers and that number is $244,854 of costs and that's not reflected on this particular schedule C for the year 1994.

Q: Explain that in everyday terms so we can understand what you said.

A: Well, in everyday terms, that would mean that auto sales, cost of auto sales or the cost of cars purchased is understated based on the information presented to me. That's what it means [...]

Q: So are you saying you went out with the people that sold the cars to Pacific Sales, total cost was $724,000?

A: That's correct.

Q: But the total cost on the tax return that was filed was only $479,000; is that correct?

A: That is correct [...]

Q: So there is a negative $244,000?

A: That is correct.

Q: Is that the only negative?

A: That's one of the adjustments.

(RT, March 13, 2003, 1514:22-1518:25.)

Mastro produced another chart and performed a similar analysis for 1995. Mastro testified that Gathright undervalued Pacific Sales and Leasing's costs of goods sold in 1995 by approximately $527,941. According to Mastro, Pacific's cost of goods sold for 1995 was $1,080,994, not the ...

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