U.S. v. Pasquantino

336 F.3d 321

UNITED STATES of America, Plaintiff-Appellee, v. David B. PASQUANTINO, Defendant-Appellant.

United States of America, Plaintiff-Appellee, v. Carl J. Pasquantino, Defendant-Appellant.

United States of America, Plaintiff-Appellee, v. Arthur Hilts, a/k/a Butch, Defendant-Appellant.

No. 01-4463.

No. 01-4464.

No. 01-4465.

United States Court of Appeals, Fourth Circuit.

Argued: April 2, 2003.

Decided: July 18, 2003.

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ARGUED:

Bruce Robert Bryan, Syracuse, New York; Jensen Egerton Barber, Jensen E. Barber & Associates, Washington, D.C.; Isaac Joe, Jr., Baltimore, Maryland, for Appellants. Gregory Welsh, First Assistant United States Attorney, Baltimore, Maryland, for Appellee.

ON BRIEF:

Michael J. McCarthy, Bowie, Maryland, for Appellant Carl Pasquantino. Thomas M. DiBiagio, United States Attorney, Baltimore, Maryland, for Appellee.

Before WILKINS, Chief Judge, WIDENER, WILKINSON, NIEMEYER, WILLIAMS, MICHAEL, TRAXLER, KING, GREGORY, and SHEDD, Circuit Judges, and HAMILTON, Senior Circuit Judge.

Affirmed by published opinion. Senior Judge HAMILTON wrote the opinion, in which Chief Judge WILKINS and Judges WIDENER, WILKINSON, NIEMEYER, WILLIAMS, TRAXLER, KING, and SHEDD joined. Judge GREGORY wrote a dissenting opinion, in which Judge MICHAEL joined.

OPINION

HAMILTON, Senior Circuit Judge:

David Pasquantino, Carl Pasquantino, and Arthur Hilts (collectively the Defendants) were convicted of using interstate wires for the purpose of executing a scheme to defraud Canada and the Province of Ontario of excise duties and tax revenues relating to the importation and sale of liquor. According to the Defendants, their convictions and sentences cannot stand because, inter alia, application of the common law revenue rule precludes prosecution under the federal wire fraud statute, 18 U.S.C. § 1343, for use of interstate wires for the purpose of executing a scheme to defraud a foreign sovereign of its property rights in accrued tax revenue. Sitting en banc, we reject this argument and hold that the common law revenue rule does not preclude prosecution under the wire fraud statute for use of interstate wires for the purpose of executing a scheme to defraud a foreign sovereign of its property rights in accrued tax revenue. We also reject the Defendants' other arguments in challenge of their convictions and Hilts' challenge to his sentence. Accordingly, we affirm.

I.

Viewed in the light most favorable to the government, the evidence at trial revealed a substantial liquor smuggling operation beginning in 1996 and continuing through May 2000. No doubt this smuggling operation was spawned to supply a black market for liquor in Canada that had been created when, some years ago, Canada increased the sin taxes on liquor to such a level that Canadian taxes significantly exceeded comparable United States taxes.

Brothers David and Carl Pasquantino, residents of Niagara Falls, New York, devised and headed the smuggling operation, which constituted a scheme to defraud Canada and the Province of Ontario of excise duties and tax revenues relating to the importation and sale of liquor in Canada. The scheme to defraud generally operated as follows: (1) while in New York, Carl or David Pasquantino would place a large order for low-end liquor by telephone with a discount liquor store in Maryland; (2) a driver such as Arthur Hilts used a rented truck to pick up the liquor from the discount liquor store in Maryland and transport it to New York for storage; and (3) a driver smuggled a lesser quantity of the liquor across the Canadian border in the trunk of a vehicle.

After agents from the United States Bureau of Alcohol, Tobacco, and Firearms (ATF agents) discovered that eight discount retail liquor stores in Maryland had purchased unusually large quantities of low-end liquor from wholesalers, a criminal investigation ensued. Two of the store owners cooperated proactively with ATF agents by recording telephone conversations and advising the agents of calls and visits by the Defendants.¹ Moreover, ATF agents obtained numerous telephone, truck rental, and motel records, all of which evidenced the scheme. Border crossings were monitored electronically, tracking license plates of vehicles entering Canada. Several vehicles that were registered to drivers involved in the scheme failed to stop for a second inspection when requested. ATF agents and Royal Canadian Mounted Police also conducted surveillance of David and Carl Pasquantino and their associates loading liquor in Maryland and unloading it in Canada after it was smuggled through Canadian customs. Marked bottles of liquor were recovered in Canada.

Subsequently, the Defendants were indicted, along with four other individuals, on six counts of wire fraud and aiding and abetting wire fraud, in violation of 18 U.S.C. §§ 2 and 1343.² The Defendants filed a pretrial motion to dismiss the indictment on the ground that the common law revenue rule barred their prosecution under the federal wire fraud statute. Alternatively, the Defendants grounded their dismissal motion on the basis that accrued tax revenue does not constitute property under the federal wire fraud statute. Following the district court's denial of the motion, the case proceeded to trial before a jury.

At trial, the eight Maryland liquor store owners testified for the government regarding their dealings with the Pasquantinos. Three identified Hilts as one of the drivers who picked up large orders of liquor for the Pasquantinos. In addition to the store owners, two men who had been involved in the scheme testified that they transported liquor for David and Carl Pasquantino from the United States into Canada, and that the Pasquantinos paid them cash for each run. Canadian Customs Intelligence Officer Gina Jonah (Officer Jonah) testified that there is a Canadian federal excise tax and general sales tax, as well as a Liquor Control Board of Ontario tax and a provincial sales tax on liquor imported from the United States into Canada. Officer Jonah, a seventeen-year veteran employee of Canadian Customs, explained that the equivalent of approximately one-hundred American dollars would be due and owing on a case of liquor that was purchased in the United States for fifty-six American dollars and imported into Canada. She stated that generally the amount of Canadian tax due is twice the purchase price of the case of liquor in the United States.

David and Carl Pasquantino were convicted on all six counts of the indictment and sentenced to fifty-seven months' imprisonment on each count, to be served concurrently. Before the case was submitted to the jury, the district court dismissed all but Count I against Arthur Hilts. Hilts was convicted on that count and sentenced to twenty-one months' imprisonment. This timely appeal followed.

The Defendants' convictions were subsequently vacated by a two-to-one panel decision. United States v. Pasquantino, 305 F.3d 291 (4th Cir.2002), vacated and reh'g en banc granted, (4th Cir.2003). Upon the government's suggestion, a majority of full-time, active circuit judges voted to rehear the case en banc.

II.

The Defendants' primary argument is that the district court erred in denying their motion to dismiss because the common law revenue rule precludes their prosecution on federal wire fraud charges. The Defendants' argument presents an issue of first impression in the Fourth Circuit. To be clear, the issue is whether application of the common law revenue rule puts beyond the reach of the federal wire fraud statute, 18 U.S.C. § 1343, the use of interstate wires for the purpose of executing a scheme to defraud a foreign sovereign of its property rights in accrued tax revenue.

We begin our analysis of this issue by recognizing that its resolution depends in large measure upon determining the proper formulation of the common law revenue rule in American jurisprudence. Assuming arguendo that a government's right to accrued tax revenue constitutes property for purposes of the wire fraud statute (an issue we address in Part III of this opinion), the wire fraud statute, on its face, criminalizes the Defendants' conduct of engaging in a scheme to defraud Canada and the Province of Ontario of tax revenue. Under relevant Supreme Court precedent, the only circumstance under which we may hold that this conduct is beyond the reach of the wire fraud statute is if, at the time Congress enacted the wire fraud statute in July 1952, well established common law provided that the courts of one sovereign were prohibited from recognizing the existence of the revenue laws of a foreign sovereign. Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 108, 111 S.Ct. 2166, 115 L.Ed.2d 96 (1991) ("where a common-law principle is well established... the courts may take it as given that Congress has legislated with an expectation that the principle will apply except when a statutory purpose to the contrary is evident") (internal quotation marks and citations omitted). Without the existence of such well-established common law, our setting aside of the Defendants' convictions and sentences as posited by the Defendants would be ultra vires. Id. ("Courts do not, of course, have free rein to impose [common law] rules of preclusion, as a matter of policy, when the interpretation of a statute is at hand.").

A logical starting point in determining the proper formulation of the common law revenue rule in American jurisprudence is the Restatement (Third) of Foreign Relations Law of the United States (1987) (hereinafter "the Restatement"), which courts often rely upon as an authoritative exposition of the foreign relations law of the United States. See, e.g., C & L Enters. Inc. v. Citizen Band Potawatomi Indian Tribe of OK, 532 U.S. 411, 421 n. 3, 121 S.Ct. 1589, 149 L.Ed.2d 623 (2001); Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796, 113 S.Ct. 2891, 125 L.Ed.2d 612 (19...