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United States v. Yurek

United States District Court, D. Colorado

June 30, 2017



          William J. Martínez United States District Judge.

         This matter is before the Court on the Government's James Proffer and Memorandum in Support (ECF Nos. 157 & 158), and Defendants' Response in Opposition and Request for Pretrial Hearing (ECF No. 159). For the reasons explained below, the Court's pretrial rulings on the statements proffered by the Government pursuant to Federal Rule of Evidence 801(d)(2)(E) are set out below, and Defendants' request for a pretrial evidentiary hearing is denied.


         A district court can “only admit co-conspirator statements if it holds a James hearing or conditions admission on forthcoming proof of a predicate conspiracy through trial testimony or other evidence.” United States v. Townley, 472 F.3d 1267, 1273 (10th Cir. 2007) (internal quotation marks omitted).[1] Therefore, although a hearing is not required, the Tenth Circuit has expressed a “strong preference” for pretrial James proceedings. Id. The reason for this preference is that if a court provisionally admits a statement with the caveat that the Government “connect up” the statement to sufficient evidence of a predicate conspiracy at trial, the risk of prejudice to the defendants is high should the Government later fail to meet its burden. United States v. Urena, 27 F.3d 1487, 1491 (10th Cir. 1994). Nevertheless, whether to hold a James hearing rests within the Court's discretion. Id.

         The Court has reviewed the Government's proffer, the parties' briefing on this issue, and other materials already before the Court. Given the extensive nature of the proffer, the fact that documentary and testimonial evidence is already before the court by way of docketed materials, transcripts of testimony, and party filings which make clear that a number of factual issues are either uncontested or beyond reasonable dispute, the Court finds that a hearing is not necessary to resolve the provisional admissibility of the Government's proposed co-conspirator statements in this case, and that, given the findings as to the existence of a conspiracy set out below, Defendants will not face undue risk of prejudice from provisional admission of portions of the Government's proffer, as set out below. Nevertheless, since the Court reserves ruling as to exclusion under Federal Rule of Evidence 403 or other grounds, the Government should present as much independently admissible evidence of the predicate conspiracy described below as possible before seeking to admit any statements admissible only under Rule 801(d)(2)(E).


         Federal Rule of Evidence 801(d)(2)(E) provides that a statement is “not hearsay” if it “is offered against an opposing party” and it “was made by the party's coconspirator during and in furtherance of the conspiracy.” However, “[b]efore admitting statements into evidence under the coconspirator exception to the hearsay rule, the district court must determine by a preponderance of the evidence that (1) a conspiracy existed, (2) the declarant and the defendant were both members of the conspiracy, and (3) the statements were made in the course of and in furtherance of the conspiracy.” Alcorta, 853 F.3d at 1137; Bourjaily v. United States, 483 U.S. 171, 175-76 (1987).

         Whether this standard is satisfied is a “preliminary question about whether . . . evidence is admissible, ” meaning the Court “is not bound by evidence rules, except those on privilege, ” when resolving the question. Fed.R.Evid. 104(a); Bourjaily, 483 U.S. at 178-79. As the offering party, the Government bears the burden of showing the preliminary facts by a preponderance of the evidence. United States v. Perez, 989 F.2d 1574, 1577 (10th Cir. 1993) (en banc).

         “The court may consider both independent evidence and the statements themselves when making this finding.” Rutland, 705 F.3d at 1248; see also Bourjaily, 483 U.S. at 180 (“there is little doubt that a co-conspirator's statements could themselves be probative of the existence of a conspiracy and the participation of both the defendant and the declarant in the conspiracy”). The Tenth Circuit requires “at most that there be some independent evidence linking the defendant to the conspiracy.” Alcorta, 853 F.3d at 1142; see also United States v. Rascon, 8 F.3d 1537, 1541 (10th Cir. 1993) (“most courts require some reliable corroborating evidence apart from the coconspirator's statements before those statements may be used”). However, the independent evidence “need not be ‘substantial.'” Alcorta, 853 F.3d at 142.

         III. ANALYSIS

         The Government has proffered 88 statements that it intends to admit at trial under Rule 801(d)(2)(E). The Court's rulings and analysis here address only the provisional admissibility of these statements under Rule 801(d)(2)(E), subject to the Government “connecting up” these statements with evidence at trial of the predicate conspiracy. See United States v. Owens, 70 F.3d 1118, 1123 (10th Cir. 1995). This Order does not address the admissibility (or lack thereof) of the proffered statements under any other rule or on any other grounds.[2]

         A. Existence of a Conspiracy

         To prove that a conspiracy existed the Government must show: (1) two or more persons agreed to violate the law, (2) the defendants knew the essential objectives of the conspiracy, (3) the defendants knowingly and voluntarily participated in the conspiracy, and (4) the alleged co-conspirators were interdependent. United States v. Small, 423 F.3d 1164, 1182 (10th Cir. 2005). To prove knowledge of the essential objectives of a conspiracy, the Government does not have to show the defendants knew all the details or all the members of a conspiracy. Id. “Rather, the government only needs to demonstrate the defendant shared a common purpose or design with his alleged co-conspirators.” United States v. Yehling, 456 F.3d 1236, 1240 (10th Cir. 2006) (citing United States v. Evans, 970 F .2d 663, 669 (10th Cir. 1992). “The core of a conspiracy is an agreement to commit an unlawful act.” United States v. Esparsen, 930 F.2d 1461, 1471 (10th Cir. 1991). However, the Government need not prove that the conspiracy was for an unlawful purpose, and the element of illegality can be established from the declarations themselves. United States v. Martínez, 825 F.2d 1451, 1452 (10th Cir. 1987). Direct evidence is not required, and the conspiracy may be inferred from circumstantial evidence. United States. v. Bucaro, 801 F.2d 1230, 1232 (10th Cir. 1986) (citations omitted).

         Defendants are jointly charged, in Counts 1 and 2, with tax evasion, 26 U.S.C. § 7201, and bankruptcy fraud, 18 U.S.C. § 157(1). Here, despite the lack of a conspiracy charge in the Indictment, the Government contends that Defendants, along with one of their sons, “J.Y.”, were part of “an uncharged conspiracy to commit the tax evasion and bankruptcy fraud schemes charged in the Indictment.” (ECF No. 157 at 1.)[3] Defendants argue that there was no conspiracy.

         The Court finds that the Government has met its burden of showing by a preponderance of the evidence the existence of a conspiracy between Defendants to commit tax evasion, 26 U.S.C. § 7201, and to file a bankruptcy petition in furtherance of a scheme or artifice to defraud, 18 U.S.C. § 157(1). A preponderance of the evidence also shows that J.Y. was a participant in the conspiracy to commit tax evasion.[4] The Court below summarizes facts that are established by a preponderance of the evidence in the present record, which are sufficient to show all four elements necessary for the existence of conspiracy.

         It is uncontested that Defendants had joint tax liabilities arising from their 1999 and 2004 federal income tax returns, filed in October 2000 and October 2005, respectively. (See, e.g., ECF No. 159 at 1-2.)[5] It is likewise uncontested that they did not fully pay this tax liability, and that between 2006 and 2010 they submitted to the Internal Revenue Service (“IRS”) several offers-in-compromise seeking to settle and resolve this outstanding tax liability. The IRS rejected those offers, and Defendants then filed a petition for Chapter 7 bankruptcy on September 1, 2010. Their tax liability-at that time, slightly over $1.2 million-was, by far, the largest debt which they sought to discharge in bankruptcy.

         Defendants' bankruptcy petition also listed a $500, 000 debt owed to Veracity Credit Consultants (“Veracity” and the “Veracity Loan”). Defendants's testimony in the bankruptcy proceedings was that Veracity was owned by J.Y.; Daryl Yurek (“Mr. Yurek”) was a salaried Veracity executive; Wendy Yurek (“Ms. Yurek”) was also an employee of Veracity, and the Government's proffer reflects that she at times implemented or directed bookkeeping and payment actions. (See, e.g., ECF No. 158 at 21; ECF No. 178-2 at 16; ECF No. 178-1 at 6-7.)[6] As reflected in the bankruptcy petition and Daryl Yurek's testimony, Defendants used the Veracity Loan to pay their “living expenses.” (ECF No. 178-2 at 4; see also ECF No. 178-1 at 16-17.)

         As reported by Defendants' testimony and bankruptcy petition, the Veracity Loan was secured by the pledge of shares of stock in a company called I.D. Watchdog (“IDWD”), which the petition valued at $85, 000. According to Mr. Yurek's testimony, his only payment on the Veracity Loan prior to seeking to discharge it entirely in bankruptcy was in January 2009, when he transferred approximately $50, 000-worth of the already-pledged IDWD stock to Veracity, although evidently, without any corresponding reduction in available credit thereafter. (See ECF No. 178-2 at 5.)

         The petition further reported that the pledged stock was owned by another company, Bolder Venture Partners (“BVP”). Both BVP and IDWD are entities closely affiliated with Defendants.[7] Mr. Yurek testified that while the Veracity Loan was made to him personally, the disbursements were paid to both his personal bank account to BVP, “depending on where it was needed” at the time. (ECF No. 178-2 at 4.) Elsewhere, he testified that Defendants' and BVP's accounting treated BVP accounts “like our own personal bank account” (ECF No. 178-2 at 13), and acknowledged that he also personally held IDWD stock, which was not disclosed in the bankruptcy petition, and that he was not “sure which shares are which.” (ECF No. 178-2 at 4, 10.) In addition, certain credit card debts that Defendants sought to discharge in their personal bankruptcy were incurred for BVP business expenses. (See ECF No. 178-1 at 17-19.)

         Notwithstanding these facts, Defendants maintained in the bankruptcy proceeding that they had never received any kind of compensation from IDWD other than through BVP, did not disclose IDWD stock as an asset other than the $85, 000-worth owned by BVP and pledged to secure the Veracity Loan, denied that BVP or Veracity paid their personal or living expenses, and denied receiving “any other type of compensation” from Veracity (except as a loan), other than salary via payroll. (See ECF No. 178-1 at 7, 21.)

         The bankruptcy petition also listed and sought to discharge $79, 200 owed to J.Y. for unpaid rent on Defendants' residence. The Government's James proffer, their testimony, and other evidence reflect that while Defendants had previously leased the residence from a third party, they held an option to purchase it; shortly after the IRS filed a tax lien against them in December 2005, they approached J.Y. to ask if he would purchase it instead. (See ECF No. 158 at 8; ECF No. 178-2 at 3-4.) Or, as Mr. Yurek vaguely put it in his Bankruptcy Rule 2004 examination, he “introduced the property to [his] son.” (ECF No. 178-2 at 3.)

         J.Y. did purchase the residence, in March 2006, but Defendants continued to live there, and it was never J.Y.'s residence. However, as of their September 2010 bankruptcy petition, they paid no rent until shortly before they filed for bankruptcy, and thus paid a total of only two months rent over the course of more than four years. (ECF No. 178-1 at 25.) The Government's proffer and other evidence reflect that Veracity paid some or all of the mortgage payments for Defendants' residence, including in transactions directed by Ms. Yurek. (See ECF No. 158 at 10, 20, 21, 22). The proffer also includes J.Y.'s statement that he told Defendants Veracity would pay the mortgage, while Defendants continued to live there. (ECF No. 158 at 8-10.) In the bankruptcy proceeding, Defendants denied any ownership in the residence and sought to discharge the entirety $79, 200 in unpaid rent claimed due to J.Y. (See ECF No. 178-1 at 25; ECF No. 178-2 at 2-3.)[8] Elsewhere, the Government's proffer reflects that Defendants told other people that the residence was theirs (id. at 25), and that J.Y. informed his accountant that he was leasing the residence to Defendants in 2010 or 2011, around or after the time Defendants filed their bankruptcy petition (id. at 28).

         Finally, the Government's proffer and other materials reflect that Defendants took various steps to direct the transfer of IDWD stock between Mr. Yurek, BVP, Veracity, and to Defendants' sons. The Court finds that the present evidence makes it more probably true than not that these transactions were part of an overall conspiracy to hide this stock as an asset of Defendants, and thus shield it from the IRS and the bankruptcy court.

         In sum, on the present record, the Court finds that a preponderance of the evidence establishes the existence of a conspiracy to commit tax evasion and bankruptcy fraud, as charged in Counts 1 and 2 of the Indictment. (See ECF No. 1 at 1-12; see also generally ECF No. 114 at 2.)

         B. Membership in the Conspiracy

         1. Defendants

         A preponderance of the evidence also shows that both Defendants were part of the conspiracy described above. Central acts, including filing tax returns, submitting offers-in-compromise to the IRS, filing the bankruptcy petition, and testifying at the meeting of creditors were jointly undertaken by Defendants, acting as husband and wife and proceeding jointly both with the IRS and before the bankruptcy court. Beyond that, each of them also independently took numerous affirmative acts which the Court finds to be part of the conspiracy and in furtherance of its goals.

         2. J.Y.

         A preponderance of the evidence also reflects that J.Y. was a part of that portion of the conspiracy which sought to commit tax evasion. The Proffer and other evidence reflect that he was aware that the Defendants' unpaid tax liability and resulting tax lien prevented them from purchasing the residence in their own name and then actively participated in the decisions and actions by which he purchased the residence in his name. He then participated in the actions which allowed Defendants to live in the property for several years without paying rent, and directing or allowing Veracity to pay some or all of the mortgage. Defendants, in turn, denied that any of this constituted income, compensation, or an asset available to the IRS or to other creditors in ...

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