NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS DEC 14 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 19-10312
Plaintiff-Appellee, D.C. No. 2:16-CR-00145-WBS
v. MEMORANDUM* STEPHEN J. DOUGAN,
Defendant-Appellant.
Appeal from the United States District Court for the Eastern District of California Hon. William B. Shubb, District Judge, Presiding
Argued and Submitted November 16, 2020 San Francisco, California
Before: SCHROEDER and BERZON, Circuit Judges, and MENDOZA,** District Judge.
Stephen Dougan, a lawyer, tried to interfere with the administration of internal
revenue laws. A jury convicted him of corruptly endeavoring to obstruct or impede
an Internal Revenue Service (IRS) audit. He claims the district court misapplied the
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Salvador Mendoza, Jr., District Judge for the U.S. District Court for the Eastern District of Washington, sitting by designation. rule against hearsay, thus violating his constitutional right to present a defense. He
also insists the indictment was constructively amended at trial, the district court
improperly denied his post-trial motion to dismiss for prosecutorial misconduct, and
cumulative error deprived him of a fair trial. We affirm.
1. Dougan first argues the district court abused its discretion by excluding two
pieces of evidence under the rule against hearsay—an email exchange and an alleged
offer to pay—that he claims negate the mens rea element of the crime. There was no
abuse of discretion.
At trial, Dougan sought to admit the following email exchange into evidence:
“Robin [Klomparens]: I have made the decision to provide the IRS the Account
info[,] predicated on the case I forwarded you. If your clerk has not done the
research, don’t worry about it.” The district court excluded the email exchange as
hearsay.
On appeal, Dougan argues the district court abused its discretion because the
email constitutes a verbal act negating the mens rea element of a crime. The email
exchange suggests Dougan intended to provide his financial information to the IRS.
Yet that principal statement in the email hinges on its truthfulness. In other words,
its relevance as exculpatory evidence of his mental state would depend on whether
the jury accepted the statement made in the email—“I have made the decision to
provide the IRS the Account info”—as true. See, e.g., United States v. Lloyd, 807
2 F.3d 1128, 1161–62 (9th Cir. 2015). Dougan thus offered the key statement in the
email for a hearsay purpose. That statement does not constitute a verbal act because
Dougan did not offer the email to prove a legal right or obligation or to show that he
simply spoke the words. See United States v. Pang, 362 F.3d 1187, 1192 (9th Cir.
2004). We hold the district court did not abuse its discretion because Dougan tried
to admit the email exchange for a hearsay purpose—to prove the truth of the matter
asserted.
Still, the offer to pay, which Dougan allegedly made in a meeting with the
IRS in 2012, may have included a verbal act. According to Dougan’s counsel, he
allegedly said, “[l]ook, my accountants made a mistake. Tell me what I owe. I will
pay it.” Had the IRS accepted the alleged offer to resolve his civil tax liability, it
could have affected his legal rights, and legal consequences could have flowed from
the fact that he spoke the words. That said, the first statement about his accountant’s
alleged mistake does not constitute a verbal act; like the email, it hinges on its
truthfulness. And that’s the critical part of the statement—the part Dougan wanted
the district court to admit.
But even if the district court admitted the part of the statement that constituted
a verbal act, the alleged offer to pay is irrelevant to negate the mens rea element on
the obstruction charge. The eventual offer to resolve his civil tax liability came years
after the charged obstructive acts, including the denial of Dougan’s petition to quash
3 the IRS summons. Put simply, the alleged offer has no bearing on his mental state
when he attempted to impede or obstruct the IRS’s audit. As a result, the district
court properly excluded the alleged offer to pay because it was irrelevant to prove
his mental state on the obstruction charge.
As a fallback, Dougan urges the court to conclude the district court abused its
discretion by refusing to admit the email and alleged offer to pay evidence under the
then-existing state of mind exception to the rule against hearsay. We disagree.
The then-existing state of mind hearsay exception provides, in part: “A
statement of the declarant’s then-existing state of mind (such as motive, intent, or
plan) or emotional, sensory, or physical condition (such as mental feeling, pain, or
bodily health).” Fed. R. Evid. 803(3). Courts examine three factors to determine
admissibility under this rule: “contemporaneousness, [the] chance for reflection, and
relevance.” United States v. Faust, 850 F.2d 575, 585 (9th Cir. 1988).
Dougan first learned that the IRS began auditing his taxes in November 2007.
In September 2008, the IRS sent him a notice that it had selected his 2006 federal
return for examination. In October 2008, the IRS sent Dougan several document
requests. The next month, the IRS requested additional documents. A month later,
Dougan provided a 3-month sample of redacted checks (including checks concealing
unreported income). Early in the New Year, the IRS requested more documents.
By the time that Dougan wrote the email in April 2009, he had had months to
4 contemplate the audit, the requested documents, and whether to comply with—or
obstruct—the audit. The time that elapsed between the IRS’s document requests and
Dougan’s response diminished Dougan’s email’s probative value because his email
did not occur contemporaneously to any of the IRS’s document requests. In fact, he
performed obstructive acts in the intervening period (e.g., providing redacted copies
of checks concealing unreported income) and had ample time for reflection before
sending the email. The email exchange occurred after the motive for
misrepresentation arose.
The alleged offer to pay in 2012 also does not show Dougan’s then-existing
state of mind, for the same reasons it was irrelevant to prove the mens rea element
on the obstruction charge. By the time he made the alleged offer, years had passed
since he committed the conduct at issue, and all his efforts to thwart the IRS
investigation had failed.
The chance to reflect and lack of contemporaneity weigh heavily against the
admission of both pieces of evidence. We therefore hold that the district court did
not abuse its discretion by excluding the unreliable evidence under the rule against
2. Dougan next argues his indictment was constructively amended at trial. He
claims the indictment charged specific conduct, but the Government’s proof at trial
included uncharged conduct—false advertising expenses and an unreported
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NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS DEC 14 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 19-10312
Plaintiff-Appellee, D.C. No. 2:16-CR-00145-WBS
v. MEMORANDUM* STEPHEN J. DOUGAN,
Defendant-Appellant.
Appeal from the United States District Court for the Eastern District of California Hon. William B. Shubb, District Judge, Presiding
Argued and Submitted November 16, 2020 San Francisco, California
Before: SCHROEDER and BERZON, Circuit Judges, and MENDOZA,** District Judge.
Stephen Dougan, a lawyer, tried to interfere with the administration of internal
revenue laws. A jury convicted him of corruptly endeavoring to obstruct or impede
an Internal Revenue Service (IRS) audit. He claims the district court misapplied the
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Salvador Mendoza, Jr., District Judge for the U.S. District Court for the Eastern District of Washington, sitting by designation. rule against hearsay, thus violating his constitutional right to present a defense. He
also insists the indictment was constructively amended at trial, the district court
improperly denied his post-trial motion to dismiss for prosecutorial misconduct, and
cumulative error deprived him of a fair trial. We affirm.
1. Dougan first argues the district court abused its discretion by excluding two
pieces of evidence under the rule against hearsay—an email exchange and an alleged
offer to pay—that he claims negate the mens rea element of the crime. There was no
abuse of discretion.
At trial, Dougan sought to admit the following email exchange into evidence:
“Robin [Klomparens]: I have made the decision to provide the IRS the Account
info[,] predicated on the case I forwarded you. If your clerk has not done the
research, don’t worry about it.” The district court excluded the email exchange as
hearsay.
On appeal, Dougan argues the district court abused its discretion because the
email constitutes a verbal act negating the mens rea element of a crime. The email
exchange suggests Dougan intended to provide his financial information to the IRS.
Yet that principal statement in the email hinges on its truthfulness. In other words,
its relevance as exculpatory evidence of his mental state would depend on whether
the jury accepted the statement made in the email—“I have made the decision to
provide the IRS the Account info”—as true. See, e.g., United States v. Lloyd, 807
2 F.3d 1128, 1161–62 (9th Cir. 2015). Dougan thus offered the key statement in the
email for a hearsay purpose. That statement does not constitute a verbal act because
Dougan did not offer the email to prove a legal right or obligation or to show that he
simply spoke the words. See United States v. Pang, 362 F.3d 1187, 1192 (9th Cir.
2004). We hold the district court did not abuse its discretion because Dougan tried
to admit the email exchange for a hearsay purpose—to prove the truth of the matter
asserted.
Still, the offer to pay, which Dougan allegedly made in a meeting with the
IRS in 2012, may have included a verbal act. According to Dougan’s counsel, he
allegedly said, “[l]ook, my accountants made a mistake. Tell me what I owe. I will
pay it.” Had the IRS accepted the alleged offer to resolve his civil tax liability, it
could have affected his legal rights, and legal consequences could have flowed from
the fact that he spoke the words. That said, the first statement about his accountant’s
alleged mistake does not constitute a verbal act; like the email, it hinges on its
truthfulness. And that’s the critical part of the statement—the part Dougan wanted
the district court to admit.
But even if the district court admitted the part of the statement that constituted
a verbal act, the alleged offer to pay is irrelevant to negate the mens rea element on
the obstruction charge. The eventual offer to resolve his civil tax liability came years
after the charged obstructive acts, including the denial of Dougan’s petition to quash
3 the IRS summons. Put simply, the alleged offer has no bearing on his mental state
when he attempted to impede or obstruct the IRS’s audit. As a result, the district
court properly excluded the alleged offer to pay because it was irrelevant to prove
his mental state on the obstruction charge.
As a fallback, Dougan urges the court to conclude the district court abused its
discretion by refusing to admit the email and alleged offer to pay evidence under the
then-existing state of mind exception to the rule against hearsay. We disagree.
The then-existing state of mind hearsay exception provides, in part: “A
statement of the declarant’s then-existing state of mind (such as motive, intent, or
plan) or emotional, sensory, or physical condition (such as mental feeling, pain, or
bodily health).” Fed. R. Evid. 803(3). Courts examine three factors to determine
admissibility under this rule: “contemporaneousness, [the] chance for reflection, and
relevance.” United States v. Faust, 850 F.2d 575, 585 (9th Cir. 1988).
Dougan first learned that the IRS began auditing his taxes in November 2007.
In September 2008, the IRS sent him a notice that it had selected his 2006 federal
return for examination. In October 2008, the IRS sent Dougan several document
requests. The next month, the IRS requested additional documents. A month later,
Dougan provided a 3-month sample of redacted checks (including checks concealing
unreported income). Early in the New Year, the IRS requested more documents.
By the time that Dougan wrote the email in April 2009, he had had months to
4 contemplate the audit, the requested documents, and whether to comply with—or
obstruct—the audit. The time that elapsed between the IRS’s document requests and
Dougan’s response diminished Dougan’s email’s probative value because his email
did not occur contemporaneously to any of the IRS’s document requests. In fact, he
performed obstructive acts in the intervening period (e.g., providing redacted copies
of checks concealing unreported income) and had ample time for reflection before
sending the email. The email exchange occurred after the motive for
misrepresentation arose.
The alleged offer to pay in 2012 also does not show Dougan’s then-existing
state of mind, for the same reasons it was irrelevant to prove the mens rea element
on the obstruction charge. By the time he made the alleged offer, years had passed
since he committed the conduct at issue, and all his efforts to thwart the IRS
investigation had failed.
The chance to reflect and lack of contemporaneity weigh heavily against the
admission of both pieces of evidence. We therefore hold that the district court did
not abuse its discretion by excluding the unreliable evidence under the rule against
2. Dougan next argues his indictment was constructively amended at trial. He
claims the indictment charged specific conduct, but the Government’s proof at trial
included uncharged conduct—false advertising expenses and an unreported
5 certificate of deposit. He also claims the jury instructions did not ensure that the jury
convicted him based only on the charged conduct but instead allowed the jury to
convict him based on uncharged conduct. The Government stresses that the broad
allegation in Court Three allows for any evidence showing that Dougan corruptly
obstructed the IRS audit. We agree with the Government.
“A constructive amendment occurs when the charging terms of the indictment
are altered, either literally or in effect, by the prosecutor or a court after the grand
jury has last passed upon them.” United States v. Davis, 854 F.3d 601, 603 (9th Cir.
2017) (quoting United States v. Ward, 747 F.3d 1184, 1190 (9th Cir. 2014)).
Here, the indictment used the broad, general language “including, but not
limited to,” which shows the grand jury did not intend to provide an exhaustive list
of corrupt acts. See Stirone v. United States, 361 U.S. 212 (1960) (holding courts
must assume “that under an indictment drawn in general terms a conviction might
rest upon a showing” under those general terms); United States v. Doss, 630 F.3d
1181 (9th Cir. 2011) (holding that there was no fatal variance between indictment
and proof presented at trial because indictment used general terms “among other
things”). In addition, the contested evidence falls within specified acts alleged in the
indictment: that he provided the IRS with documents that underrepresented his gross
income and that he responded to the IRS with false statements about his income.
Withholding documents that showed his real income was a component of making
6 false statements, so there was no constructive amendment.
Moreover, the district court instructed the jury that they “are here only to
determine whether the defendant is guilty or not guilty of the charges in the
Indictment. The defendant is not on trial for any conduct or offense not charged in
the Indictment.” See Ward, 747 F.3d at 1191 (holding instructions requiring the jury
to find the conduct charged in the indictment before it may convict provides
sufficient assurance that the jury convicted the defendant based solely on the conduct
actually charged in the indictment). The to-convict instruction reflected the
indictment and properly laid out the elements of the crime for the relevant charging
period. Cf. United States v. Shipsey, 190 F.3d 1081 (9th Cir. 1999) (holding that the
district court constructively amended the indictment because the jury instructions
amended the mens rea element of the crime). The district court did not instruct the
jury on any alternative theory nor amend the mens rea element of the crime.
In short, the evidence related to the false advertising expenses and the
unreported certificate of deposit did not embody a set of facts distinctly different
from those provided in the indictment. Nor did the jury instructions substantially
alter the crime charged. Dougan has shown no plain error, and his argument thus
fails.
3. Dougan predicated his motion to dismiss the indictment on two alternative
grounds: the due process clause and the district court’s supervisory powers. Under
7 the due process clause, he claimed the district court should dismiss his indictment
on the ground of outrageous government conduct. In the alternative, he argued that
the court should dismiss the indictment under its supervisory powers. Dougan
reiterates these two theories on appeal.
“We review de novo a denial of a motion to dismiss an indictment on due
process grounds.” United States v. Restrepo, 930 F.2d 705, 712 (9th Cir. 1991). “A
prosecution results from outrageous government conduct when the actions of law
enforcement officers . . . are ‘so outrageous that due process principles would
absolutely bar the government from invoking judicial processes to obtain a
conviction.’” United States v. Pedrin, 797 F.3d 792, 795 (9th Cir. 2015) (quoting
United States v. Russell, 411 U.S. 423, 431–32 (1973)).
On the other hand, “[w]e review the district court’s refusal to exercise its
supervisory powers for abuse of discretion.” United States v. Ross, 372 F.3d 1097,
1109 (9th Cir. 2004). Under its supervisory powers, a district court may dismiss an
indictment with prejudice for prosecutorial misconduct only if there is “‘(1) flagrant
misbehavior and (2) substantial prejudice.’” United States v. Bundy, 968 F.3d 1019,
1031 (9th Cir. 2020) (quoting United States v. Kearns, 5 F.3d 1251, 1253 (9th Cir.
1993)).
Dougan has shown no “outrageous government conduct.” See Pedrin, 797
F.3d at 795. Distilled to its essence, the two sides present two conflicting stories, one
8 of which is true: Either Dougan redacted his checks simply to protect privileged
client information or he redacted the checks that he wrote to himself to conceal
unreported income from the IRS. It was fair for the government to argue Dougan
lied. See, e.g., United States v. Necoechea, 986 F.2d 1273, 1276 (9th Cir. 1993);
United States v. Molina, 934 F.2d 1440, 1445 (9th Cir. 1991).
Dougan has also not shown that the district court erred in determining that
“the government had a good faith basis to argue that Dougan lied to his tax lawyers.”
The evidence shows that the draft protest letter, which Dougan’s lawyers emailed
him to review, included a redline lowering the contingency fee range to 25–33.3%.
Again, this discrepancy could support one of two conflicting stories: Either his
lawyers knowingly submitted an incorrect fee range, or Dougan misled them about
his standard contingency fee and did not propose a correction. The Government drew
reasonable inferences from evidence admitted at trial and properly based its closing
arguments on that evidence. Dougan’s due process argument thus fails.
Dougan has also shown no “flagrant misbehavior” by the Government. See
Bundy, 968 F.3d at 1031. Because we conclude Dougan has not established the first
prong of the test, we need not address whether the Government’s closing arguments
prejudiced him. For these reasons, the district court did not abuse its discretion by
refusing to dismiss the indictment under its supervisory powers.
Finding no error, we decline to reach Dougan’s claim that cumulative error
9 deprived him of a fair trial.
AFFIRMED.