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United States v. Webber

United States District Court, D. Utah

January 13, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
ADAM MICHAEL WEBBER, Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR A NEW TRIAL

          DEE V. BENSON UNITED STATES DISTRICT JUDGE.

         Before the Court is Defendant Adam Michael Webber's (“Mr. Webber”) Motion for a New Trial.[1] Having reviewed the parties' briefs and the relevant law, the court renders the following Memorandum Decision and Order.[2]

         BACKGROUND

         Mr. Webber has a long and litigious history with the government and the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”).[3] In 2007, after the ATF conducted an investigation into Mr. Webber's alleged illegal firearm sales, Mr. Webber and the ATF entered into a civil settlement agreement.[4]

         Under the terms of the 2007 settlement agreement, the ATF partially dismissed the civil forfeiture action against Mr. Webber.[5] In return, Mr. Webber agreed “never to apply for a Federal firearms license or be a responsible person for any Federal firearms licensee or business, ” and further agreed that he would “not engage in the business of manufacturing, importing, or dealing in firearms.”[6] Additionally, Mr. Webber acknowledged that not engaging in the business of dealing in firearms meant Mr. Webber could not “repetitively” acquire and resell firearms “with the intent to make a profit.”[7]

         After the 2007 settlement, Mr. Webber began selling firearms parts through his business called HK Parts, Inc. (“HK Parts”).[8] Mr. Webber operated HK Parts out of his home in Salt Lake City, Utah. As Mr. Webber's business grew and prospered, the ATF grew suspicious of Mr. Webber's activities, including the possibility that Mr. Webber was selling firearms. An investigation into Mr. Webber's business was opened in 2010 and concluded in August of 2014.[9]After the investigation, a grand jury in Salt Lake City returned a thirteen count indictment charging Mr. Webber with various firearms, export, false statement, and tax offenses.[10]

         Based on motions from the government and Mr. Webber, the government's thirteen count indictment was reduced to a six count indictment.[11] Count 1 charged Mr. Webber with dealing in firearms without a license as follows:

On a date unknown to the grand Jury, but beginning no later than 2007, through in or about May 2012, in the Central Division of the District of Utah,
ADAM MICHAEL WEBBER,
defendant herein, willfully engaged in the business of dealing in firearms without a license; in violation of 18 U.S.C. § 922(a)(1)(A).[12]

         Counts 2, 3, and 4 charged Mr. Webber with filing false Individual U.S. Income Tax Returns for the 2007, 2008, and 2009 tax years in violation of 26 U.S.C. § 7206(1).[13] Similarly, Counts 5 and 7[14] charged Mr. Webber with filing false U.S. Income Tax Returns for HK Parts for the 2009 and 2010 tax years in violation of 26 U.S.C. § 7206(1).[15]

         From September 13 to September 23, 2016, the government's case against Mr. Webber was presented to a jury.[16]

         A. Count 1, Violation of the Gun Control Act

         At trial, the government's evidence showed that Mr. Webber sold his first firearm through HK Parts in 2008 and by 2012 Mr. Webber had bought and sold approximately 2, 000 firearms through HK Parts.[17] Between 2008 and 2012, Mr. Webber never applied for a Federal Firearms License (“FFL”). Rather, at trial it was revealed that beginning in 2009, Mr. Webber operated his business under the FFL of Midnight Labs, LLC (“Midnight Labs”), which was owned by Mr. Bryan Croft.[18]

         The evidence showed that on September 30, 2009, Mr. Webber entered into an agreement with Midnight Labs entitled “Employment Contract.”[19] The Employment Contract purported to make Mr. Webber an employee of Midnight Labs.[20] However, evidence presented by the government demonstrated that Mr. Webber did not receive any financial compensation from Midnight Labs.[21] Mr. Webber financed the firearms purchased through Midnight Labs' FFL.[22]Additionally, Mr. Webber and HK Parts retained any profit generated from the firearms purchased and resold using Midnight Labs' FFL.[23]

         The government's evidence also demonstrated that Mr. Croft performed a number of tasks for Mr. Webber and HK Parts. Mr. Croft maintained Midnight Labs' Acquisition and Disposition Book (“A&D book”).[24] An A&D book is required by the holder of a FFL to track the firearms that come into the possession of the FFL and where the firearms are subsequently transferred.[25] Mr. Croft testified that when Mr. Webber purchased firearms to be resold to HK Parts' customers, the firearms were delivered to Mr. Croft.[26] Once received by Mr. Croft, Mr. Croft entered the firearms into Midnight Labs' A&D book.[27] After Mr. Croft entered the firearms into Midnight Labs' A&D book, the firearms were delivered to Mr. Webber's home.[28]Mr. Croft testified that he routinely delivered firearms purchased by Mr. Webber to Mr. Webber's home.[29] Additionally, Mr. Croft testified that he would often help Mr. Webber package firearms to be sold to HK Parts' customers.[30] Mr. Croft and Midnight Labs did not receive any monetary compensation from Mr. Webber.[31] Rather, Mr. Croft testified that, in exchange for his services, he obtained access to Mr. Webber's industry contacts and relationships.[32]

         Additionally, the government's evidence demonstrated that in comparison to Mr. Webber, Mr. Croft bought and sold very few firearms through Midnight Labs' FFL. For example, between the time Midnight Labs was issued a FFL and when the ATF executed a search warrant in this case, Mr. Webber purchased approximately 2, 066 firearms.[33] Conversely, Mr. Croft only purchased 170 firearms through Midnight Labs' FFL.[34]

         Moreover, the government presented evidence that Mr. Webber directed all of the business activities for HK Parts. Mr. Webber decided which firearms to purchase and at what price the firearms should be resold through HK Parts.[35] Additionally, Mr. Webber determined the content on HK Parts' website, hkparts.net.[36] Mr. Croft testified that he did not make any business decisions for HK Parts.[37]

         The government's evidence demonstrated that from the public's perspective, HK Parts was not operating under the umbrella of Midnight Labs. Throughout Mr. Webber's relationship with Midnight Labs, HK Parts' website represented that HK Parts had a FFL and the firearms purchased through HK Parts would be facilitated by HK Parts' FFL.[38] Moreover, two HK Parts' customers, including an undercover ATF agent, testified that when they purchased firearms from HK Parts, Midnight Labs was not mentioned during the transaction.[39]

         Prior to trial, it was readily apparent that Mr. Webber's defense to Count 1 was that Mr. Webber, as an employee of Midnight Labs, was not engaged in the business of dealing in firearms without a license. In other words, Mr. Webber sought to put forth an agency defense that he was not engaged in the business of dealing in firearms without a license because he was an employee of Midnight Labs and Midnight Labs had a FFL.

         The government argued that Mr. Webber's agency defense was unsupported by the law and the facts and motioned for the Court to prohibit Mr. Webber from presenting an agency defense to the jury.[40]

         The Court agreed with the government that there were insufficient facts to allow Mr. Webber to present an agency defense to the jury.[41] The Court's finding was bolstered by the fact that Mr. Webber had previously agreed with the ATF not to apply for a FFL or engage in the business of dealing in firearms.

         With this factual backdrop in mind, the government proposed the following instruction to inform the jury about the law surrounding Mr. Webber's use of Midnight Labs' FFL:

An agent or employee of a company possessing a federal firearms license, who could not have legitimately obtained a license to deal firearms, may not deal firearms by positioning himself as a consultant or agent for the company. In other words, an agent or employee is not insulated from criminal liability by the fact that his principal or employer authorized his conduct.[42]

         The Court found that the government's proposed instruction was overly broad and was a misstatement of the law. Therefore, after much discussion with counsel on the matter, the Court instructed the jury as follows:

INSTRUCTION NO. 24
A person prohibited from obtaining a federal firearms license, who ‘engages in the business' of dealing in firearms as defined in Instruction Number 20, may not avoid the licensing requirement by positioning himself as an employee, consultant, or agent of a company possessing a federal firearms license. In other words, an employee, consultant, or agent who engages in the business of dealing in firearms is not insulated from criminal liability by the fact that his principal or employer, who has a federal firearms license, authorized his conduct.[43]

         Instruction 20 defined “engaged in the business” of dealing in firearms as:

a person who devotes time, attention, and labor to dealing in firearms as a regular course of trade or business with the principal objective of livelihood and profit through the repetitive purchase and resale of firearms, but such term shall not include a person who makes occasional sales, exchanges, or purchases of firearms for the enhancement of a personal collection or for a hobby, or who sells all or part of his personal collection of firearms.[44]

         B. Tax Counts

         At trial, the evidence showed that from 2007 to 2010, there was considerable discrepancy between the revenue received by Mr. Webber and HK Parts and the amount of gross receipts reported to the Internal Revenue Service.

         For example, on Mr. Webber's 2007 and 2008 U.S. Individual Income Tax Returns, Mr. Webber reported gross receipts in the amount of $23, 185 and $22, 039 respectively.[45] Similarly, on HK Parts' 2009 and 2010 corporate tax returns, Mr. Webber reported gross receipts in the amount of $49, 742 and $84, 749 respectively.[46] Conversely, the government presented evidence that the gross receipts for Mr. Webber and HK Parts were underreported. For example, the government put forth evidence that Mr. Webber had gross receipts in the amount of $1, 048, 475 and $2, 597, 283 for the 2007 and 2008 tax years.[47] Similarly, the government offered evidence that Mr. Webber and HK Parts had gross receipts in the amount of $3, 627, 471 for the 2010 tax year.[48] These discrepancies formed the basis for the five tax counts against Mr. Webber.

         C. Excluded Witness Testimony

         At trial, the Court excluded two witnesses: Mr. José Diaz and Ms. Jessica Filippi. The defense purported that Mr. Diaz would have testified that some of the firearms sold through Mr. Webber's website in 2008 and 2009 were in the possession of Mr. Diaz's company, Michael's Machines.[49] At the beginning of trial, the government invoked the exclusionary rule pursuant to Federal Rule of Evidence 615.

         As the government's case progressed, the government notified the Court that Mr. Webber's mother was present in the gallery and had been communicating via text message to Mr. Webber's wife about the progression of the trial.[50] Mr. Webber's wife was slated to act as a witness for the government. The Court admonished both sides to monitor their witnesses to make sure the exclusionary rule was honored.[51]

         During the defense's case, the defense called Mr. Diaz to the stand.[52] Before Mr. Diaz could testify, the government notified the Court that Mr. Diaz had been present during opening statements and during the government's first witness.[53] The government moved to exclude Mr. Diaz for the defense's violation of the exclusionary rule.[54] Mr. Diaz was an acquaintance of Mr. Webber. Therefore, the Court rejected the defense's argument that the defense was wholly unaware of Mr. Diaz's presence.[55] Additionally, it was brought to the Court's attention that the defense did not disclose that Mr. Diaz was going to testify until the night before Mr. Diaz took the stand.[56] The Court found that Mr. Diaz heard enough critical information to color his testimony and, therefore, sustained the government's objection to exclude Mr. Diaz.[57]

         Ms. Filippi is an employee of the accounting firm Cook Martin Poulson P.C. Since 2011, Ms. Filippi has been employed by Mr. Webber to prepare Mr. Webber's individual and business tax returns.[58] During the defense's case, the defense called Ms. Filippi to testify. Shortly after her testimony began, the government motioned to exclude Ms. Filippi's testimony on relevance grounds.[59] The defense offered that Ms. Filippi would testify to the following: (1) Mr. Webber asked Ms. Filippi in 2011 to prepare his taxes going forward; (2) Mr. Webber's bookkeeping and accounting was in disarray; (3) Mr. Webber lacked records that an accountant would expect to adequately prepare a tax return; and (4) Ms. Filippi, after reviewing Mr. Webber's 2010 tax return, offered to amend Mr. Webber's 2010 return.[60]

         The Court sustained the government's objection. The Court found that Ms. Filippi's proposed testimony was minimally relevant.[61] However, the Court held that Ms. Filippi's testimony was cumulative, risked confusing and misleading the jury, and risked directing the jury on Mr. Webber's consciousness of guilt or lack of consciousness of guilt.[62] Moreover, the Court was concerned that Ms. Filippi's testimony would run afoul of the propensity ban.[63]Therefore, Ms. Filippi was excused.[64]

         D. Jury Verdict and Motion for a New Trial

         On September 23, 2016, the Jury returned a unanimous verdict finding Mr. Webber guilty on all counts.[65] Following the verdict, the government sought to detain Mr. Webber pending sentencing.[66] The Court denied the government's motion and Mr. Webber was permitted to remain on pretrial release.[67] On October 7, 2016, Mr. Webber filed a Motion for a New Trial pursuant to Rule 33 of the Federal Rules of Criminal Procedure.[68] Mr. Webber's sentencing is presently set for January 24, 2017.[69]

         DISCUSSION

         Rule 33(a) provides, “[u]pon the defendant's motion, the court may vacate any judgment and grant a new trial if the interest of justice so requires.” Fed. R. Crim. P. 33(a). “A motion for a new trial is not regarded with favor and is only issued with great caution.” United States v. Herrera, 481 F.3d 1266, 1269-70 (10th Cir. 2007) (citations omitted). When reviewing a motion for a new trial, a conviction should not be disturbed if a “‘reasonable jury could find a defendant guilty beyond a reasonable doubt, viewing the evidence in the light most favorable to the government and drawing reasonable inferences therefrom.'” United States v. Irving, 665 F.3d 1184, 1193 (10th Cir. 2011) (quoting United States v. Vigil, 523 F.3d 1258, 1262 (10th Cir. 2008)). With respect to the jury's factual determinations, the Court is not permitted to “‘weigh conflicting evidence or second-guess the fact-finding decisions of the jury.'” Id. (quoting United States v. Sells, 477 F.3d 1226, 1235 (10th Cir. 2007)).

         However, Rule 33 places discretion with the trial judge to review the trial record and grant a new trial in the “interests of justice.” See United States v. Patterson, 41 F.3d 577, 579 (10th Cir. 1994) (noting that “the decision to grant or deny a motion for new trial rests within the trial court's discretion . . . .”).

         Mr. Webber points to three of the Court's rulings as grounds for a new trial on all counts. First, Mr. Webber argues that Instruction No. 24 incorrectly described the law with respect to the Gun Control Act's licensing requirement and improperly withheld a factual question from the jury.[70] Second, Mr. Webber claims he was unfairly prejudiced by the exclusion of Mr. Diaz because Mr. Diaz could have testified that Mr. Diaz was in physical possession of the firearms receivers sold through HK Parts prior to Mr. Webber's relationship with Midnight Labs.[71]Finally, Mr. Webber claims he was prejudiced by the exclusion of Ms. Filippi's testimony because Ms. Filippi would have provided “critical evidence” of Mr. Webber's lack of willfulness to submit false tax returns.[72] Each of Mr. Webber's arguments will be discussed in turn.

         A. Instruction No. 24

         It is axiomatic that the Court's duty is to instruct the jury on the state of the law. When a party challenges the validity of a jury instruction, the Court may “only order a new trial if an error in the instructions resulted in a miscarriage of justice.” Pers. Dep't, Inc. v. Prof'l Staff Leasing Corp., 297 Fed. App'x 773, 784 (10th Cir. 2008) (unpublished) (citing Aspen Highlands Skiing Corp. v. Aspen Skiing Co., 738 F.2d 1509, 1516 (10th Cir.1984)). In reviewing a jury instruction for error, the Court reviews the instructions as a whole “‘to determine whether the jury may have been misled, upholding the judgment in absence of substantial doubt that the jury was fairly guided.'” United States v. Magleby, 241 F.3d 1306, 1310 (10th Cir. 2001) (quoting United States v. Fabiano, 169 F.3d 1299, 1302-03 (10th Cir. 1999)). Furthermore, “[t]he admission or exclusion of a jury instruction is within the discretion of the trial court . . . .” Craig v. Murphree, 35 F. App'x 765, 769 (10th Cir. 2002) (unpublished) (citing Richards v. Attorneys' Title Guar. Fund, Inc., 866 F.2d 1570, 1575, 1573 (10th Cir.1989)).

         As a general principle, “a party is entitled to an instruction based on its theory of the case whenever [the party] produces sufficient evidence to support it and submits an instruction that is a correct statement of the law.” Id. (citing F.D.I.C. v. Schuchmann, 235 F.3d 1217, 1222 (10th Cir. 2000)). Indeed, the Tenth Circuit has held that denying a defendant the right to submit a factually and legally supported theory to the jury is grounds to overturn the defendant's conviction. See Steiger v. United States, 373 F.2d 133, 135-36 (10th Cir. 1967); United States v. Migliaccio, 34 F.3d 1517, 1525 (10th Cir. 1994).

         The factual underpinnings of this case are unique to the typical cases the Court hears under the Gun Control Act. Indeed, Mr. Webber's past dealings with the ATF and his subsequent use of Midnight Labs presented a matter of first impression under the Gun Control Act. For the reasons that follow, the Court finds that Mr. Webber is entitled to a new trial on Count 1. The Court agrees with the defense that denying Mr. Webber an agency defense was improper. Mr. Webber should have been allowed to argue to the jury that Midnight Labs, not Mr. Webber, was engaged in the business of dealing in firearms.

         Pursuant to 18 U.S.C. § 922(a)(1)(A) of the Gun Control Act, it is unlawful “for any person-except a licensed importer, licensed manufacturer, or licensed dealer, to engage in the business of importing, manufacturing, or dealing in firearms.” A willful violation of 18 U.S.C. § 922(a)(1)(A) may result in criminal liability. See 18 U.S.C. § 924(a)(1)(D). Liability under § 922(a)(1)(A) centers on the Gun Control Act's definition of what it means to be engaged in the business of dealing in firearms.

         Relevant to Mr. Webber's case, a “dealer” for purposes of § 922(a)(1)(A) is “any person engaged in the business of selling firearms at wholesale or retail . . . .” 18 U.S.C. § 921(a)(11)(A). In turn, a dealer ...


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