The 9th Circuit Court of Appeals ruled that jurors in a 2013 fraud case involving the president of MarCon Inc. were unfairly influenced by evidence that Elaine Martin was audited in the 1990s for what the state of Idaho concluded were improper farm deductions on her tax returns.
Federal prosecutors used that evidence to argue that Martin had shown a pattern of deceit on her tax returns and that she knew she should have reported sales of used highway barriers and other materials that would have resulted in her paying an additional $100,000 in federal income taxes.
A three-member panel of the appeals court ruled that the evidence from the Idaho returns was not relevant on the federal tax claims and should have been excluded from the trial presided over by Chief U.S. District Judge B. Lynn Winmill.
The panel overturned Martin’s conviction on four counts of submitting false federal tax returns. At the same time, the appeals court said there was “overwhelming evidence” to support her convictions on 18 other counts of mail fraud, wire fraud and conspiracy.
The appeals court also vacated Martin’s seven-year prison sentence, saying Winmill misinterpreted sentencing guidelines and applied the wrong rule regarding fraud cases. The court said the financial damage caused by Martin’s fraudulent acts needs to be recalculated, and that could affect her sentence.
Andrew McBride, a Washington, D.C., attorney who represents Martin, told the Statesman after Martin was sentenced in February 2014 that errors were made in evaluating the factors that go into determining an appropriate sentence. He said Wednesday that he was pleased with this decision.
“The 9th Circuit’s published decision also put some much-needed and sensible limits on the use of ‘prior bad acts’ evidence by the government in future cases,” he said.
The U.S. Attorney’s Office in Boise is still considering whether to retry Martin on the tax charges. U.S. Attorney for Idaho Wendy Olson will make that decision, spokeswoman Becky Early said.
On her 1996 and 1997 Idaho tax returns, Martin improperly claimed less than $3,000 in college student loan payments for her children and expenses for her divorce as deductible farm expenses. Following the audits, Martin settled the issue without conceding liability, according to the 9th Circuit decision.
During closing arguments in the fraud case, prosecutors reminded jurors of the audits and argued that Martin had filed false tax returns before.
“There is a substantial probability that the jury took this evidence as proof that Martin is a liar who doesn’t want to pay taxes and will cheat to avoid them,” 9th Circuit Judge Ronald M. Gould wrote in the 22-page decision.
Martin, now 69, was charged after prosecutors said she shielded a portion of her income so she could improperly qualify for two programs offered by the U.S. Department of Transportation and the federal Small Business Administration that were supposed to benefit economically disadvantaged companies.
Between 1999 and 2006, MarCon received nearly $22 million from 88 contracts awarded through the transportation agency and the SBA.
During sentencing, prosecutors argued that the entire $22 million should be considered a loss to the government, while Martin argued that because the contracts were completed satisfactorily, the loss was zero. Winmill rejected both arguments and set the loss at $3 million, the profit Martin obtained from the contracts.
The appeals court disagreed with all three options, raising additional issues that the judges said need to be argued during Martin’s resentencing.
Martin, who is scheduled to be released from prison in January 2020, is serving her sentence at a medium-security federal prison in Victorville, Calif. In light of the 9th Circuit decision, she has filed a motion seeking release pending further proceedings.