Free Reply to Response - District Court of Arizona - Arizona

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TIMOTHY C. HOLTZEN Attorney at Law 245 W. Roosevelt St. Phoenix, Arizona 85003 State Bar No. 004723 (602) 799-6336 (602) 368-9140 fax Attorney for Defendant

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA United States of America, Plaintiff, v. Neil Rusty Bond, Defendant. ) ) ) ) ) ) ) ) ) ) No. CR 03-0974-PHX-DGC REPLY TO GOVERNMENT'S RESPONSE TO MEMORANDUM RE: NEW TRIAL BASED ON NEWLY DISCOVERED EVIDENCE

The defendant hereby submits this Reply to the Government's Response to

15 Defendant's Memorandum RE: New Trial Based on Newly Discovered Evidence.
RESPECTFULLY SUBMITTED this 21 st of February 2006

/Timothy C. Holtzen Timothy C. Holtzen Attorney for Defendant
Copy of the foregoing served by ECF filing this 21 st day of February 2006 to: Michelle Hamilton-Burns Assistant U.S. Attorney Two Renaissance Square 40 N. Central Avenue, Suite 1200 Phoenix, Arizona 85004-4408 and mailed to: Neil Rusty Bond Defendant Jon Evanko U.S. Probation Office, Presentence Division

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MEMORANDUM There are two significant issues before the court in this matter. The first is the

3 defendant's request for a new trial based on newly discovered evidence. The second is 4 whether the government met its burden to prove economic loss, that is, that he received 5 benefits to which he was not entitled. The defendant contends that the court should 6 grant a new trial and the government has not met its burden of proving economic loss. 7 A. 8
Facts: The defendant set forth the facts in the preceding memorandum helpful for the

9 court's determination of pending issues. The government has submitted a factual 10 scenario that includes errors. The defendant wishes to correct notions from some of the 11 mistaken or erroneous statements. 12
The government asserted that the defendant did not report any work activity

13 until 1997, after an "anonymous tipster" (the defendant's ex-father-in-law) called to 14 report him, that the defendant reported to the SSA representative that he was working 15 selling insurance. In fact, it was a year earlier on May 11, 1996, that the SSA noted for 16 the file that the defendant called SSA and declared to the SSA that he had started 17 working selling insurance in previous months. Trial Ex. 11; RT 3/2/05 13-14. 18
The government asserts that if Ms. Jackson had received certain information

19 from the defendant, she "would have concluded that the defendant's 6 month trial 20 work period had been used and would have requested more information." Govt. 21 Response at 3. The trial work period is nine months. 42 U.S.C. § 422(c)(1)-(4); 20 22 C.F.R. § 404.1592. Ms. Jackson posited that she would have concluded that six months 23 of the trial work period had been used in 1999. RT 3/2/05 49. 24 B. 25 27 28 2
Newly Discovered Evidence At trial, the government sought a court order and obtained IRS "IRP"

26 documents, which the court had ordered the government to provide to the defense upon

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1 receipt. In the government's response to the defendant's memorandum, the government 2 argues, and includes an affidavit of one of the trial prosecutors, that the government 3 lawyers had not received from IRS what they really wanted and they saw no 4 significance or relevance to the IRP documents. The defendant had received an 5 incomplete set of the IRP documents before trial when he sought copies of his tax 6 returns filed with the IRS for 1999 and preceding years, with the accompanying 7 Schedule Cs showing business expenses subtracted from gross income. The defendant 8 did not receive what he had sought from IRS, and it was apparent that they did not 9 include Schedule C information business expenses, or even summaries of business 10 expenses. The IRPs have page numbers in the upper right area, such as "Page 0001of 11 0010," which are what the defendant received before trial. Govt. Response, Ex. B. 12 Those pages do not say that they represent the total of all companies that reported and 13 their nonemployee compensation for the year, they have IRS's abbreviations and codes 14 without apparent meaning except to IRS employees or possibly accountants, and they 15 do not include any schedule C or subtractions from gross income. Of course, the 16 government had a Social Security staff accountant, David Rodriguez, who was present 17 and testified at trial. Even the numeric figures do not appear to be precise when each of 18 the amounts ends with a "+" sign. However, as described in a defendant's 19 memorandum, the extra sheets provided to the government by IRS, which were the 20 summary sheets representing that the amounts reported were the total amounts reported 21 to the IRS for that year, has significance recognized by the defendant's accountant. As 22 such, those summary sheets are newly discovered evidence to the defense. 23
It is also implicit in the government's argument that they acknowledge that they

24 did not seek copies of the 1040 tax returns that were actually filed with the IRS, but the 25 court order included the production by IRS of the 1040 tax turns actually filed. 26 27 28 3
The government suggests that the records are still insignificant because they are

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1 merely impeachment evidence and typographical errors. The defendant contends that 2 the records are not just impeachment evidence but contain evidence going to the 3 reliability of the foundation for admissibility of the government's exhibits at trial. It is 4 particularly significant since the law requires companies to report all compensation 5 paid to the nonemployees, and the company or companies reporting of compensation 6 was a large variance from income the government suggested in its exhibits. 7
The defendant's memorandum recited the general rule five-part test for a new

8 trial based on newly discovered evidence, but also recited additional considerations 9 when the evidence was possessed by the government during trial. (Defendant's Memo 10 at 4-5.) The defendant meets the tests. First, the evidence is newly discovered. While 11 the defendant received an incomplete set of IRP documents provided by IRS to him, 12 the significant final page for each had not. Second, the failure to discover the evidence 13 sooner was not the result of a lack of diligence on the defendants part. Efforts by the 14 defendant to obtain records from IRS in this case have been relatively fruitless. The 15 defendant personally went to the IRS office and submitted the form(s) provided to him 16 by the IRS employee for ordering copies of his tax returns and received IRP documents 17 that were not the records he requested, not complete, and did not even include in 18 transcripts or summaries in how the tax returns and business expenses he had filed. As 19 a further example, the defendant's court appointed accountant, Mr. Gary Gard, has also 20 been unable to obtain records he requested from IRS after the trial. He ordered and 21 paid for a copy of the 1996 tax return for Mr. Bond on December 8, 2005, and the IRS 22 cashed his check. Attachment A. On January 31, 2006, without explanation, the IRS 23 sent Mr. Gary Gard a refund check for the money he had paid, and he did not receive 24 the 1996 tax return he ordered.1 Third, the evidence is material to the issues that trial. 25 26 27 28
This example of not being able to obtain records from many years ago points up the prejudice to the defendant in allowing the government to indict on alleged conduct
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1 Clearly they question the accuracy of the companies record keeping necessary to the 2 government's exhibits of gross income, and income was the central point of the 3 government's case. Fourth, the evidence is not cumulative nor "merely impeaching." 2 4 Fifth, the prong referring to a requirement that "the evidence would probably result in 5 an acquittal" does not require a finding that it would result in an acquittal. A 6 "reasonable probability" is a probability sufficient to undermine confidence in the 7 outcome. United States v. Bagley, 473 U.S. 667, 682 (1985). "If the standard applied to 8 the usual motion for a new trial based on newly discovered evidence were the same 9 when the evidence was in the State's possession as when it was found in a neutral 10 source, there would be no special significance to the prosecutor's obligation to serve 11 the cause of justice." United States v. Agurs, 427 U.S. 97, 111-112 (1976).3 The 12 differences are evidence of inaccuracy throughout the government's case. They are 13 differences that would have alerted a proper investigation that something is wrong with 14 their evidence. 15 C. 16
The Government Does Not Meet its Burden to Prove Economic Loss. This Court expressed an issue to be addressed by counsel as to what this Court

17 could rely on, if anything, from the jury's verdict as proof of the loss alleged, and if 18 not, what evidence did the government want the court to consider on the loss issue. 19 The government's response briefly described the two counts of conviction, the 20 21 22 23 24 25 26 27 28 5
The government's recital of the test appears to have erroneously omitted a key word of "merely" impeaching. The defendant contends that impeachment here goes beyond mere impeachment. The defendant is not suggesting that the prosecutors intentionally failed to disclose the summary sheets, but intentional failure to disclose is not required for a new trial.
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beyond the statute of limitations, which was the subject of a defendant's motion to dismiss.

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1 instructions to the jury of the elements of the two crimes, and that the trial judge gave a 2 "brief summary of the charges in the indictment" at the beginning of the trial. The loss 3 is alleged to be in excess of $100,000. The government's response implicitly 4 acknowledges that the jury had not been required to make a finding and did not make 5 any finding of the alleged loss other than, perhaps, an element of the crime is a loss of 6 more than $1000. 7
The defense has submitted analysis and conclusions in the preceding

8 memorandum, using the proper measure of "net income" to the defendant, showing 9 that the defendant remained entitled to benefits. The government again offers no 10 analysis of net income, rather paints broadly with reference to gross income to the 11 business. The government does not show any place where the Social Security 12 Administration used the defendant's net income after subtraction of business expenses, 13 as it is required to analyze. 14
The government now relies on a letter from the Social Security Assistant

15 District Director in Phoenix to refer to how the SSA is supposed to determine whether 16 a disabled person is entitled to disability benefits. After a determination of disability, 17 the disabled person will no longer receive benefit payments if he engages in 18 "substantial gainful activity" during a reentitlement period following completion of a 19 trial work period. 20 CFR § 404.401a. The claimant will receive payments for the nine 20 months of trial work period and two succeeding months. Earnings, [no matter how 21 high above the guidelines] from work activity will not stop the payments. Id. 22
The term "substantial gainful activity" combines two concepts, substantial work

23 activity and gainful work activity. The government's Exhibit A letter omitted the 24 measure for the important second concept­ gainful work activity. The defendant was 25 self-employed. The SSA must determine if a disabled person engaged in substantial 26 gainful activity. Exhibit A referred to the first test having two parts, i.e., providing 27 28 6

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1 significant services and receiving substantial income from the business. The letter 2 described briefly how they determine when "services are considered significant," but 3 ignored how SSA is to determine when "income is substantial." That substantial 4 income factor is defined in 20 CFR § 404.1575(c), which provides: 5 6 7 8 9
(c) What we mean by substantial income. We deduct your normal business expenses from your gross income to determine net income. Once we determine your net income, we deduct the reasonable value of any significant amount of unpaid help furnished by your spouse, children, or others. . . . That part of your income remaining after we have made all applicable deductions represents the actual value of work performed. The resulting amount is the amount we use to determine if you have done substantial gainful activity.

10 (Emphasis added.) The government's response, like the evidence at trial, did not 11 include any description of how the SSA dealt with the issue of "net income" or how 12 they attempted to determine the value of the defendant's work. The government's 13 focus has always been on determining the gross income to the defendant's business, 14 perhaps to suggest speculation that his net income was more than allowed by 15 regulations (20 CFR § 404.1574) and shifting the government's burden to the 16 defendant to prove net income. It is not the defendant's burden, and the defendant here 17 has provided the explanation of an accountant in determining the defendant's net 18 income, which was under the ceiling for denying him benefits. Hence, the government 19 has not shown that they correctly considered his net income or that net income 20 exceeded any limit for entitlement to benefits. 21
The government cannot rely on the remaining two tests, since there has been no

22 evidence to support such an analysis. The second test requires proof that "hours, skills, 23 energy output, efficiency, duties, and responsibilities, is comparable to that of 24 unimpaired individuals in your community who are in the same or similar businesses as 25 their means of livelihood." 20 CFR § 414.1575(a)(2). The government offers no 26 evaluation of the defendant's conduct that fits the description or what unimpaired 27 28 7

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1 individuals in the community in the same or similar businesses earn. Speculation is not 2 sufficient to carry the burden of proof. Likewise, the third test requires proof that 3 "clearly worth the amount shown in Sec. 404.1574(b)(2) when considered in terms of 4 its value to the business, or when compared to the salary that an owner would pay to an 5 employee to do the work [he was] doing." There has been no evidence of clear worth 6 or what other owners pay. Additionally, if the government cannot prove the 7 methodology it actually used, it would be fundamentally unfair to the defendant to 8 have denied him his administrative appeals, as they have done, to prosecute him on 9 their theory of the case of gross income, and to now try some different approach to try 10 to salvage the conclusions to which they jumped. 11
There was no audit by SSA or IRS, no interview of him, and no consideration of

12 his case from his administrative appeals to ascertain his net income, despite the 13 regulations' requirements to ascertain net income. The prosecution merely questions, 14 without evidence to disprove, that the defendant's income tax returns included two 15 business expenses: hundreds of dollars of telephone charges and thousands of business 16 miles with his automobile. Govt. Response at 5. The government did not try to 17 determine how many clients were represented in the commissions checks to dispute his 18 claim of hours worked. Rather, they offered a letter allegedly written by the defendant, 19 perhaps puffing or boasting, that "indicated" that he had thousands of clients. Govt. 20 Response at 5; Trial Ex. 97. Questions without evidence do not eliminate the 21 government's responsibility by regulation to evaluate net income, and a lack or proof 22 of hours worked cannot be satisfied by such an irrelevant hearsay letter. 23 D. 24 25 26 27 28
Residual Payments for Health or Life Insurance Policies Sold More than a Year Before Do Not Reflect Work Activity by the Salesman. The government offers the assistant director's letter, exhibit A, and offers SSA employee Barbara Jackson's trial testimony, concluding that residual payments (sometimes referred to as renewal payments) for sales of health and life insurance

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1 policies are countable as income, which reflect work activity. These are conclusions 2 based on errors. Residual payments for life and health insurance are distinguishable in 3 nature and principle from what they considered "renewal" payments. Residual 4 payments for health and life insurance sales are payments after the first 12 months 5 following a sale of a policy, at a reduced commission level, without any work or 6 contact from the salesman. Ms. Jackson explained her conclusion as based on the 7 belief that health (and life) insurance policies are renewed each year after some kind of 8 work is performed or necessary contact is made from the salesman to renew. RT 3/2/05 9 143-44. The assistant director's conclusion is based on the same mistaken premise. 10 Govt. Response Ex. A, p.2. The assistant director posits: 11 12 13 14 15 17
With casualty insurance, which includes health insurance, accident insurance, auto insurance, and property insurance, repeat commissions although sometimes referred to as `renewal' or `residual' payments, are actually payments for new policies written for new and different terms. Work that the agent may have done to see that the policy is extended such as meeting with the client, correcting a client's address, referring a client to a service agent, updating computer data in regard to payments, or sending clients cards or letters, all fall into the realm of maintaining and developing a business and are considered work activities.

16 Id. (Emphasis added.) This description and conclusion are based on errors.
Health and life insurance sales require a different license from property and

18 casualty insurance. A.R.S. § 20-282, 20-286. Bond has maintained licenses for sales of 19 accident/health insurance and life insurance. Attachment B. Unlike casualty and 20 property, health and life insurance policies sold to individuals have guaranteed 21 renewals by law, cannot be canceled by the insurance companies absent nonpayment, 22 fraud, or withdrawal of all sales within the state, and involve no further contact or 23 work from the salesman. A.R.S. § 20-1379 (A),4 20-1408. Attached is a letter from 24 25 26 27 28
"Every health care insurer that offers individual health insurance coverage in the individual market in this state shall provide guaranteed availability of coverage to an eligible individual who desires to enroll in individual health insurance coverage and shall not:
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1 James A. Ashley, previously a Regional Marketing director for Medical Savings 2 Insurance Company for agents in Arizona and three other states. His letter verifies that 3 commissions continued to be paid as long as the health insurance policy remained in 4 force, with no duties required of the sales agent after the sale in order to receive 5 renewal commissions. The client becomes, after the initial sale, the client of the 6 insurance company, with events like those described by the government's letter as 7 additional events for work, but they are events or items not even made known to the 8 salesman by the company. (Attachment C). 9
The additional work activity described by the government's letter exhibit A and

10 the testimony of Ms. Jackson are based on a false premise in this case. Ms. Jackson 11 agreed on cross-examination that if insurance sales involved only the sale and no 12 further contact, it sounds to her like it is considered only one event of work rather than 13 repeated events. RT 3/2/05 146. Hence, residual commissions are not payment 14 reflecting continuing or repeat work activity and do not count in determining net 15 income. Although the work, or ability to earn income, does not change in the 16 salesperson for the sale of any individual policy, the payments may continue as 17 residuals based on the clients actions in continuing paying premiums and not any 18 additional work of the salesperson. The calculations by Mr. Gard are correct in 19 including subtractions for residual payments that do not result from work activity, as 20 the SSA assistant director and witness Barbara Jackson believed in error. 21
Furthermore, the conclusions of Ms. Jackson and the assistant director are

22 contrary to what the SSA representative told Mr. Gard in his investigation (whether 23 they count depends on the circumstances), what the SSA representatives told Bond 24 before the search warrant of his house and tape recorded phone calls were taken. (RT 25 26 27 28
1. Decline to offer that coverage to, or deny enrollment of, that individual. 2. Impose any preexisting condition exclusion for that coverage." A.R.S. § 20-1379 (A).

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1 3/5/05 34, 46). 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11
/Timothy C. Holtzen Timothy C. Holtzen Attorney for Defendant CONCLUSION Based on the foregoing, the defendant moves this Court to Grant a new trial. RESPECTFULLY SUBMITTED this 21 st day of February 2006.

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