United States District Court, N.D. California
ORDER DENYING NEW TRIAL RE: DKT. NO. 132
William H. Orrick United States District Judge.
Howard Hsu and Tracy Chang filed a joint motion for a new
trial on February 27, 2017, identifying nine reasons why I
should grant them a new trial. Dkt. No. 132. None of the grounds
has merit. I have addressed the reasons for my rulings on
most of these issues at other times during the case, both in
writing (see, e.g., Dkt. Nos. 53, 65, 92, 108 and
124) and orally. The government's response to the motion
for new trial is well-founded. Dkt. No. 147. Although I
denied the motion in open court after oral argument on April
6, 2017, I will briefly address each of the defendants'
arguments for completeness.
defendants claim that the prosecution's reliance on
evidence related to the defendants' assets materially
altered the terms of the indictment and amounted to a
constructive amendment and a fatal variance. Mot. at 10-14.
But defendants are mistaken in their contention that this
evidence amounted to a new theory of prosecution.
The government's theory that the defendants falsely
overstated Disdee Corporation's expenses, in part by
claiming personal expenses as business expenses, remained
unchanged from the Indictment through trial. The government
used the asset evidence to show defendants' intent to
falsely represent Disdee's expenses and resultant
deductions in documents provided to their accountants in
order to conceal their tax fraud and to induce the
accountants to file the fraudulent returns. The evidence
adduced was necessary to explain the fraud and
defendants' conduct. It did not amount to a constructive
amendment to the indictment.
defendants assert that I erred in charging the jury and in
refusing to charge the jury as requested. Mot. at 16-26;
see Final Jury Instructions (Dkt. No. 125). For the
reasons previously given at the pretrial conference, the jury
instruction conference and the other times at which the
defendants raised their concerns, the instructions were
appropriate. See, e.g., Dkt. Nos. 92, 108 and 124.
defendants argue that the search warrant was unconstitutional
and should have been suppressed. Mot. at 27-32. I ruled on
this motion during pretrial proceedings, Dkt. No. 65, and
nothing was proven at the trial that would suggest that my
pretrial ruling was wrong.
defendants contend that I should have allowed certain
evidence or testimony relating to whether defendants
obstructed the lawful functions of the Internal Revenue
Service. Mot. at 33-35. Defendants repeatedly tried to argue
that the government could have pursued them civilly, through
an audit or other means, rather than criminally. That line of
argument was prejudicial, irrelevant and confusing under
Federal Rule of Evidence 403. The issue in this case was
whether defendants had committed criminal tax fraud; it did
not matter that if they committed criminal tax fraud, they
also committed civil tax fraud, or that the government could
have chosen not to prosecute them if it wanted and to enforce
their tax liability a different way. I instructed the jury
that this was a criminal case, not a civil case, that there
was no evidence of any civil collection efforts by the
Internal Revenue Service, including an audit, and that there
was no claim that defendants had interfered with any civil
collection efforts. Dkt. No. 125, p.17 of 29. That
instruction was sufficient and necessary to focus the jury on
the only charges at issue in the case- the defendants'
liability for criminal tax fraud.
defendants urge that the prosecution failed to investigate
exculpatory leads, specifically that it should have
interviewed the two accountants before the execution of the
search warrant. Mot. at 35-37. The timing of the interviews
is immaterial; the government interviewed and gathered
evidence from the accountants. The government's
investigation was comprehensive and there was no evidence of
exculpatory information that was not pursued.
defendants say that the prosecution failed to provide
requested exculpatory information in violation of
Brady and Giglio. Mot. at 37-40. Defendants
filed a discovery motion to obtain disclosure of the tax
returns of all of their accountants' clients, which I
denied because the request was immaterial, overbroad,
burdensome and invasive of the privacy of the
accountants' clients. Dkt. No. 53. The government did
produce Preparer Information Reports containing aggregated
data about the number and types of returns prepared by the
accountants, and disclosed that the IRS Scheme Development
Center had not initiated any investigation concerning the
accountants. No information was developed at trial that makes
me question my pre-trial ruling.
defendants allege that I permitted the prosecution to
introduce statements from a custodial interrogation conducted
without a warrant or probable cause in violation of the
Fourth and Fifth Amendments. Mot. at 40-41. The interview of
Ms. Chang during the execution of the search warrant was not
a custodial interrogation; she was apprised of her rights and
informed that she was free to leave her apartment at any
time. In fact, she did so during the search. There was no
constitutional violation in using her voluntary statements
during the interview.
the defendants assert that I permitted the prosecution to
make recurrent appeals to racial and ethnic bias. Mot. at
41-43. The defendants did not provide a single citation to
the record for this remarkable and demonstrably false
the defendants state that I erred in denying various motions
to strike and in permitting the jury to consider the
contested evidence. Mot. at 43. This argument combines
several of the arguments described above, and for the reasons
stated here and on the record in other decisions in this
case, it has no merit.
jury did not take long to conclude that the defendants were
guilty of tax fraud. The reasons given by defendants for a
new trial lack merit. Their motion is denied.