AMBRO, Circuit Judge.
Table of Contents
I. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 A. Richard Stadtmauer and the Kushner Companies. . . . . . . . . . . . . . . . . . 242 B. The Other Players. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .242 C. The Alleged Conspiracy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 1. The General Ledgers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 i. Charitable Contributions. . . . . . . . . . . . . . . . . . . . . . . . 244 ii. "Non-Property" Expenses. . . . . . . . . . . . . . . . . . . . . . . . .244 iii. Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . 245 iv. Gift and Entertainment Expenses. . . . . . . . . . . . . . . . . . . . 245 2. KC's Internal Financial Statements. . . . . . . . . . . . . . . . . . . . . .245 3. SSMB's Preparation of the Partnerships' Tax Returns. . . . . . . . . . . . . 246 D. Evidence of Stadtmauer's Knowledge. . . . . . . . . . . . . . . . . . . . . . . 247 1. "Thursday Meetings". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 2. "Richard Specials" and Other Special Financial Statements. . . . . . . . . . 248 3. Other Circumstantial Evidence of Stadtmauer's Knowledge of Tax Law and Consciousness of Guilt. . . . . . . . . . . . . . . . . . . . . . . 249 i. Rationale for Private School Tuition Payments. . . . . . . . . . . . . . .249 ii. The 1996 IRS Audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 iii. Dissenting Limited Partners and Executives. . . . . . . . . . . . . . . . 250 E. The Verdict and Stadtmauer's Post-Verdict Motions. . . . . . . . . . . . . . . .251 II. Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .252 III. Discussion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .252 A. Willful Blindness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .252 1. Whether the District Court's Willful Blindness Instruction Applied to Stadtmauer's Knowledge of the Law. . . . . . . . . . . . . . . . . . . . . . . .252 2. Willful Blindness and Cheek. . . . . . . . . . . . . . . . . . . . . . . . . . . 254 3. Whether the District Court's Willful Blindness Instruction Applied to the Element of Specific Intent. . . . . . . . . . . . . . . . . . . . . . . . . 258 4. Whether Trial Evidence Warranted the Willful Blindness Instruction. . . . . . . 259 B. Lay Opinion Testimony. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .260 1. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .260 2. Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .262 C. Prosecutorial Misconduct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 D. Expert Testimony. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 E. Restrictions on Cross-Examination. . . . . . . . . . . . . . . . . . . . . . . . . .271
Following a two-month jury trial in the District Court for the District of New Jersey, Richard Stadtmauer was convicted of one count of conspiracy to defraud the United States (in violation of 18 U.S.C. § 371), and nine counts of willfully aiding in the filing of materially false or fraudulent tax returns (in violation of 26 U.S.C. § 7206(2)). On appeal, Stadtmauer raises many challenges to these convictions. We deal principally with the issue Stadtmauer raises last: whether the District Court erred in giving a willful blindness instruction in this case, including whether the Supreme Court's decision in Cheek v. United States, 498 U.S. 192, 111 S.Ct. 604,
112 L.Ed.2d 617 (1991), forecloses the possibility that willful blindness may satisfy the legal knowledge component of the "willfulness" element of criminal tax offenses. We join our sister circuit courts in concluding that Cheek does not prohibit a willful blindness instruction that applies to a defendant's knowledge of relevant tax law. We reject also Stadtmauer's other claims of error, and thus affirm.
I. Background
"As required when reviewing convictions, we recite the relevant facts in the light most favorable to the [G]overnment." United States v. Leo, 941 F.2d 181, 185 (3d Cir. 1991).
A. Richard Stadtmauer and the Kushner Companies
This criminal case stemmed from an investigation of Charles Kushner, a prominent real estate entrepreneur, political fundraiser, and philanthropist in New Jersey. Kushner controls hundreds of limited partnerships, each of which owns and manages a single commercial or residential property. Kushner is the general partner of each partnership and, for most, his siblings (including his brother, Murray Kushner) and their children are the other limited partners. These partnerships have collectively operated under the name "Kushner Companies" ("KC"). KC is not a registered entity and does not own any properties.
We use "Kushner" throughout this opinion to refer only to Charles Kushner.
For descriptive purposes, however, we refer to KC hereafter as if it were an entity.
In the mid-1990s, Charles and Murray Kushner accused each other of taking more than his fair share out of their common businesses. During the course of the ensuing civil litigation, Murray alerted federal authorities to potential misconduct by his brother and KC. Following an investigation, Kushner pled guilty in 2004 to, among other things, assisting in the filing of false partnership tax returns and federal campaign contribution offenses.
During the course of its investigation of Kushner, the Government indicted several other individuals, including Stadtmauer — a Certified Public Accountant, a law school graduate, and Kushner's brother-in-law. He became an employee of KC in 1985, and eventually rose to become an executive vice president. In this role, Stadtmauer oversaw the operations of KC's residential and commercial properties. Stadtmauer also held a small stake (between 1% and 7%) in many of KC's partnerships. Stadtmauer and Kushner held equal interests (50% each) in Westminster Management, an entity which collected management fees from the other partnerships.
B. The Other Players
Several former KC executives testified against Stadtmauer at trial, including: (1) Chief Financial Officer ("CFO") Stanley Bentzlin; (2) Chief Operations Officer ("COO") Scott Zecher; and (3) Alan Lefkowitz, who succeeded Bentzlin as CFO in 2000. Of these three, only Zecher was indicted.
He pled guilty to conspiring to defraud the United States.
KC employed the accounting firm of Schonbraun, Safris, McCann, Bekritsky Company, LLC ("SSMB") as its main "outside" accountant. The lead SSMB accountant for KC matters was Marci Plotkin, who served as KC's CFO in the early 1990s before returning to SSMB. Though Plotkin was technically an employee of SSMB, KC reimbursed SSMB for yearly bonuses it paid to Plotkin and certain of Plotkin's salary increases, and reimbursed Plotkin for the cost of her son's private school tuition. Kushner did not heed Bentzlin's warning that paying Plotkin a bonus would impair her independence and preclude SSMB from issuing financial statements on behalf of KC partnerships.
In the late 1990s, Kushner briefly replaced SSMB with the accounting firm of Richard Eisner Company. Kushner agreed to hire Eisner Company on the condition that it hire Plotkin as its lead accountant for KC matters. Eisner Company agreed to hire Plotkin, but shortly thereafter Kushner decided to re-hire SSMB (after SSMB agreed to re-hire Plotkin).
KC funneled to Plotkin (through SSMB) bonus payments of $15,000 in 1996, $20,000 in 1997, and $25,000 in 1998. (App.2823-24.)
Marci Plotkin was assisted by (among others) SSMB partner Stanley Bekritsky and Anne Amici, a staff accountant who worked almost exclusively on KC matters. Plotkin, Bekritsky, and Amici were indicted along with Stadtmauer and each pled guilty to conspiring to defraud the United States. Of these three, only Bekritsky testified at Stadtmauer's trial.
C. The Alleged Conspiracy
The Government charged that Stadtmauer, Bekritsky, Plotkin, and Amici conspired to file false or fraudulent tax returns for the 1998-2001 tax years for Westminster Management and eleven other KC limited partnerships: "Oakwood Garden Developers," "Elmwood Village Associates," "Pheasant Hollow," "QEM," "Mt. Arlington," and six partnerships with variations of the name "Quail Ridge." The Government alleged that these partnerships fraudulently claimed four categories of expenditures as fully deductible business expenses on their tax returns: (1) charitable contributions, which generally are not deductible as business expenses; (2) expenditures incurred by one partnership but paid by a different partnership (known as "non-property" expenses); (3) capital expenditures, which generally must be amortized and depreciated over the life of the relevant asset (and thus are not immediately deductible in full); and (4) gift and entertainment expenses, which generally are not fully deductible as business expenses.
The Internal Revenue Code provides that an expenditure is fully deductible as a business expense if it: "(1) was paid or incurred during the taxable year; (2) was for carrying on a trade or business; (3) was an expense; (4) was a necessary expense; and (5) was an ordinary expense." Neonatology Assocs., P.A. v. Comm'r, 299 F.3d 221, 228 (3d Cir. 2002) (citing I.R.C. § 162(a)).
A partnership does not, itself, pay taxes. "Instead, the partners claim a pro-rata share of the partnership's profits and losses and each pays tax on his share." Kantor v. Comm'r, 998 F.2d 1514, 1517 n. 1 (9th Cir. 1993). However, partnerships are still required to file income tax returns.
[F]or the purpose of computing income and deductions, "the partnership is regarded as an independently recognizable entity apart from the aggregate of its partners." It is only once the partnership's income and deductions are ascertained and reported that its existence may be disregarded and the partnership becomes a conduit through which the taxpaying obligation passes to the individual partners.
Brannen v. Comm'r, 722 F.2d 695, 703 (11th Cir. 1984) (quoting United States v. Basye, 410 U.S. 441, 448, 93 S.Ct. 1080, 35 L.Ed.2d 412 (1973)).
The Government's theory was that these four types of expenditures were fraudulently deducted in full as ordinary business expenses on the partnerships' tax returns through a three-step process. First, the expenses were logged in each limited partnership's general ledger via a computer-based accounting program that broke down all revenue and expenses into categories called "accounts." Second, KC used the general ledgers to prepare internal financial statements that automatically categorized these four types of expenditures as "expenses." Finally, SSMB used the general ledgers and internal financial statements to prepare external financial statements and tax returns for each partnership that falsely claimed these four categories of expenditures as fully deductible business expenses.
To illustrate, below we discuss primarily the 2000 tax return for one of the limited partnerships, Elmwood Village Associates ("Elmwood Village").
1. The General Ledgers
i. Charitable Contributions
Kushner and Stadtmauer frequently directed that charitable contributions be paid out of partnership funds, which were logged into the general ledger under the "contributions" account. In 2000, Elmwood Village paid approximately $186,000 to various charitable organizations, including donations to the Suburban Torah Center — the "personal synagogue" of Kushner and Stadtmauer — and to the Center's Rabbi, Stadtmauer's "rabbinical advisor." (App.2846-47.)
Also logged under the "contributions" account were donations made to various political campaigns and political action committees, and $25,384 in private school tuition payments for Zecher's and Plotkin's children. Because the latter payments were logged as partnership expenses (rather than entered into the payroll system as taxable income), no taxes were withheld and no Form 1099 was issued to Zecher or Plotkin. Zecher testified that he generally left the descriptions blank on the checks for tuition payments because "[t]here was nothing [he] really could write. It was not an appropriate business expense." ( Id. at 2817.)
ii. " Non-Property" Expenses
Whenever a particular KC partnership incurred an expense that it could not satisfy out of its current funds, Kushner would direct that a different partnership pay the expense. He referred to this practice as "losing a bill," and it was a regular agenda item for upper-level management meetings held every Tuesday (referred to as "Tuesday Meetings" or "Cash Meetings"). Typically, either Kushner, the CFO, or the controller chose the source of payment; in other instances, Kushner directed Stadtmauer to choose which partnership would pay the expense. Zecher testified that it was Kushner's view that an expense could be paid by any partnership that he controlled. Sometimes Kushner would tell Zecher that the partnership actually paying the expense "didn't matter because it was all family." ( Id. at 3116.)
For example, in 1998 various KC partnerships paid more than $1 million in expenses associated with the renovation of KC's central office building in Florham Park, New Jersey. Kushner directed Bentzlin to have several different partnerships, on a rolling basis, pay portions of the total expenses incurred as a result of the renovations. These expenditures were logged in the partnerships' respective general ledgers under the "repairs and maintenance" account. Eventually, Kushner instructed Bentzlin to review with Stadtmauer the list of all bills due for the renovation work, and directed Stadtmauer to "instruct [Bentzlin] on how to lose it," Le., to choose "what entity to pay it out of." ( Id. at 2130.)
The building is owned by "Florham Park Associates," a limited partnership controlled by Kushner and his children.
In addition to one partnership paying another partnership's expenses, KC partnerships also paid for expenses that had no relation to any partnership's business. In 2000, Elmwood Village paid approximately $30,000 in "non-property" expenses that were booked to various general ledger accounts, including "advertising," "seminars," "legal fee-other," and "other professional fees." This amount included (among other things): (1) $10,000 paid to a consulting firm to research the viability of a comeback by then-former Israeli Prime Minister Benjamin Netanyahu; (2) $10,000 toward a $100,000 fee to pay Mr. Netanyahu to speak at a breakfast sponsored by NorCrown Bank (an entity not affiliated with KC in which Kushner held an interest); and (3) $3,815 toward a $50,000 fee to pay former Chairman of the Federal Reserve Paul Volcker to speak at another NorCrown Bank event.
iii. Capital Expenditures
From 1998 through 2001, various KC partnerships purchased capital assets and made capital improvements to their properties. In general, these expenses were logged in the partnerships' general ledgers under the "repairs and maintenance" account rather than the capital expenditures account. As Lefkowitz explained at trial, "[t]here [were] a few instances where things might have been capitalized, but as a general rule . . . everything went through expenses." ( Id. at 2604.) Bentzlin explained that, although each general ledger had a capital improvement "account," capitalizing assets "wasn't the way it was done at Kushner Companies." He added that
[w]e regularly and routinely expensed [capital assets] under one of the repairs and maintenance or capital improvement accounts . . . [;] that was the way they were doing it upon my arrival, and it didn't change throughout my tenure with a few — just with a few exceptions.
. . .
. . . You didn't question it. You know, it was ruled with an iron fist. They controlled pretty much everything.
( Id. at 2190.)
In 2000, Elmwood Village spent $269,323 on improvements that allegedly should have been capitalized, which included adding new bathrooms and kitchens to apartments — including new cabinets and $49,318.40 worth of new appliances (such as washers and dryers) — and a new truck (for $25,126). All of these expenses were logged in the partnership's general ledger under the "repairs and maintenance" general ledger account rather than a capital account.
iv. Gift and Entertainment Expenses
Kushner and Stadtmauer frequently directed various partnerships to pay gift and entertainment expenditures that had no specific connection with the partnership paying the expense. In 2000, Elmwood Village paid: (1) $12,640 to cater a brunch at the New Jersey Performing Arts Center; (2) $7,027 to a wine store for alcohol delivered to Kushner's and Stadtmauer's private homes during the holidays; (3) $5,905.23 to cater a fundraiser for former New Jersey Governor Jon Corzine; and (4) thousands of dollars for New York Yankees, New York Mets, and New Jersey Nets season tickets. Each of these expenditures was logged in Elmwood Village's general ledger under a "miscellaneous," "gifts/entertainment," or "travel" account.
2. KC's Internal Financial Statements
KC used the general ledgers to generate internal financial statements for each partnership. The accounting template (or "skeleton") used to produce these statements automatically grouped certain accounts from the general ledgers — including the "contributions," "gifts/entertainment," "miscellaneous," and "seminars" accounts — under the category of "office expenses." In addition, the "legal fee-other" and "other professional fees" accounts were grouped under the category of "payroll and related expenses." Each of these categories — in addition to the "advertising" and "repairs and maintenance" categories — were, in turn, grouped under the general category of "expenses," and thus deducted in full from the partnership's revenue on the internal financial statement. This violated applicable accounting standards, which required the partnerships' financial statements to be prepared on an income tax basis.
Included in the "repairs and maintenance" group were the "apartment renovations" and "building improvement" accounts which, as Zecher explained, included, respectively, "capital improvements made to apartments" and "capital improvements made to the general property, [e.g.,] the outside of the buildings, the roofs, paving parking lots, things like that," ( Id. at 2923.)
Bentzlin and Bekritsky believed that Plotkin had configured the software before she left KC, but neither was sure. ( Id. at 2341, 3292.)
3. SSMB's Preparation of the Partnerships' Tax Returns
SSMB used KC's general ledgers and internal financial statements to prepare external financial statements for each partnership. KC would submit a "Management Representation Letter" to SSMB along with its financial statements, in which KC management certified that "[t]here are no material transactions that have not been properly reflected in the financial statements." Stadtmauer signed most of these representation letters. KC also provided SSMB with the template it used to prepare its internal financial statements.
In preparing the partnerships' external financial statements and tax returns, SSMB used the groupings applied by KC's internal accounting software. Thus, the 2000 internal and external financial statements for Elmwood Village reflected virtually identical amounts for "office expenses" and "repairs and maintenance." As Bekritsky testified, the tax returns were prepared "on the same basis" as the partnerships' financial statements, meaning that "if [something is] deducted on the financial statement, it is deducted on the tax return and produces income or increases the loss of the partnership." ( Id. at 3218.)
Elmwood Village's 2000 tax return deducted a total of $496,713 in ordinary and necessary business expenses (on lines 3 through 15 of Form 8825, entitled "Rental Real Estate expenses"). Included in this amount was $211,885 in charitable contributions, political donations, and tuition payments (for, among others, Plotkin's and Zecher's children). (Line 8 of Schedule K to the return — where partnerships are required to list charitable contributions — was left blank.) The "non-property," and gift and entertainment, expenses incurred by Elmwood Village in 2000 were similarly claimed as fully deductible business expenses (instead of listed separately as required on Schedule M-l). Finally, Elmwood Village reported no increase in capital assets in 2000. Rather, $269,323 in alleged capital expenditures were included in the $347,939 reported as "repairs" (on line 10 of Form 8825), while other alleged capital expenditures were spread among various items in Statement 10 of Schedule M-2 (entitled "Other Rental Expenses").
Bekritsky explained that this was done so that amounts reported for repairs and maintenance "wouldn't stick out on the return[s]." ( Id. at 3261.) Bekritsky admitted that he knowingly prepared and filed false tax returns on behalf of KC partnerships to avoid losing a valuable account. ( Id. at 3352.)
Around March or April of each year, Stadtmauer met with KC's CFO and someone from SSMB — usually Plotkin, and infrequently Bekritsky — to review and sign the KC partnerships' tax returns. During these sessions, Stadtmauer sometimes reviewed SSMB's financial statements for the partnerships; indeed, he refused to "sign a tax return unless he had the financial statements next to him." ( Id. at 2958.) He would "flip through" each return, "look at certain things, and then sign it." ( Id. at 2194.) Stadtmauer only occasionally asked questions about the returns, and typically spent "30 seconds to a minute" on each. ( Id. at 2283.) However, he spent more time on KC's major properties, particularly those that had large annual increases in "repairs and maintenance" expenses. ( Id. at 2958.)
Stadtmauer reviewed and signed as many as 800 tax returns in a given day. Stadtmauer signed each of the partnerships' tax returns below a legend declaring, "[u]nder penalties of perjury," that he had "examined th[e] return, including accompanying schedules and statements," and that, to the best of his knowledge, the return was "true, correct, and complete." ( E.g., Supp.App. 937.) Stadtmauer signed each return in his capacity as Vice-President of the corporate general partner; as Bentzlin and Zecher testified, Stadtmauer believed that by doing so he would protect himself from personal liability. (App.2209, 2903.)
The Government alleged that, from 1998 through 2001, the twelve KC partnerships identified in the indictment claimed more than $6 million in improper deductions. Capital expenditures that were deducted in full the year they were incurred accounted for more than half of this amount.
D. Evidence of Stadtmauer's Knowledge
To establish that Stadtmauer "willfully" aided in the preparation of materially false or fraudulent tax returns — as required for a violation of 26 U.S.C. § 7206(2) — the Government was required to prove beyond a reasonable doubt that he voluntarily and intentionally violated "a known legal duty." United States v. Pomponio, 429 U.S. 10, 12, 97 S.Ct. 22, 50 L.Ed.2d 12 (1976). Whether Stadtmauer had knowledge that the deductions claimed on the partnerships' tax returns were materially false or fraudulent was the critical issue at trial.
26 U.S.C. § 7206(2) makes it a crime to [w]illfully aid[] or assist[] in, or procure[], counsel[], or advise[] the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document[.]
At trial, Bentzlin, Zecher, and Bekritsky each testified that they never discussed with Stadtmauer the falsity of any particular deduction or tax return. Accordingly, the Government sought to meet its burden of proving that Stadtmauer acted "willfully" through various forms of circumstantial evidence (some of which have already been discussed), including: (1) evidence of Stadtmauer's intimate familiarity with the partnerships and how their general ledgers were maintained; (2) evidence that Stadtmauer made decisions on how to treat partnership expenses in the past with tax consequences in mind; and (3) other evidence suggestive of a consciousness of guilt, e.g., evidence that Stadtmauer was aware that the partnerships were making improper expenditures.
1. " Thursday Meetings"
In addition to the "Tuesday Meetings" that Stadtmauer regularly attended, for many years he ran weekly "Thursday Meetings" with the limited partnerships' property managers, as well as KC's in-house counsel, controller, Bentzlin, and sometimes Plotkin. The purpose of each meeting was to conduct an in-depth review of one or two KC properties. The managers prepared presentation packages that showed the partnerships' actual expenses to date. Stadtmauer went through the presentations "line by line," and asked "specific" questions about each. (App. 2641.) According to Zecher, "there was nothing [Stadtmauer] didn't see fit to get involved with in property management," and he was "one of the brightest people [that Zecher had] ever met." ( Id. at 2836.)
Stadtmauer led these meetings until early 1999, when another KC executive began running them. (App.2701.)
In 1996, certain property managers started using special letter codes on their general ledgers to identify "non-property" expenses paid for by their respective partnerships. The codes allowed property managers to identify those expenses more easily and exclude them from their Thursday Meeting presentations. According to Bentzlin, the property managers were hesitant to answer Stadtmauer's questions about such expenses during Thursday Meetings (previously listed as "miscellaneous" expenses on the presentations), because they knew the expenses were for expenses "paid out of other properties," and "didn't want to blurt it out in front of a roomful of people." ( Id. at 2150.)
Stadtmauer was "quite unhappy" when he learned of the codes, and directed his subordinates to end the practice. ( Id. at 2186.) Stadtmauer and Bentzlin ultimately decided to lump non-property expenses together under a category called "other." Doing so obviated the need for Stadtmauer to "interrogate or continue to question the property manager as to the nature of those expenditures" during Thursday Meetings, and made it easier during Tuesday Meetings to "figure out [how] the apartment complex on its own was really operating." ( Id. at 2185-86.) In addition, Stadtmauer directed that KC's accounting software be modified "to allow somebody to go in and change [existing] descriptions within the general ledger." ( Id. at 2187.)
Stadtmauer also frequently instructed his subordinates to omit descriptions in check requests to avoid leaving a "trail" when KC "used one property to pay another property's expenses." ( Id. at 2628.) He admonished Zecher to "never put the descriptions in," because he "d[idn't] want the descriptions [to show up] in the ledger." ( Id. at 2855.) Stadtmauer also "reminded [Zecher,] over and over, [to] be careful what [he] put in e-mails. E-mails never disappear." ( Id. at 2858.)
2. " Richard Specials" and Other Special Financial Statements
In certain circumstances, Stadtmauer directed that special financial statements for the partnerships be prepared for banks and other entities. These were known as "Richard Specials." These special financial statements were often prepared when KC wanted to reduce outstanding letters of credit on particular properties. Stadtmauer would direct that "negative items" that tended to depress the partnership's profitability be removed from these statements, such as capital expenditures (that had been logged as "repair and maintenance" expenses) and "non-property" expenses. ( Id. at 2077-78.) To prepare these statements, Stadtmauer was given a "detailed report" of the partnership's general ledger, which he would go through line by line and indicate the items to be removed for the financial statement. ( Id. at 2077.) KC prepared both internal and external versions of every "Richard Special"; the internal version revealed the adjustments made, while the external version showed only the final numbers after adjustments. ( Id. at 2225.)
The first time Stadtmauer asked Bentzlin to create a "Richard Special," Bentzlin objected and told Stadtmauer that he "didn't think it was the right thing to do" because they "would be sending different financial out other than the ones prepared by the accountant." ( Id. at 2079.) Stadtmauer argued it would be proper because they would call it a "statement from operations" (as opposed to a "statement of operations"), supposedly making clear that it wasn't a true financial statement. ( Id. (emphasis added).) Bentzlin told Stadtmauer he thought the justification was "ridiculous," and though Bentzlin ultimately agreed to prepare the "Richard Specials," he "didn't want [them] ever to go out with [his] name on [them]." ( Id.)
Similar to the "Richard Specials," SSMB often prepared special supplemental schedules, listing various non-property expenses and capital improvements, that were attached to the partnerships' financial statements. These supplemental schedules were called "Schedules of Non-Recurring Expenses," but were unofficially referred to as "Schonbraun Specials." However, as Bentzlin explained at trial, these "non-recurring" expenses were essentially "non-recurring every year," and he feared that KC was "giving the Government a road map "on how to discover, in the event of an audit, expenses that were being improperly deducted on the tax returns. (App.3255.) After Bekritsky raised his concerns to Plotkin, SSMB ended the practice. ( Id.)
Similar to "Richard Specials," on several occasions KC prepared special financial statements in connection with potential acquisitions and joint ventures. For example, in 1995 certain lenders agreed to finance KC's acquisition of Elmwood Village, provided that KC would commit to making $1.5 million in capital improvements to the property and secure a $1.6 million letter of credit. These expenditures were entered, as usual, under non-capital accounts on the partnership's general ledger. At the end of the year, however, KC decided to capitalize the items on the partnership's financial statement "to get the letter of credit cancelled." ( Id. at 2348.) This decision was made during a Tuesday "Cash Meeting" in which Stadtmauer participated.
Elmwood Village's 1996 tax return accurately reported almost $1 million in capital improvements. After the letter of credit was cancelled, however, KC "went back to the usual procedures of expensing those types of expenditures." ( Id. at 2210.) Elmwood Village did not capitalize any expenditures after 1996, and its post-1996 returns treated the 1996 renovations that had been capitalized as fully deductible repairs.
Similarly, in 2000 KC paid $280 million to acquire a company called WNY, which owned approximately 40 properties in New Jersey, Pennsylvania, Maryland, and Delaware. KC was required to obtain a $40 million letter of credit in connection with the acquisition. Stadtmauer, Plotkin, and Zecher had a "very detailed meeting" on how they would "do the accounting for the WNY properties." ( Id. at 2967.) They agreed that they would "capitalize everything and anything [they] could, instead of expensing it, like [they] always did in the other properties." ( Id.) Zecher testified that Stadtmauer was "convinced, because the transaction was so large, and the $40 million [in] letters of credit were so unusual for [KC], that the banks were going to come in and look at not only the tax returns, but . . . the actual books and records." ( Id.)
When the letters of credit were removed, Plotkin asked whether she should expense the capitalized items. Zecher responded that he and Stadtmauer had determined that the financial statements would "look very weird" if they stopped capitalizing. ( Id. at 2970-71.)
3. Other Circumstantial Evidence of Stadtmauer's Knowledge of Tax Law and Consciousness of Guilt
i. Rationale for Private School Tuition Payments
As noted, for several years KC paid the private school tuition for, among other KC employees, Plotkin's and Zecher's children. Zecher testified that Stadtmauer came up with the idea of paying the tuition directly to the school instead of increasing Zecher's year-end bonus by that amount. ( Id. at 2824.) Stadtmauer told Zecher that he was "trying to be nice" by paying the tuition directly to the school, which would allow Zecher to avoid thousands of dollars in additional income taxes. ( Id.)
ii. The 1996 IRS Audit
In 1996, the Internal Revenue Service ("IRS") audited the tax returns for two KC partnerships, focusing on the large deductions taken for repairs (including $850,000 to reconstruct a building's facade, which was deducted in full as a business expense). The IRS ultimately issued "no change" letters. Following the audit, however, Plotkin sent a letter to Bentzlin — on which Stadtmauer was copied — instructing Bentzlin to change the word "improvements" to "repairs" in the "tenant improvements," "apartment renovations," and "building improvements" general ledger accounts. ( Id. at 2269-70.) Bentzlin believed the purpose was to make these categories appear as if they contained repair and maintenance expenditures rather than "potentially a capital improvement type item." ( Id. at 2270.)
iii. Dissenting Limited Partners and Executives
In addition to the Kushner family and Stadtmauer, there were other individuals who held interests in various KC partnerships. As Zecher testified at trial, many of these individuals made repeated requests for information regarding the financial state of their partnership interests. In many instances, Stadtmauer and Kushner ordered Zecher to refuse those requests.
In one instance, a partner of a KC partnership named "K F Clinton" inquired as to certain political contributions made by that partnership and attributed to him. ( Id. at 2891.) The partner denied he had ever authorized the contributions, and noted that, "had [he] been informed of the intention to make political contributions, [he] would have advised that such political contributions were inappropriate and [he] would have demanded that they not be made from K F" funds. ( Id. at 2892.) He further noted that "[n]othing in the partnership agreement authorized the disbursement of K F funds for any unrelated purpose." ( Id. at 2892-93.) Zecher got similar responses from several other partners. ( Id. at 2893.)
Another limited partner — Stanley Greenberg — "constantly" had difficulty obtaining annual financial statements for the partnerships in which he had an interest. ( Id. at 3356.) When he finally obtained and examined the partnerships' financial statements for a prior three-year period, "it was obvious [to him] that the expenses [claimed for] run[ning] the[] properties were way out of line." ( Id.) Among other things, Greenberg noticed that the partnerships in which he had an interest had treated capital expenditures as ordinary expenses, and had made numerous charitable contributions to Kushner's and Stadtmauer's synagogues, as well as political contributions. ( Id. at 3363.)
Though Greenberg also requested the partnerships' genera] ledgers, he never received any. ( Id. at 3358.)
When Greenberg expressed his concerns to Kushner, the latter told him that "if you don't like it, I will give you your money back." ( Id. at 3358.) Greenberg also had conversations with Stadtmauer, both in person and by phone, regarding the improper expenses being paid by the partnerships, and asked Stadtmauer to "stop [KC from] doing what they were doing." ( Id.) Though he offered no "excuse . . . or any explanation" for the expenses, Stadtmauer rejected Greenberg's request, explaining that "that was the way they did business." ( Id.) Following these conversations, KC attempted to buy out Greenberg's interests in the partnerships.
In addition to these dissenting limited partners, the Government also introduced testimony that KC executives were expected not to challenge KC's accounting practices. As Bentzlin explained, "[y]ou had to do pretty much as you were told [at KC]. [Stadtmauer] and [Kushner] often would throw tirades at any number of the meetings on a regular routine basis or in the office, you know, that you really didn't have latitude to make any changes." ( Id. at 2190.)
Former CFO Alan Lefkowitz learned this lesson the hard way. In early 2001, he e-mailed Kushner to ask whether he should follow the past practice of paying a bill for a Mikvah (a Jewish ritual) with funds from one of the partnerships. Kushner was furious, and admonished Lefkowitz that he "should never write something like th[at] down." ( Id. at 2613.) According to Zecher, Kushner was angry that Lefkowitz had "put[] in an e-mail in writing that [KC was] paying bills for a . . . not-for-profit project out of . . . for-profit properties." ( Id. at 2858.) Kushner printed out the e-mail and hand-wrote: "This guy is a definite Moron. We must deal with the situation." Kushner forwarded a copy of the e-mail (bearing his hand-written note) to Stadtmauer, and it was later discussed among upper-level management. Stadtmauer later told Zecher: "This is a stupid thing to do and you better make sure this guy doesn't do it again." ( Id.)
Lefkowitz was eventually barred from Tuesday Meetings and later resigned. He believed that management (including Stadtmauer) had concluded that he was not a "team . . . player," i.e., was "not willing to go along with what they want[ed] to do." ( Id. at 2613.)
E. The Verdict and Stadtmauer's Post-Verdict Motions
Following a two-month trial, the jury convicted Stadtmauer of one count of conspiracy and nine counts of aiding in the willful filing of materially false or fraudulent partnership tax returns. The District Court denied Stadtmauer's motions for a judgment of acquittal and to dismiss the indictment. In February 2009, the District Court sentenced him to 38 months' imprisonment. He timely appealed.
We note that Stadtmauer chose not to put on a defense.
The jury acquitted Stadtmauer of six counts of aiding in the willful filing of false or fraudulent tax returns (Counts Six through Eleven), which corresponded to the 1999-2000 tax returns for three of the Quail Ridge partnerships. As the Government notes, a question asked by the jury during its deliberations suggests that it acquitted Stadtmauer on these counts because it was unable to locate a piece of evidence explaining how expenses from Quail Ridge's unitary general ledger were apportioned among the three specific Quail Ridge partnerships ( i.e., "8 Quail Ridge," "9 Quail Ridge," and "10 Quail Ridge").
Stadtmauer moved before trial to dismiss the indictment to the extent it was based on the failure to capitalize expenditures, arguing that the law on capitalization is vague and uncertain. The District Court deferred ruling on the motion, concluding that "[a] determination of whether the tax laws in question are vague and uncertain necessarily involves a fact sensitive analysis." ( Id. at 86.) The Court denied the motion after trial, and Stadtmauer does not challenge that ruling on appeal.
II. Jurisdiction
The District Court had jurisdiction under 18 U.S.C. § 3231. We have appellate jurisdiction under 28 U.S.C. § 1291.
III. Discussion
Stadtmauer contends that (1) the District Court erred in giving a willful blindness instruction to the jury; (2) the Court improperly admitted prejudicial lay opinion testimony by a Government witness; (3) the prosecutor violated his obligation to correct false testimony by a Government witness; (4) the Court improperly allowed an IRS agent to testify as an expert witness; and (5) the Cour U.S. 643, 655, 81 S.Ct. 1684, 6 L.Ed.2d 1081 (1961), guarantees, "[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized." U.S. CONST., amend. IV. The Supreme Court has held that the Fourth Amendment applies to "[s]earches and seizures by government employers or supervisors of the private property of their employees." O'Connor v. Onega, 480 U.S. 709, 715, 107 S.Ct. 1492, 94 L.Ed.2d 714 (1987).
In Payton v. New York, 445 U.S. 573, 100 S.Ct. 1371, 63 L.Ed.2d 639 (1980), the Supreme Court explained that no zone of privacy is more clearly defined than one's home: "[T]he Fourth Amendment has drawn a firm line at the entrance to the house. Absent exigent circumstances, that threshold may not reasonably be crossed without a warrant." Id. at 590, 100 S.Ct. 1371; see Kyllo v. United States, 533 U.S. 27, 28, 121 S.Ct. 2038, 150 L.Ed.2d 94 (2001) (observing that "search of a home's interior" is "the prototypical . . . area of protected activity . . . "); Silverman v. United States, 365 U.S. 505, 511, 81 S.Ct. 679, 5 L.Ed.2d 734 (1961) (observing that "[a]t the very core" of the Fourth Amendment "stands the right of a man to retreat into his own home and there be free from unreasonable governmental intrusion."); see also United States v. Struckman, 603 F.3d 731, 738 (9th Cir. 2010) (recognizing the core of the Fourth Amendment is protection against unreasonable searches of one's home); United States v. Brock, 667 F.2d 1311, 1326 (9th Cir. 1982) (noting that "[o]ne of the foundations of the fourth amendment is the right of the people `to be secure in their . . . houses.'"); cf. New York v. Harris, 495 U.S. 14, 17, 110 S.Ct. 1640, 109 L.Ed.2d 13 (1990) ("[T]he rule in Payton was designed to protect the physical integrity of the home[.]"). Therefore, the warrantless search of a home is presumptively unreasonable unless the government can prove consent or that the search falls within one of the carefully defined sets of exceptions. See Arizona v. Hicks, 480 U.S. 321, 327, 107 S.Ct. 1149, 94 L.Ed.2d 347 (1987); Coolidge v. New Hampshire, 403 U.S. 443, 474-75, 91 S.Ct. 2022, 29 L.Ed.2d 564 (1971). The circumstances which excuse the failure to obtain a warrant are "`few in number and carefully delineated,'" where one's home is concerned. See Welsh v. Wisconsin, 466 U.S. 740, 749, 104 S.Ct. 2091, 80 L.Ed.2d 732 (1984) (quoting United States v. United States District Court, 407 U.S. 297, 318, 92 S.Ct. 2125, 32 L.Ed.2d 752 (1972)).
We note that the Supreme Court recently reemphasized that the "`special needs' of the workplace" constitute an exception to the general rule that warrantless searches "`are per se unreasonable under the Fourth Amendment' . . ." Ontario v. Quon, ___ U.S. ___, 130 S.Ct. 2619, 2630, 177 L.Ed.2d 216 (2010) (citation and internal quotations omitted). In Quon, the Court reviewed a disagreement in O'Connor v. Ortega, 480 U.S. 709, 107 S.Ct. 1492, 94 L.Ed.2d 714 (1987), on the proper analytical framework for Fourth Amendment claims against government employers. Quon, 130 S.Ct. at 2628. Under one approach, representing the plurality opinion in O'Connor, the Court explained the plurality analysis has two steps:
First, because "some government offices may be so open to fellow employees or the public that no expectation of privacy is reasonable,"
id., at 718,
107 S.Ct. 1492, a court must consider "[t]he operational realities of the workplace" in order to determine whether an employee's Fourth Amendment rights are implicated,
id., at 717,
107 S.Ct. 1492 . . . Next, where an employee has a legitimate privacy expectation, an employer's intrusion on that expectation "for noninvestigatory, work-related purposes, as well as for investigations of work-related misconduct, should be judged by the standard of reasonableness under all the circumstances."
Id. (quoting O'Connor, 480 U.S. at 717, 718, and 725-726, 107 S.Ct. 1492). The competing approach, championed by Justice Scalia in his concurrence in O'Connor, "dispensed with an inquiry into operational realities' and would conclude `that the offices of government employees . . . are covered by Fourth Amendment protections as a general matter.'" Id. (quoting O'Connor, 480 U.S. at 731, 107 S.Ct. 1492). Thus, under Justice Scalia's approach, the core inquiry is whether the search would be "regarded as reasonable and normal in the private-employer context." O'Connor, 480 U.S. at 732, 107 S.Ct. 1492. If so, the search does not violate the Fourth Amendment. Id. The Court did not resolve this schism in Quon. Quon, 130 S.Ct. at 2628. The Quon-O'Connor workplace warrant exception, however, has no application here. Although the search at issue in this case arose as a result of a workplace investigation, defendants were not seeking to search Delia's workplace environment, but his home. See Quon, 130 S.Ct. at 2633(concerning search of messages made by police officer on government owned alphanumeric pager); O'Connor, 480 U.S. at 712-13, 107 S.Ct. 1492 (concerning search of physician's state office and seizure of personal items from his desk and filing cabinet). Moreover, even if the Quon-O'Connor workplace warrant exception was applicable to the search here, the search was unreasonable under either the O'Connor plurality or Justice Scalia's approach. Under the O'Connor plurality approach, the search here was unjustified from the start because there were no reasonable grounds for believing that a search for the insulation was necessary for the investigation. Delia was being investigated for abuse of sick leave. However, no activity restrictions were ever placed on Delia by his treating physician as a result of his workplace exposure to the hazardous substances. Consequently, whether or not he installed insulation in his home was irrelevant to the investigation, since he could install insulation in his home and still be in full compliance with his physician's orders. For these same reasons, we also conclude that the search would fail to satisfy Justice Scalia's approach because it would not be "regarded as reasonable and normal in the private-employer context." O'Connor, 480 U.S. at 732, 107 S.Ct. 1492.
In this case, defendants initially attempted to conduct a warrantless search of Delia's house for the insulation by asking for Delia's consent. Presumably, this is because a search conducted with the home owner's voluntary consent is an exception to the Fourth Amendment's proscription on warrantless searches. Schneckloth v. Bustamonte, 412 U.S. 218, 219, 93 S.Ct. 2041, 36 L.Ed.2d 854 (1973); United States v. Rubio, 727 F.2d 786, 796 (9th Cir. 1983). Filarsky asked Delia to consent to allowing Peel to search for the insulation. Delia, however, refused to consent. Unable to obtain Delia's consent to a warrantless search of his house by Peel, Filarsky tried a different tactic. He sought to obtain Delia's consent to Delia bringing the rolls of insulation out of his home to show Peel that they had not yet been installed. No doubt this was done because an individual does not have an expectation of privacy in items exposed to the public, thereby eliminating the need for a search warrant. See Katz v. United States, 389 U.S. 347, 351, 88 S.Ct. 507, 19 L.Ed.2d 576 (1967) ("[T]he Fourth Amendment protects people, not places. What a person knowingly exposes to the public, even in his own home or office, is not a subject of Fourth Amendment protection."); see also United States v. Broadkurst, 805 F.2d 849, 856(9th Cir. 1986) ("What a person knowingly exposes to public view is not protected by the Fourth Amendment"). Delia, however, again rejected Filarsky's request.
Unable to obtain Delia's consent to search his home, and alternatively, failing to persuade Delia to voluntarily retrieve the insulation from his home and place it in public view on his front lawn, Filarsky was stymied. It was only at this juncture that Filarsky's final move was to hatch a plan to compel Delia to do indirectly what Filarsky and the City of Rialto officials knew they could not directly do without clearly violating the Fourth Amendment. Delia was ordered to go into his house and bring out the rolls of insulation for inspection. He was cautioned at the beginning of his interview that his failure to cooperate with the investigation could result in charges of insubordination and possible termination of his employment. As a result, Chief Wells's order "convey[ed] a message that compliance with [his] re-. quest[][was] required." Florida v. Bostick, 501 U.S. 429, 435, 111 S.Ct. 2382, 115 L.Ed.2d 389 (1991). As this court has recognized in the situation where police demand entrance to a dwelling, "compliance with a [governmental] demand is not consent." United States v. Winsor, 846 F.2d 1569, 1573 n. 3 (9th Cir. 1988) (en banc) (internal quotations omitted). In Winsor, police officers decided to enter a hotel and go from room to room looking for a robbery suspect. Id. at 1571. "When the police knocked on the door [of the defendants' room] and demanded that it be opened," one of the defendants obeyed, at which point, the police officers recognized the suspect as the robber and found evidence of the robbery in plain view. Id. This court found that the defendant had opened the door in response to a claim of lawful authority, not voluntarily. Id. at 1573. Consequently, this court held that "the police did effect a `search' when they gained visual entry into the room through the door that was opened at their command." Id. Similarly, under the facts in this case, Delia was compelled to enter his own home and retrieve the insulation for public view by order of Chief Wells. Delia's actions were involuntary and coerced by the direct threat of sanctions including loss of his firefighter position. Therefore, we hold that the warrantless compelled search of Delia's own home, requiring him to retrieve and display the insulation in public view on his front yard, violated Delia's right under the Fourth Amendment to be free from an unreasonable search of his home by his employer.
It is well established that public employers generally cannot condition employment on an employee's waiver of constitutional rights. See O'Hare Truck Serv., Inc. v. City of North-lake, 518 U.S. 712, 717, 116 S.Ct. 2353, 135 L.Ed.2d 874 (1996); Pickering v. Board of Educ., 391 U.S. 563, 568, 88 S.Ct. 1731, 20 L.Ed.2d 811 (1968); Vance v. Barrett, 345 F.3d 1083, 1092 (9th Cir. 2003); see also McDonell v. Hunter, 809 F.2d 1302, 1310 (8th Cir. 1987) (holding that the state may not require, as a condition of employment, waiver of the Fourth Amendment right to be free from unreasonable searches).
2. Clearly established right
Having found that Delia's Fourth Amendment rights were violated, we turn to the second prong of the qualified immunity inquiry, whether the right was clearly established at the time of the defendants' misconduct. Accordingly, we must focus on what the defendants' knew, or should have known, concerning Delia's Fourth Amendment constitutional rights as of September 18, 2006, the date of Chief Wells's order. Whether a right is clearly established "turns on the `objective legal reasonableness of the action, assessed in light of the legal rules that were clearly established at the time it was taken.'" Pearson, 129 S.Ct. at 822(quoting Wilson v. Layne, 526 U.S. 603, 614, 119 S.Ct. 1692, 143 L.Ed.2d 818 (1999)); see Clouthier v. County of Contra Costa, 591 F.3d 1232, 1241 (9th Cir. 2010); Greene v. Camreta, 588 F.3d 1011, 1031 (9th Cir. 2009). Delia bears the burden of demonstrating that the right allegedly violated was clearly established at the time of the incident. See Greene, 588 F.3d at 1031; Robinson v. York, 566 F.3d 817, 825(9th Cir. 2009), cert. denied, ___ U.S. ___, 130 S.Ct. 1047, — (2010); Galen v. County of Los Angeles, 477 F.3d 652, 665 (9th Cir. 2007). The "contours of the right must be sufficiently clear that a reasonable official would understand that what he is doing violates that right." Anderson v. Creighton, 483 U.S. 635, 640, 107 S.Ct. 3034, 97 L.Ed.2d 523 (1987); see James, 606 F.3d at 652.
This case does not fit neatly into any previous category of Fourth Amendment law. This is best demonstrated by the fact that no party provided any prior case law analogous to this situation. Moreover, until today, this court had not extended Winsor beyond situations where police demand entrance. In attempting to demonstrate that the right allegedly violated was clearly established at the time of Chief Wells's order, Delia cites several cases. These cases include this court's prior decision in Los Angeles Police Protective League v. Gates, 907 F.2d 879 (9th Cir. 1990), as well as the Supreme Court's decisions in Uniformed Sanitation Men Ass'n, Inc. v. Commissioner of Sanitation, 392 U.S. 280, 88 S.Ct. 1917, 20 L.Ed.2d 1089 (1968) and Gardner v. Broderick, 392 U.S. 273, 88 S.Ct. 1913, 20 L.Ed.2d 1082 (1968). A review of these decisions, however, does not demonstrate that Chief Wells's order violated a clearly established right.
Both Supreme Court decisions concern municipal employees who were questioned about corruption in their agencies. In Gardner, the plaintiff, a police officer, was subpoenaed to appear before a New York County grand jury that was investigating bribery and corruption of police officers in connection with gambling operations. Gardner, 392 U.S. at 274, 88 S.Ct. 1913. Although he was informed of his privilege against self-incrimination, the police officer was told that he would be fired if he did not sign a waiver of immunity. Id. After he refused to sign the waiver, he was fired. Id. at 274-75, 88 S.Ct. 1913. The Court held that the plaintiff was discharged "not for failure to answer relevant questions about his official duties, but for refusal to waive a constitutional right. . . . He was dismissed solely for his refusal to waive the immunity to which he is entitled if he is required to testify despite his constitutional privilege." Id. at 278, 88 S.Ct. 1913.
The Court reached an identical conclusion in Uniformed Sanitation Men, decided the same day as Gardner. In Uniformed Sanitation Men, fifteen sanitation workers were summoned to appear at a hearing conducted by a commissioner of investigations. The commissioner was investigating charges that sanitation department employees were not charging certain fees and were keeping other fees for themselves. Uniformed Sanitation Men Ass'n, Inc., 392 U.S. at 281, 88 S.Ct. 1917. Each sanitation employee was told that if he refused to testify "his employment and eligibility for other city employment would terminate." Uniformed Sanitation Men Ass'n, Inc. 392 U.S. at 282, 88 S.Ct. 1917. Twelve workers refused to answer, invoking their privilege against self-incrimination, and were discharged. Id. The remaining three workers answered questions at the hearing. They were subsequently suspended as a result of "information received from the Commissioner of Investigation concerning irregularities arising out of (their) employment in the Department of Sanitation." Id. The three workers were later summoned before a grand jury and asked to sign waivers of immunity. Id. They refused and were fired solely for refusing to sign waivers of immunity. Id. at 282-83, 88 S.Ct. 1917. The Supreme Court held all the discharges unconstitutional, noting that, "[the sanitation workers] were not discharged merely for refusal to account for then-conduct as employees of the city. They were dismissed for invoking and refusing to waive their constitutional right against self-incrimination." Id. at 283, 88 S.Ct. 1917. Thus, in both Gardner and Uniformed Sanitation Men, the Court held that public agencies may not impair an individual's privilege against self-incrimination by compelling incriminating answers, or by requiring a waiver of immunity. See id.; Gardner, 392 U.S. at 278, 88 S.Ct. 1913. Neither case involved the legality of a search under the Fourth Amendment. Accordingly, neither Gardner nor Uniformed Sanitation Men would have put defendants on notice that Chief Wells's order to Delia, with no attendant threat to his employment, constituted a violation of the Fourth Amendment.
Delia also cites this court's decision in Gates. In Gates, a police officer was served with an administrative warrant to search his garage. Gates, 907 F.2d at 883. When the plaintiff refused to permit the search, he was fired for insubordination. Id. Relying on the Supreme Court's decisions in Gardner and Uniformed Sanitation Men, this court held that the plaintiff "could not be disciplined when he refused to allow the appellants to violate his constitutional rights. As the Supreme Court has pointed out, it is not proper to discharge an officer from duty in order to punish that officer for exercising rights guaranteed to him under the constitution." Id. at 886. Thus, the Gates decision did not concern the legality of an actual search, let alone a "search" under circumstances similar to this case. As a result, the Gates decision, like the Supreme Court's decisions in Gardner and Uniformed Sanitation Men, would hardly have put defendants on notice that their conduct here violated the Fourth Amendment. Thus, Delia has not demonstrated that a constitutional right was clearly established as of the date of Chief Wells's order, such that defendants would have known that their actions were unlawful. Accordingly, we affirm the district court's grant of summary judgment in favor of Chief Wells, Peel, and Bekker on the ground of qualified immunity.
B. Qualified Immunity — Filarsky
We next take up the issue of whether Filarsky, too, is entitled to qualified immunity. Unlike the other individual defendants in this case, Filarsky is not an employee of the City. Instead, he is a private attorney, who was retained by the City to participate in internal affairs investigations. Delia contends that Filarsky, as a private attorney, is not entitled to qualified immunity. Filarsky, on the other hand, argues that this is a distinction without a difference. He urges this court to follow the Sixth Circuit Court of Appeals's decision in Cullinan v. Abramson, 128 F.3d 301, 310 (6th Cir. 1997), and hold that he is entitled to qualified immunity. In Cullinan, the Sixth Circuit held that a law firm that had been hired by the City of Louisville to serve as outside counsel was entitled to qualified immunity against plaintiffs' § 1983 claims. Id. The court succinctly concluded: "We see no good reason to hold the city's in-house counsel eligible for qualified immunity and not the city's outside counsel." Id. In arriving at this conclusion, the court of appeals relied exclusively on dictum in Richardson v. McKnight, 521 U.S. 399, 407, 117 S.Ct. 2100, 138 L.Ed.2d 540 (1997), that "the common law ` did provide a kind of immunity for certain private defendants, such as doctors or lawyers who performed services at the behest of the sovereign.'" Cullinan, 128 F.3d at 310.
The hitch in Delia's argument is that we are not free to follow the Cullinan decision. We are "bound by prior panel opinions `unless an en banc decision, Supreme Court decision or subsequent legislation undermines those decisions.'" In re Findley, 593 F.3d 1048, 1050 (9th Cir. 2010) (quoting Nghiem v. NEC Elec. Inc., 25 F.3d 1437, 1441(9th Cir. 1994); Robbins v. Carey, 481 F.3d 1143, 1149 n. 3 (9th Cir. 2007)) ("Ordinarily, panels cannot overrule a circuit precedent; that power is reserved to the circuit court sitting en banc"). In Gonzalez v. Spencer, 336 F.3d 832 (9th Cir. 2003), another panel of this court held that a private attorney representing a county was not entitled to qualified immunity. Id. at 834-35. In Gonzalez, the defendant, a private attorney, was retained to defend Los Angeles County in an underlying civil rights suit brought by the plaintiff. Id. at 834. The attorney accessed the plaintiffs juvenile court file without notifying him and without obtaining authorization from the juvenile court. Id. The attorney employed information from the file in deposing the plaintiff. Id. The plaintiff brought suit against the attorney, her law firm, and the county "for accessing and using his juvenile court file without authorization." Id. The plaintiff alleged that this conduct constituted a violation of his Fourth and Fourteenth Amendment rights. Id. In rejecting the attorney's claim of qualified immunity, this court reasoned, "[the attorney] is not entitled to qualified immunity. She is a private party, not a government employee, and she has pointed to `no special reasons significantly favoring an extension of governmental immunity' to private parties in her position." Id. at 835(quoting Richardson, 521 U.S. at 412, 117 S.Ct. 2100); see Wyatt v. Cole, 504 U.S. 158, 168-69, 112 S.Ct. 1827, 118 L.Ed.2d 504 (1992) (holding that private defendants in § 1983 suit for "invoking a state replevin, garnishment, or attachment statute" later declared unconstitutional were not entitled to qualified immunity from suit); cf. Pollard v. The Geo Group, Inc., 607 F.3d 583, 602 (9th Cir. 2010) (observing that "[u]nlike officers employed by public prisons," employees of a private corporation operating a federal prison would not be entitled to qualified immunity in Bivens cause of action); Kimes v. Stone, 84 F.3d 1121, 1128 (9th Cir. 1996) (holding that "the common law did not provide immunity to private attorneys conspiring with a judge to deprive someone of their constitutional rights"). Filarsky does not allege any intervening en banc decision, Supreme Court decision, or intervening legislation which would permit us to overrule the holding in Gonzalez. Therefore, we are bound by the Gonzalez decision. Accordingly, Filarsky is not entitled to qualified immunity as a private attorney and we reverse the district court's grant of summary judgment in his favor and remand for trial, or further proceedings as determined by the district court. C. Municipal Liability
We are skeptical of the district court's oral holding that Filarsky has no responsibility for the deprivation of Delia's Fourth Amendment rights which occurred in this case. We leave to the district court on remand to determine Filarsky s liability consistent with this opinion. We do note that searches by private parties are subject to the Fourth Amendment if private parties act as agents of the government. Skinner v. Railway Labor Executives' Assn., 489 U.S. 602, 614, 109 S.Ct. 1402, 103 L.Ed.2d 639 (1989); United States v. Young, 153 F.3d 1079, 1080 (9th Cir. 1998). Under § 1983, private parties acting under color of state law can be held liable for violations of federal constitutional rights. See Adickes v. S.H. Kress Co., 398 U.S. 144, 152, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Franklin v. Fox, 312 F.3d 423, 444 (9th Cir. 2002).
Finally, we consider whether the City may be held liable under § 1983 for the individual defendants' actions. The City may be held liable under § 1983 for its employees' actions where one of its customs or policies caused a violation of Delia's constitutional rights. Monell, 436 U.S. at 690-91, 98 S.Ct. 2018. In Monell, the United States Supreme Court held that municipalities are "persons" subject to damages liability under § 1983 where it has caused a constitutional tort through "a policy statement, ordinance, regulation, or decision officially adopted and promulgated by that body's officers." Id. at 690, 98 S.Ct. 2018. The Court further observed that § 1983 also authorizes suit "for constitutional deprivations visited pursuant to governmental `custom' even though such a custom has not received formal approval through the body's official decisionmaking channels." Id. at 690-691, 98 S.Ct. 2018. The Court, however, specifically rejected the use of the doctrine of respondeat superior to hold a municipality liable for the unconstitutional acts of its employees. The Court instructed that municipalities could be held liable only when an injury was inflicted by a city's "law-makers or by those whose edicts or acts may fairly be said to represent official policy." Id. at 694, 98 S.Ct. 2018. "[T]he touchstone of `official policy' is designed `to distinguish acts of the municipality from acts of employees of the municipality, and thereby make clear that municipal liability is limited to action for which the municipality is actually responsible.'" City of St. Louis v. Praprotnik, 485 U.S. 112, 138, 108 S.Ct. 915, 99 L.Ed.2d 107 (1988) (Brennan, J., concurring) (quoting Pembaur v. City of Cincinnati 475 U.S. 469, 479-80, 106 S.Ct. 1292, 89 L.Ed.2d 452 (1986)) (emphasis in Pembaur).
Even in the absence of an official policy or a custom, the Supreme Court has held that "an unconstitutional government policy could be inferred from a single decision taken by the highest officials responsible for setting policy in that area of the government's business." Praprotnik, 485 U.S. at 123, 108 S.Ct. 915. Under this paradigm, however, "[m]unicipal liability attaches only where the decisionmaker possesses final authority to establish municipal policy with respect to the action ordered." Pembaur, 475 U.S. at 481, 106 S.Ct. 1292.
Thus, in order to establish an official policy or custom sufficient for Monell liability, a plaintiff must show a constitutional right violation resulting from (1) an employee acting pursuant to an expressly adopted official policy; (2) an employee acting pursuant to a longstanding practice or custom; or (3) an employee acting as a "final policymaker." Webb v. Sloan, 330 F.3d 1158, 1164 (9th Cir. 2003); see Ulrich v. City County of San Francisco, 308 F.3d 968, 984-85 (9th Cir. 2002); Gillette v. Delmore, 979 F.2d 1342, 1346-47 (9th Cir. 1992). Delia has not directed us to any policy, officially adopted and promulgated by the City. Nor has he established a practice, so permanent and well-settled so as to constitute a custom, that existed and through which Chief Wells acted in ordering Delia to produce the rolls of insulation. See Praprotnik, 485 U.S. at 121, 108 S.Ct. 915. Indeed, Delia does not suggest that defendants were acting pursuant to an express official policy or a longstanding practice or custom.
This leaves only the third means of establishing municipal liability available to Delia, that he was injured by an employee of the City with "final policymaking authority." Id. at 123, 108 S.Ct. 915. Delia asserts that the individual defendants, and Chief Wells in particular, were acting as final policymakers when ordering him to produce the rolls of insulation. In response, the City argues that none of the individual defendants had final policymaking authority. "[W]hether a particular official has `final policymaking authority' is a question of state law." Praprotnik, 485 U.S. at 124, 108 S.Ct. 915; see Pembaur, 475 U.S. at 483, 106 S.Ct. 1292(noting that "[a]uthority to make municipal policy may be granted directly by a legislative enactment or may be delegated by an official who possesses such authority"); Jett v. Dallas Indep. Sch. Dist., 491 U.S. 701, 737, 109 S.Ct. 2702, 105 L.Ed.2d 598 (1989) (" Whether a particular official has "final policymaking authority" is a question of state law.' ") (quoting Praprotnik, 485 U.S. at 123, 108 S.Ct. 915); Lytle v. Carl, 382 F.3d 978, 982 (9th Cir. 2004) ("To determine whether a school district employee is a final policymaker, we look first to state law.").
Review of the City's Code of Ordinances reveals that the Fire Chief has not been delegated final policymaking authority regarding any practices for the City's Fire Department. Instead, the City Council is vested with exclusive final policymaking authority for the Fire Department. Rialto Ordinance Chapter 2.34 governs the City's Fire Department. Section 2.34.020 provides:
The fire department is a department within the framework of the city's administrative organization and is governed by state and federal laws pertaining thereto and the ordinances,
policies and procedures established by the city council.
RIALTO, CAL., ORDINANCES § 2.34.020 (emphasis added). Section 2.34.030, which concerns the establishment of a Fire Chief, provides:
There is a chief of the fire department who is subject to the general supervision of the city administrator and
with the approval of the city council, solely responsible for the management and conduct of the department.
RIALTO, CAL., ORDINANCES § 2.34.030 (emphasis added). Finally, § 2.34.040 specifies the duties of the City's Fire Chief, providing in pertinent part as follows:
The duties of the fire chief include, but are not limited to, the following: A. To
formulate and recommend policies and procedures pertaining to the enforcement of rules and regulations for the government and operation of the fire department and pertaining to the prevention and control of fires; to administer such policies and procedures
when approved and to conduct such activities for the city;
. . . .
H. To carry out such other affairs and assignments
as he/she is assigned by the city council by resolution, or to carry out other functions as described of the fire chief in other provisions of this code;
I. To be responsible for the general supervision and administration of the fire safety division.
RIALTO, CAL., ORDINANCES § 2.34.020 (emphasis added).
Thus, under these ordinances, even though Chief Wells had final authority over the fire department's day-to-day supervision and administration, he was not authorized to establish city policy. In Pembaur, the Supreme Court distinguished final policymaking authority from final decisionmaking authority, observing that:
The fact that a particular official-even a policymaking official-has discretion in the exercise of particular functions does not, without more, give rise to municipal liability based on an exercise of that discretion. The official must also be responsible for establishing final government policy respecting such activity before the municipality can be held liable.
Pembaur, 475 U.S. at 481-83, 106 S.Ct. 1292 (citations and footnote omitted). To drive home this point, the Court offered the following illustration:
Thus, for example, the County Sheriff may have discretion to hire and fire employees without also being the county official responsible for establishing county employment policy. If this were the case, the Sheriffs decisions respecting employment would not give rise to municipal liability, although similar decisions with respect to law enforcement practices, over which the Sheriff
is the official policymaker,
would give rise to municipal liability. Instead, if county employment policy was set by the Board of County Commissioners, only that body's decisions would provide a basis for county liability. This would be true even if the Board left the Sheriff discretion to hire and fire employees and the Sheriff exercised that discretion in an unconstitutional manner; the decision to act unlawfully would not be a decision of the Board. However, if the Board delegated its power to establish final employment policy to the Sheriff, the Sheriffs decisions
would represent county policy and could give rise to municipal liability.
Pembaur, 475 U.S. at 483 n. 12,
106 S.Ct. 1292.
The facts here mirror the Pembaur illustration. Chief Wells clearly had supervisory and final decisionmaking authority over the City's Fire Department. In that capacity, he signed the order requiring Delia to produce the rolls of insulation. The record, however, is devoid of any evidence that Chief Wells's authority included responsibility for establishing final departmental policy. To the contrary, the City's Code of Ordinances places policymaking authority for the fire department in the exclusive hands of the city council. See RIALTO, CAL., ORDINANCES §§ 2.34.020, 2.34.030. Thus, only the city council's decisions would provide a basis for city liability. No such decisions appear in the record. As the Supreme Court cautioned in Praprotnik, "a federal court would not be justified in assuming that municipal policy-making authority lies somewhere other than where the applicable law purports to put it." Praprotnik, 485 U.S. at 128, 108 S.Ct. 915.
Delia directs our attention to the fact that Chief Wells did not provide the city administrator with a copy of his order to Delia as evidence that he wielded final policymaking authority. This argument confuses final decisionmaking authority with final policymaking authority. While Chief Wells wielded the former, only the latter is sufficient to hold the City liable under § 1983 for his actions. See Pembaur, 475 U.S. at 483 n. 12, 106 S.Ct. 1292. Indeed, if we were to accept the evidence in this case as establishing Monell liability, "the result would be indistinguishable from respondeat superior liability." Praprotnik, 485 U.S. at 126, 108 S.Ct. 915(cautioning that "[i]f the mere exercise of discretion by an employee could give rise to a constitutional violation, the result would be indistinguishable from respondeat superior liability."); see Clouthier, 591 F.3d at 1253(noting that "`[t]o hold cities liable under section 1983 whenever policymakers fail to overrule the un-constitutional discretionary acts of subordinates would simply smuggle respondeat superior liability into section 1983 law [creating an] end run around Monell.' ") (quoting Gillette, 979 F.2d at 1348). Accordingly, we conclude that the evidence here fails to establish that Chief Wells had final policymaking authority.
Our conclusion is buttressed by cases from this court as well as our sister circuits. In Gillette, 979 F.2d 1342, this court held a fire chiefs actions in firing the plaintiff could not constitute the basis for municipal liability because the fire chief was not a final policymaker. Id. at 1350. In arriving at this conclusion, this court observed that the fire chiefs discretionary authority to hire and fire employees, standing alone, was "not sufficient to establish a basis for municipal liability." Id. This court also noted the fact that the "City Charter and ordinances grant authority to make City employment policy only to the City Manager and the City Council." Id. (emphasis added). In the absence of any evidence that the fire chief actually made policy, this court found that he was not a final policymaker. Id.; see Collins v. City of San Diego, 841 F.2d 337, 341-42 (9th Cir. 1988) (holding city was not liable for employment actions of police sergeant, even though police sergeant had "discretion to recommend hiring, firing, and discipline of employees", where he was not the city official responsible for establishing final departmental employment policy). The Eighth Circuit Court of Appeals reached the same conclusion in Davison v. City of Minneapolis, 490 F.3d 648, 661 (8th Cir. 2007). In Davison, the court held that there was insufficient evidence to subject the city to Monell liability for the actions of its fire chief. Id. In reaching this conclusion, the court noted that although the fire chief had final decision-making authority regarding employment promotions, there was no evidence that he was also delegated with authority to make final municipal policy regarding employment practices. Id.; see Bechtel v. City of Belton, 250 F.3d 1157, 1161(8th Cir. 2001) (holding that city fire chief whose authority over the operations of the fire department was subject to review by the city administrator "had no authority as the `highest official responsible for setting policy.'").
Likewise, in Greensboro Prof'l Fire Fighters Ass'n, Local 3157 v. City of Greensboro, 64 F.3d 962 (4th Cir. 1995), the Fourth Circuit Court of Appeals arrived at the identical determination. In that case, a firefighter sued the City of Greensboro under § 1983, alleging retaliation by the fire chief because of the firefighter's union participation. Id. at 963-64. The fire chief had failed to promote him despite the fact that he had the highest score on the promotions list. Id. Examining relevant state and city laws, the Fourth Circuit found that "`final policymaking authority' over employer-employee relations in the City of Greensboro rests only with the City Council and the City Manager." Id. at 965-66. Accordingly, the court held that even though the fire chief may have had final authority to determine whom to promote, he was not authorized to adopt a "municipal policy embodying anti-union animus." Id.; see Crowley v. Prince George's County, 890 F.2d 683, 685-86 (4th Cir. 1989) (holding that although a county police chief was responsible for personnel decisions within the police department, he did not have "final policymaking authority" that would impute liability to the county under 42 U.S.C. § 1981). Similarly, in this case, there is a total absence of any policymaking authority delegated to Chief Wells by the City's Code of Ordinances. Chief Wells's final decisionmaking authority regarding whether to order Delia to produce the rolls of insulation, standing alone, is insufficient to subject the City to liability for his action. Accordingly, we affirm the district court's grant of summary judgment in the City's favor.
IV. CONCLUSION
Upon de novo review, we hold that Delia's Fourth Amendment rights were violated when Chief Wells, Peel, and Bekker affected a warrantless "search" of Delia's home by ordering Delia to go into his home and bring out the rolls of insulation for inspection. Because Delia's actions were involuntary and occurred as a result of the direct threat of sanctions, we hold that the warrantless compelled search of Delia's home violated his rights under the Fourth Amendment. Nevertheless, we conclude that these defendants are entitled to qualified immunity because Delia has not established that this constitutional right was clearly established at the time of Chief Wells's order to Delia. We therefore affirm the district court's grant of summary judgment on their behalf. We further conclude that Filarsky is not entitled to qualified immunity as a private attorney. Thus, we reverse the district court's grant of summary judgment in his favor and remand for trial or further proceedings consistent with this opinion. Finally, we conclude that neither Chief Wells, nor any of the other individual defendants, had final policymaking authority for the City. Therefore, we affirm the district court's grant of summary judgment in favor of the City.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
Each party is to bear its own costs on appeal.