United States v. Joseph MacChia Sr. Lawrence MacChia George MacChia Joseph L. MacChia Viktor Batuner Michael Varzar, John Barberio, and Marat Balagula

Citations: 35 F.3d 662; 74 A.F.T.R.2d (RIA) 6233; 1994 U.S. App. LEXIS 23970Docket: 94-1161

Court: Court of Appeals for the Second Circuit; August 31, 1994; Federal Appellate Court

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Defendants-appellants John Barberio and Marat Balagula, previously convicted of defrauding the United States of federal gasoline excise taxes, argue that the double jeopardy clause of the Fifth Amendment should prevent their prosecution for a broader tax evasion conspiracy that encompasses a longer timeframe and uses similar methods. The United States District Court for the Eastern District of New York, under Judge Wexler, ruled that the indictments represent distinct conspiracies, thus not violating double jeopardy protections. This decision is affirmed by the Second Circuit Court of Appeals.

The relevant background involves the Tarricone Indictment from January 1992, which charged the defendants and others with conspiring to evade federal gasoline excise taxes, amounting to over $400,000 in evasion between November 1985 and April 1986. Under federal law, a nine-cent excise tax was applicable to gasoline sales, with exemptions for transactions between licensed distributors holding a special IRS registration, known as Form 637. The tax was payable only when gasoline transferred from a licensed to an unlicensed seller. Defendants evaded this tax by manipulating invoices to create a false narrative of tax-paid transactions, involving approximately 41 million gallons of gasoline sold from a licensed supplier to unlicensed purchasers.

The licensed company involved in the paper sale of gasoline to unlicensed purchasers was essentially a shell entity, referred to as a "burn" company, with minimal operational substance. It existed primarily to document excise tax receipts and liabilities, ultimately leading to its dissolution. The scheme, as outlined in the Tarricone Indictment, began when AT acquired 21 barge loads of tax-free gasoline from licensed wholesalers in New Jersey, later creating false invoices for sales to Conlo, Inc., another shell company owned by conspirators John Pabone and John Quock. Conlo then sold the gasoline to Beck Equities, Inc., also a shell company controlled by the same individuals, which initiated Conlo's tax obligation. 

No actual sales occurred between AT and Conlo or Conlo and Beck; rather, AT sold directly to unlicensed purchasers, including Westchester Hudson Petroleum Corp. and Hamilton Oil Brokers, Inc. Hamilton, while officially owned by John Byrne, was operated by Balagula, who further sold to other unlicensed companies, including Energy Makers of America, Inc., and Shore Line Oil Co., Inc. False invoices indicated that excise taxes had been paid throughout these transactions. 

Count I of the Tarricone Indictment accused the defendants of conspiracy to defraud the U.S. by obstructing federal gasoline excise tax collection, with additional counts for specific tax evasion attempts. Following an eight-day trial, Balagula was convicted on all counts, while Barberio was convicted on the conspiracy count and one substantive count. 

In June 1993, a separate indictment (the Macchia Indictment) charged Balagula, Barberio, and six others with conspiring to evade federal gasoline excise taxes, resulting in the evasion of over $85 million from 1983 to mid-1988. This scheme involved a wholesale distributor, New York Fuel Terminal, which sold gasoline to unlicensed companies without fulfilling tax obligations.

NYFT engaged in the unlawful sale of gasoline to unlicensed purchasers through book transfers while the gasoline remained in its Brooklyn terminal, with title passing to other companies. Some gasoline was sold via barge in New York and New Jersey. Unlicensed buyers received false invoices claiming all excise taxes had been paid. Many of these buyers were linked to Balagula, while others were associated with Batuner and Varzar. The Macchia Indictment alleges that NYFT created a façade of tax-free sales to licensed companies, using fraudulent invoices that falsely indicated sales of hundreds of millions of gallons to 18 licensed entities, including AT and Conlo, which never actually purchased or resold the gasoline. NYFT's records falsely represented cash received from unlicensed buyers as income from these licensed companies, supported by fabricated cash receipts. This scheme obscured tax liabilities by implying that insolvent burn companies were involved in legitimate transactions. The Macchia Indictment charges the Macchia family with operating NYFT and its storage facility, while Barberio managed wholesale sales. Balagula was accused of controlling several unlicensed buyers. After the indictment, Barberio and Balagula sought to dismiss the conspiracy count, arguing it was the same as a previous indictment (the Tarricone Conspiracy) for double jeopardy reasons. However, a court ruling on March 9, 1994, denied their motion, asserting that despite some similarities, the two conspiracies were legally and factually distinct due to differences in operations, overt acts, and objectives.

The double jeopardy clause of the Fifth Amendment prohibits a person from being prosecuted twice for the same offense. In assessing whether two conspiracies constitute the "same offense," several factors have been traditionally used: the criminal charges in successive indictments, participant overlap, timing, operational similarities, common overt acts, geographic scope, shared objectives, and interdependence between conspiracies. However, the Supreme Court's ruling in Grady v. Corbin introduced a more stringent standard, stating that if proving an essential element of a new offense requires evidence from a previously prosecuted offense, the new prosecution is barred. This interpretation led to the conclusion that the Korfant factors were insufficient under the new standard. Consequently, the Korfant analysis was abandoned in favor of the Grady framework, creating a prohibition on successive prosecutions with substantial overlap in conduct and participants. Following this, the Supreme Court's decision in United States v. Felix clarified that Grady should not be interpreted too broadly, and upon remanding Calderone I and Gambino I, the courts reverted to the Korfant analysis. Ultimately, the Korfant multi-factor approach remains applicable for determining whether successive conspiracy prosecutions violate double jeopardy, despite the introduction of Grady's "same conduct" test.

The Korfant factors are analyzed to determine whether the Tarricone Conspiracy and the conspiracy in Count I of the Macchia Indictment are legally and factually the same. The defendants contend that the Tarricone Conspiracy is a subset of the Macchia Conspiracy, citing substantial overlaps in facts. Case law indicates that if a defendant provides sufficient evidence of a singular conspiracy, the burden shifts to the government to demonstrate distinct conspiracies. Judge Wexler found that the defendants met this burden, but the government successfully rebutted the inference of unity. 

While there are general overlaps in characteristics such as timeframe, location, participants, and objectives, significant distinctions between the two tax evasion schemes indicate that the defendants have not faced double jeopardy. It is acknowledged that the conduct in the Tarricone Indictment could fit within the broader Macchia conspiracy; however, Korfant does not dictate indictment drafting or align with the "same conduct" test established in Grady. 

The analysis focuses on the charged offenses, noting that both indictments involve conspiracy to evade federal gasoline excise taxes under 18 U.S.C. Secs. 371. However, mere similarity in statutory offenses does not establish a single conspiracy. Many participants from the Tarricone case were also involved in the Macchia Conspiracy but had different roles. For instance, Quock and Pabone, who were central figures in the Tarricone Conspiracy, played merely operational roles in the Macchia scheme, which was organized by the Macchias, not mentioned in Tarricone. Barberio also had different functions in each conspiracy: as a consultant and employee in Tarricone and as a manager in Macchia.

Balagula, a defendant in both the Tarricone and Macchia Indictments, acted as a conduit for end-users but does not prove a single conspiracy. The case references prior rulings establishing that serving as an intermediary across multiple distribution networks does not equate to a unified conspiracy. Testimony reveals Balagula dominated the bootleg gasoline market in New York City, providing unlicensed purchasers for the NYFT scheme starting in 1983. Quock and Pabone later sought Balagula for access to purchasers and tax-free gasoline through Conlo, leading to AT being used as a source for Conlo. The fact that Quock and Pabone approached Balagula suggests the existence of two distinct conspiracies: one involving AT and Conlo, and another involving NYFT and multiple burn companies.

Although there is considerable overlap among the gasoline trading companies in both schemes, the roles differ significantly. Initially, AT functioned as a burn company in the Macchia scheme but transitioned to a bootleg gasoline supplier after Quock and Pabone acquired Conlo. Furthermore, after serving as the burn company for AT, Conlo exited the NYFT scheme’s fraudulent activities.

The Tarricone Indictment's timeframe (November 1985 to April 1986) falls entirely within that of the Macchia Indictment (early 1983 to mid-1988), but this does not indicate they are the same conspiracy. The government cannot retry defendants on progressively smaller conspiracies. However, since the smaller conspiracy was charged first, the risk of prosecutorial abuse is diminished, making the overlap less significant. 

Both schemes employed similar methods using a daisy chain to avoid federal excise taxes, yet such similarities at a general level do not imply a single conspiracy. The operational details reveal substantial differences: the Tarricone Conspiracy involved purchasing tax-free gasoline from wholesalers and creating false invoices to disguise sales, contrasting with other operational tactics.

The Macchia Conspiracy involved a sophisticated scheme where NYFT acted as a wholesaler, storing gasoline at its M.Q. Terminal in Brooklyn. Gasoline was sold to unlicensed companies via book transfers, with NYFT issuing false invoices for sales to 18 different "burn" companies to evade tax liabilities. Both the Macchia and Tarricone conspiracies employed distinct suppliers, distribution methods for unlicensed purchasers, and fraudulent techniques for obscuring taxable transactions. The district court determined that the two conspiracies were separate entities, each with a complete set of participants, and that the transactions involved did not indicate interrelation.

There were no common overt acts between the Tarricone and Macchia Indictments, as highlighted by the district court. The overt acts in the Tarricone Conspiracy involved different sources of gasoline and distinct companies for tax evasion compared to the Macchia Conspiracy. The absence of common overt acts was attributed to the government's separation of the two conspiracies, raising concerns about potential prosecutorial manipulation. The court emphasized that evaluating conspiracy charges cannot rely solely on the "same evidence" test, but should also consider multiple factors, including the existence of common overt acts.

Geographically, both conspiracies operated within the New York/New Jersey Metropolitan area, which is sufficiently large to accommodate multiple simultaneous conspiracies. Distinct instrumentalities, techniques, and roles of the conspirators further supported the conclusion that the conspiracies were separate. The Tarricone Conspiracy involved gasoline sourced from New Jersey and transported to various terminals, while the gasoline involved in the Macchia operation was exclusively stored at the M.Q. Terminal in Brooklyn.

Defendants argue that the Tarricone and Macchia schemes share a common goal of selling bootleg gasoline and evading excise taxes owed to the U.S. Treasury. However, the court clarifies that each conspiracy's essence lies in the agreement to commit distinct unlawful acts, as established in Braverman v. United States and United States v. Broce. The evidence indicates multiple agreements exist, as the Tarricone Conspiracy involved AT selling gasoline without paying taxes, while the Macchia Indictment focuses on NYFT's tax evasion.

The court further examines the degree of interdependence between the conspiracies, concluding that the Tarricone Conspiracy operates independently from the larger Macchia Conspiracy. While both schemes utilized Balagula's distribution network, AT primarily supplied gasoline to separate entities, and there was no overlap in the roles of Conlo and AT across both schemes. This independence supports the conclusion that the Tarricone Conspiracy is distinct from the conspiracy in Count I of the Macchia Indictment, leading to an affirmation of the district court's judgment.

Chief Judge Newman concurs but cautions that determining the similarity of conspiracies for double jeopardy considerations can be complex and nuanced, suggesting that prosecutors should remain vigilant in such assessments.

A multi-factor analysis based on United States v. Korfant is applied to determine whether successive conspiracies involve the same or different offenses, with the potential for overlapping characteristics. Specific cases illustrate this: United States v. Gambino found different offenses, while United States v. Calderone II determined that a smaller conspiracy was wholly contained within a larger one, thus treated as the same offense for jeopardy purposes. The analysis presents challenges, particularly when assessing the "similarity of operation" and "common objectives" of the conspiracies, despite some factors, such as time frames and geographic scopes, being more straightforward to evaluate. The prosecution can mitigate jeopardy defenses by including multiple conspiracy counts in an indictment and appropriately guiding the jury, or by ensuring that facts regarding the larger conspiracy emerged only after the smaller conspiracy was prosecuted. Ultimately, if two conspiracies are deemed the same under the Korfant analysis, prosecution for the second conspiracy is barred, irrespective of the order of prosecution.

Judge Jacobs highlights the risks of prosecutorial abuse depending on the order of conspiracy charges. If the larger conspiracy is charged first and the defendants are acquitted, there is a danger that the prosecution may keep retrying the defendants on progressively smaller conspiracies until securing a conviction. Conversely, if the smaller conspiracy is prosecuted first and results in an acquittal or an unsatisfactory sentence, the prosecution could gain insights into the defense's strategy and witness performance. This creates an unfair advantage in either scenario. In the current case, despite the potential knowledge of the larger conspiracy's facts prior to the smaller conspiracy prosecution, significant differences between the two conspiracies justify rejecting the jeopardy defense at this stage. However, caution is advised against establishing a precedent of prosecuting defendants on larger conspiracies after an inadequate sentence for a smaller one, particularly under sentencing guidelines that consider all relevant conduct. Additionally, defendants who feel the government has improperly divided a broad conspiracy can request a bill of particulars to assist in asserting a double jeopardy claim in future prosecutions, although granting such requests is at the trial court's discretion.