United States v. Hoffman

901 F.3d 523

UNITED STATES of America, Plaintiff - Appellee Cross-Appellant

v.Peter M. HOFFMAN, Defendant - Cross-Appellee

Michael P. Arata; Susan Hoffman, Defendants - Appellants Cross-Appellees

United States of America, Plaintiff - Appellee-Cross- Appellant

v.Peter M. Hoffman, Defendant - Appellant-Cross- Appellee

United States of America, Plaintiff - Appellant

v.Peter M. Hoffman; Michael P. Arata, Defendants – Appellees

United States of America, Plaintiff - Appellee Cross-Appellant

v.Peter M. Hoffman, Defendant - Appellant Cross-Appellee

Michael P. Arata; Susan Hoffman, Defendants - Cross Appellees

No. 16-30104

cons. w/ 16-30226, cons. w/ 16-30013, cons. w/ 16-30527

United States Court of Appeals, Fifth Circuit.

August 24, 2018

REVISED August 28, 2018

Gaven Dall Kammer, Esq., Assistant U.S. Attorney, Kevin G. Boitmann, Assistant U.S. Attorney, Diane Hollenshead Copes, Esq., Assistant U.S. Attorney, U.S. Attorney's Office Eastern, District of Louisiana, New Orleans, for Plaintiff - Appellee Cross-Appellant.

Herbert V. Larson, Jr., New Orleans, Peter M. Hoffman, Pro Se, West Hollywood, for Defendant - Cross-Appellee.

William P. Gibbens, Esq., Ian Lewis Atkinson, Esq., Attorney, Mandie Elizabeth Landry, Esq., Deborah Ann Pearce, Law Offices of Deborah Pearce, New Orleans, for Defendant - Appellant Cross-Appellee Michael P. Arata.

Harry A. Rosenberg, Esq., Senior Attorney, Phelps Dunbar, L.L.P, New Orleans, for Defendant - Appellant Cross-Appellee Susan Hoffman.

Before KING, DENNIS, and COSTA, Circuit Judges.

GREGG COSTA, Circuit Judge:

We withdraw the prior panel opinion and substitute the following:

With its colorful history and rich cultural stew, Louisiana has long been a popular setting for works of fiction, including movies. In recent years the state has also tried to become a place where films are made. That effort enjoyed considerable success. The Curious Case of Benjamin Button , Django Unchained , Twelve Years a Slave , The Dallas Buyer's Club , and Dawn of the Planet of the Apes are some recent films of note shot in New Orleans. Believe it or not, in one recent year (2013) Louisiana surpassed even California as the most popular locale for filming major-studio productions. Mike Scott, Louisiana Outpaces Los Angeles, New York, and All Others in 2013 Film Production, Study Shows , TIMES-PICAYUNE (Mar. 10, 2014). This development led some to call New Orleans "Hollywood South." Id.

State tax credits for the film industry spurred much of this growth. Id. ("[M]ake no mistake: The state's tax-credit program ... is largely responsible for the surge in local productions."). They also provided an incentive for fraud. A jury found that to be the case for Peter Hoffman, Michael Arata, and Susan Hoffman. It credited the government's allegations that they submitted fraudulent claims for tax credits, mostly by (1) submitting false invoices for construction work and film equipment or (2) using "circular transactions" that made transfers of money between bank accounts look like expenditures related to movie production. Their principal challenge to those convictions is an argument that the tax credits are not property within the meaning of the mail and wire fraud statutes but are instead akin to the video poker licenses the Supreme Court rejected as a basis for federal prosecution in Cleveland v. United States , 531 U.S. 12, 121 S.Ct. 365, 148 L.Ed.2d 221 (2000). If we conclude that the credits are property subject to the federal fraud statutes, defendants also contend that the evidence was insufficient to convict because they made a good-faith effort to comply with a state program riddled with gray areas.

While the defendants seek to undo their convictions, the government is unhappy with the sentences of probation that all three received. So it too appeals, arguing that the substantial downward variances exceeded the district court's discretion. The government also contends that the district court improperly vacated a number of the jury's guilty verdicts.

I.

The Hoffmans and Arata owned and jointly operated Seven Arts Pictures Louisiana, LLC (Seven Arts). Each of them was also involved in several other film-related ventures. Through their companies, defendants purchased a "dilapidated mansion" at 807 Esplanade in New Orleans, intending to renovate the structure and turn it into a postproduction facility where films are edited and prepared for final release. To offset the cost of this project, Seven Arts applied for film infrastructure tax credits with the state.

A.

Louisiana enacted the Motion Picture Incentive Tax Credit in 1992 to encourage local development of the movie and television industry. La. Rev. Stat. § 47:6007. In its initial form, the law authorized investors to claim a credit for 50% to 70% of losses sustained during in-state film production. In other words, it was a "safety net" for bad film investments. John Grand, Motion Picture Tax Incentives: There's No Business Like Show Business , STATE TAX NOTESat 791 (Mar. 13, 2006). The state legislature extended the program in 2002, permitting investors to claim tax credits for money spent on profitable projects. La. Rev. Stat. § 47:6007(C)(1) (2002). The next year saw further amendment, this time allowing investors to sell or transfer the tax credits. Id. § 47:6007(C)(4) (2003). This was an important innovation because many investors—those like Peter Hoffman who resided in California—did not themselves owe Louisiana taxes. Nontransferable credits had been of little value to these numerous out-of-state producers.

The program was again amended in 2005 (and extended in 2007), when the legislature authorized income tax credits for state-certified infrastructure and production projects.¹ See generally La. Rev. Stat. § 47:6007(C) (2005). Projects with total base investment exceeding $300,000 could qualify for tax credits worth up to 40% of in-state expenditures. Id. § 47:6007(C)(1)(b)(i), (iii) ; see also Dep't of Revenue, Policy Servs. Div., 2005 Regular Legislative Session: Legislative Summaries 5 (Jan. 13, 2006), http://www.rev.state.la.us/publications/lsls(2005).pdf.

Louisiana's Office of Entertainment Industry Development, a component of the Department of Economic Development, administered the program. Issuance of film tax credits was a two-step process. First, the applicant had to file an initial application for tax credits and obtain a precertification letter from the state agencies. See Red Stick Studio Dev., L.L.C. v. Louisiana , 56 So.3d 181, 183–84 (La. 2011). After receiving that authorization, the applicant still had to submit a cost report tallying its expenditures, accompanied by an audit from an independent accountant. Id. at 183 n.4. After a review of those materials, the same state agencies determined whether the expenditures should be certified and tax credits issued.

For infrastructure projects, qualifying expenditures could include the purchase, construction, and use of tangible items directly related to Louisiana film production. The law defined "base investment" as the "actual investment made and expended," while "expended in the state" meant "property which is acquired from a source within the state and ... services procured and performed in the state." La. Rev. Stat. § 47:6007(B)(1), (3) (2007). And the state could recapture tax credits if it found that "monies for which an investor received tax credits ... [we]re not invested in and expended with respect to a state-certified production ... and with respect to a state-certified infrastructure project." Id. § 47:6007(E)–(F) (2007).

B.

Such was the statutory and administrative landscape facing Peter, Arata, and Susan as they sought to develop 807 Esplanade.² A bank loaned them $3.7 million for the project, $1.7 million of which was earmarked to purchase the property while the remainder was placed in an account that could be drawn on to make payments for construction and renovation. From its inception, Seven Arts sought to lower the cost of the 807 Esplanade project via various tax credits. Beyond the film credits, for example, it sought "historic rehabilitation tax credits." In October 2007, Arata submitted the company's initial film credit application to the state, which included a cost estimate of $9 million, a business plan, and a contractor's agreement.

The state issued a precertification letter in May 2008. The letter contained a caveat that it did not guarantee any tax credits would be issued. But it did note that the project as described "appear[ed] to meet the criteria of a State-Certified Infrastructure Project," subject to administrative rules that may be released at a future date. The letter also placed certain restrictions on the tax credit certification. Namely, Seven Arts had until the end of 2008 to earn credits on the project, unless it spent $4.5 million prior to that date (in which case future credits might be possible). It also mentioned that before any credits could be "certified and released" at least $2.25 million (25%) in base investment must have been spent on film-related infrastructure. That 25% had to be used for "the creation of infrastructure specifically designed for motion picture production," not on the purchase of land or preexisting facilities. But tax credits could be earned on so-called "multiple-use facilities" once the production facility was complete.

C.

As the precertification letter emphasized, it did not authorize the issuance of tax credits. That could only occur based on the "actual amount expended by the project," verification of that amount by an independent auditor, and final approval by state authorities. To satisfy those critical final steps, the defendants submitted three cost reports and audits. Misrepresentations in those reports, the ones mentioned earlier that involved fake invoices and circular transactions, are what led to this prosecution.

In October 2008, two months prior to the expenditure deadline, Peter and Arata hired an auditing firm to review project...