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14-10141, 14-10196
IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,


Plaintiff-Appellee,
vs.
STEVEN ZINNEL, and DERIAN
EIDSON,
Defendants-Appellants.

) C.A. Nos. 14-10141 and


) 14-10196 (consolidated)
) D.C. No. 11-cr-00234 TLN
)
)
)
)
)
)
)
)
)

APPELLANT STEVEN ZINNELS OPENING BRIEF

SUZANNE A. LUBAN (SB#120629)


Attorney At Law
3758 Grand Ave. #4
Oakland, CA 94610
(650) 724-6345
Attorney for Defendant-Appellant,
STEVEN K. ZINNEL

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TABLE OF CONTENTS
TABLES OF AUTHORITIES ........................................................................ vi-xiv
INTRODUCTION .................................................................................................. 1
QUESTIONS PRESENTED .................................................................................. 2
JURISDICTION ..................................................................................................... 3
STATEMENT OF THE CASE.............................................................................. 4
CUSTODY STATUS .............................................................................................. 6
STATEMENT OF FACTS..................................................................................... 6
A. Personal History of Steve Zinnel ..................................................... 6
B. Formation of System 3 ..................................................................... 7
C. The Luyung Property ....................................................................... 9
D. The Safeco Litigation..................................................................... 10
E. Done Deal ....................................................................................... 10
F. Family Law Litigation .................................................................... 11
G. The Bankruptcy.............................................................................. 12
H. Wilbert and His Attorney Become Informants and
Engage in Settlement Negotiations ............................................... 12
I. The Trial .......................................................................................... 14
J. Sentencing ....................................................................................... 16
K. Forfeiture ....................................................................................... 17

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SUMMARY OF ARGUMENT ............................................................................ 18


ARGUMENT......................................................................................................... 19
I. THE COURT AND PROSECUTORS CREATED A CONSTRUCTIVE
AMENDMENT OR PREJUDICIAL VARIANCE ON COUNTS 1
AND 2 THAT TAINTED ALL COUNTS .............................................. 19
A. Standard of Review ........................................................................ 20
B. The Indictment, Trial Evidence and Jury Instructions ................... 20
C. The Jury Instructions and the Government's Arguments, Allowed
the Jury to Convict Zinnel Unconstitutionally on Uncharged
Conduct .......................................................................................... 25
D. Alternatively, Denial of a Bill of Particulars Was Prejudicial ....... 28
II. THE COURT PREJUDICIALLY ERRED IN INSTRUCTING
THE JURY ............................................................................................ 28
A. Standard of Review ........................................................................ 28
B. The Jury Instructions on Bankruptcy Fraud Were Fatally
Flawed............................................................................................ 29
1. The Bankruptcy Fraud Instructions Were Inadequate Because
They Omitted the Property Allegedly Transferred or
Concealed ................................................................................... 29
2. The Instructions on Counts 1-2 Created Juror Confusion .......... 30
C. The Jury Instructions on Money-Laundering Were Fatally
Flawed............................................................................................ 31

ii

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D. Joinder in Eidsons Jury Instructions Arguments .......................... 33


III. THE DISTRICT COURT IMPROPERLY REFUSED TO
EXCLUDE EVIDENCE OF SETTLEMENT NEGOTIATIONS
IN VIOLATION OF FEDERAL RULE OF EVIDENCE 408 ........... 34
A. The Error Was Prejudicial to Zinnel .............................................. 34
B. The District Court Also Abused its Discretion in Admitting
Evidence of Family Court Negotiations ........................................ 35
IV. THE DISTRICT COURT ERRED IN ADMITTING PREJUDICIAL
LEGAL CONCLUSIONS BY LEGAL EXPERTS ............................ 36
A. Standard of Review ........................................................................ 37
B. Objections to Radoslovichs Expert Testimony ............................. 37
C. Radoslovichs Legal Opinion Testimony ...................................... 38
D. Radoslovich Was Not Noticed As An Expert ................................ 39
E. Expert Testimony on Issues of Law is Inadmissible ...................... 40
F. Admitting Radoslovich's Legal Opinions Was Prejudicial ............ 40
G. Prejudicial Expert Testimony On Issues Of Law By Bankruptcy
Expert Gee Was Reversable Plain Error ........................................ 42
V.

THERE WAS INSUFFICIENT EVIDENCE AS TO COUNT 18 ...... 45


A. Standard of Review ........................................................................ 45
B. There Was Insufficient Evidence of Interstate Commerce
And Agreement With a Culpable Person For Count 18 ................ 45

VI. THE DISTRICT COURT COMMITTED NUMEROUS


PROCEDURAL SENTENCING ERRORS ........................................ 46

iii

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A. Standard of Review ........................................................................ 46


B. Intended Loss ................................................................................. 47
C. There Were Not 10 or More Victims ............................................. 53
D. Sophisticated Money Laundering .................................................. 56
1. The Court Improperly Based the Adjustment on Bankruptcy
Fraud and 1957 Conduct........................................................... 56
2. The Government Waived Any Unraised Arguments .................. 58
E. Aggravated Role ............................................................................. 59
1. The Court Incorrectly Based the Role Adjustment On the
Wrong Conduct........................................................................... 60
2. Zinnel Exerted No Control Over Culpable Participants Relating
to Money Laundering Counts ..................................................... 60
F. The Sentence Subjected Zinnel to Unwarranted Disparity ............ 62
1. The 212-Month Sentence Resulted In Unwarranted Disparity
When Compared to Similarly Situated Defendants ................... 63
2. The Average Sentences Imposed Nationwide Also Demonstrate
the Huge Disparity Here ............................................................ 67
3. Comparing Sentences Imposed in Massive Fraud Cases .......... 68
G. The Court violated 18 U.S.C. 3553(a) and (c) ............................ 70
1. The Court Failed to Consider, and Failed to Explain Its Reasons
for Rejecting, Defense Arguments Regarding Disparity and the
Fraud Guidelines........................................................................ 70
2. The Court Failed to Explain Its Reason for the Sentence........... 73
3. The Court Failed to Apply the Parsimony Principle .................. 74
iv

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H. The Fine Punished the Exercise of Fifth Amendment Rights ...... 74


I.

The District Court Denied Zinnel Meaningful Allocution ............ 75


1. Factual Analysis ......................................................................... 75
2. Meaningful Allocution Is a Due Process Right .......................... 76
3. The Court Denied Meaningful Allocution By Pre-announcing
the Sentence Before Allocution ................................................. 76

J.

Restitution Must Be Reversed ........................................................ 77

K. Erroneous Criminal Forfeitures ..................................................... 78


L. The 212-Month Prison Term and Maximum $500,000 Fine Are
Substantively Unreasonable........................................................... 79
1. Standard of Review and Definition of Substantively
Unreasonable .............................................................................. 80
a. Lack of Meaningful Consideration of 3553(a) Factors ...... 82
b. The Sentence Is Substantively Unreasonable Because Zinnel
Received A Trial Tax of 3.5 Times More Prison Time For
Exercising His Right to Trial ................................................ 83
c. Massive Disparity Creates Substantive Unreasonableness ... 85
A DIFFERENT JUDGE SHOULD BE ASSIGNED ON REMAND ............... 86
CONCLUSION ..................................................................................................... 88

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TABLE OF AUTHORITIES
Page(s)
Federal Cases
Ashe v. North Carolina
586 F.2d 334 (4th Cir. 1978) ............................................................................. 76
Boardman v. Estelle
957 F.2d 1523 (9th Cir.), cert. denied, 504 U.S. 904 (1992) ............................ 76
Durkin v. Benedor Corp. (In re G.I. Indus.)
204 F.3d 1276 (9th Cir. 2000) ........................................................................... 55
Gall v. United States
552 U.S. 38 (2007) .......................................................................... 46, 47, 73, 80
Green v. United States
365 U.S. 301 (1961) .......................................................................................... 76
Hughey v. United States
495 U.S. 411 (1990) .......................................................................................... 77
Keene Corp. v. United States
508 U.S. 200 (1993) .......................................................................................... 78
Nautilus Ins. Co. v. Reuter
537 F.3d 733 (7th Cir. 2008) ............................................................................. 57
Nelson v. United States
555 U.S. 350 (2009) .......................................................................................... 72
Rita v. United States
551 U.S. 338 (2007) .......................................................................................... 83
Stirone v. United States
361 U.S. 212 (1960) .......................................................................................... 27
United States v. Adamson
291 F.3d 606 (9th Cir. 2002) ................................................................. 25, 26, 27
United States v. Alghazouli
517 F.3d 1179 (9th Cir.), cert. denied, 555 U.S. 904 (2008) ............................ 33
vi

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United States v. Ameline


409 F.3d 1073 (9th Cir. 2005) (en banc) ..................................................... 48, 49
United States v. Amezcua-Vasquez
567 F.3d 1050 (9th Cir. 2009) ..................................................................... 80, 81
United States v. Angwin
271 F.3d 786 (9th Cir. 2001), cert. denied, 535 U.S. 966 (2002) ......... 37, 40, 43
United States v. Armstead
552 F.3d 769 (9th Cir. 2008) ....................................................................... 53, 77
United States v. Arthur
2006 U.S. Dist. LEXIS 79184 (E.D. Wis. 2006), affd, 582 F.3d
713 (2009).......................................................................................................... 79
United States v. Attondo-Santos
385 F.3d 1199 (9th Cir. 2004) ........................................................................... 86
United States v. Berger
587 F.3d 1038 (9th Cir. 2009) ........................................................................... 46
United States v. Booker
543 U.S. 220 (2005) .......................................................................................... 63
United States v. Brennan
395 F.3d 59 (2d Cir. 2005) ................................................................................ 66
United States v. Brown
771 F.3d 1149 (9th Cir. 2014) ........................................................................... 47
United States v. Bush
626 F.3d 527 (9th Cir. 2010) (applying Santos to 1957) ................................ 32
United States v. Bussell
504 F.3d 956 (9th Cir. 2007), cert. denied, 555 U.S. 812 (2008) .............. passim
United States v. Cannel
517 F.3d 1172 (9th Cir. 2008) ..................................................................... 33, 43
United States v. Cantrell
433 F.3d 1269 (9th Cir. 2006) ........................................................................... 47

vii

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United States v. Carty


520 F.3d 984 (9th Cir.) (en banc), cert. denied, 553 U.S. 1061
(2008).......................................................................................................... passim
United States v. Christensen
801 F.3d 971 (9th Cir. 2015) ............................................................................. 28
United States v. Christian
749 F.3d 806 (9th Cir. 2014) ............................................................................. 45
United States v. Colon Ledee
772 F.3d 21 (1st Cir. 2014)................................................................................ 66
United States v. Davis
596 F.3d 852 (D.C. Cir. 2010) ........................................................................... 36
United States v. Dennis
237 F.3d 1295 (11th Cir.), cert. denied, 534 U.S. 821 (2001) .......................... 25
United States v. Edwards
595 F.3d 1004 (9th Cir. 2010) ..................................................................... 79, 80
United States v. Frank
956 F.2d 872 (9th Cir.), cert. denied, 506 U.S. 932 (1992) .............................. 43
United States v. Garrido
713 F.3d 985 (9th Cir. 2013), cert. denied, __ U.S. __, 134 S.Ct.
1333 (2014).................................................................................................. 28, 31
United States v. Gupta
904 F. Supp. 2d 349 (S.D.N.Y. 2012), affd, 747 F.3d 111 (2d Cir.
2014), cert. denied, 135 S.Ct. 1841 (2015) ....................................................... 62
United States v. Houston
217 F.3d 1204 (9th Cir. 2000) ..................................................................... 46, 52
United States v. Huckins
53 F.3d 276 (9th Cir. 1995) ............................................................................... 86
United States v. Jordan
256 F.3d 922 (9th Cir. 2001) ............................................................................. 48

viii

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United States v. Kimbrew


406 F.3d 1149 (9th Cir. 2005) ........................................................................... 46
United States v. Lake
2014 U.S. LEXIS 10772 (5th Cir. 2014) ........................................................... 49
United States v. Landeros-Lopez
615 F.3d 1260 (10th Cir. 2010) ................................................................... 76, 77
United States v. Lloyd
807 F.3d 1128 (9th Cir. 2015) ..................................................................... 27, 39
United States v. Luepke
495 F.3d 443 (7th Cir. 2007) ....................................................................... 76, 77
United States v. Mares-Molina
913 F.2d 770 (9th Cir. 1990) ....................................................................... 59, 60
United States v. Matthews
278 F.3d 880 (9th Cir. 2002) (en banc) ................................................. 55, 58, 88
United States v. Messer
785 F.2d 832 (9th Cir. 1986) ............................................................................. 74
United States v. Messner
107 F.3d 1448 (10th Cir. 1997) ......................................................................... 40
United States v. Navarro-Flores
628 F.2d 1178 (9th Cir. 1980) ........................................................................... 46
United States v. Paley
442 F.3d 1273 (11th Cir. 2006) ......................................................................... 52
United States v. Panice
598 F.3d 426 (7th Cir. 2010) ................................................................. 68, 72, 73
United States v. Parris
573 F. Supp. 2d 744 (E.D.N.Y. 2008) ................................................... 68, 69, 86
United States v. Paul
561 F.3d 970 (9th Cir. 2009) (per curiam) ........................................................ 88

ix

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United States v. Pazsint


703 F.2d 420 (9th Cir. 1983) ............................................................................. 25
United States v. Pierre
254 F.3d 872 (9th Cir. 2001) ....................................................................... 29, 31
United States v. Pineda-Doval
614 F.3d 1019 (9th Cir. 2010) ........................................................................... 48
United States v. Ponce
51 F.3d 820 (9th Cir. 1995) ............................................................................... 55
United States v. Quach
302 F.3d 1096 (9th Cir. 2002) ........................................................................... 87
United States v. Ressam
679 F.3d 1069 (9th Cir. 2012) ..................................................................... 80, 82
United States v. Reyes-Oseguera
106 F.3d 1481 (9th Cir. 1997) ........................................................................... 88
United States v. Rodrigues
678 F.3d 693 (9th Cir.), cert. denied, 133 S. Ct. 359 (2012)............................. 28
United States v. Rosbottom
763 F.3d 408 (5th Cir. 2014), cert. denied, __ U.S. __, 135 S.Ct.
985 (2015).......................................................................................................... 67
United States v. Salgado
745 F.3d 1135 (11th Cir. 2014) ......................................................................... 60
United States v. Santos
553 U.S. 507 (2008) .................................................................................... 32, 33
United States v. Sarno
73 F3d 1470 (9th Cir. 1995), cert. denied, 518 U.S. 1020 (1996) .................... 77
United States v. Scheele
231 F.3d 492 (9th Cir. 2000) ....................................................................... 52, 53
United States v. Shipsey
190 F.3d 1081 (9th Cir. 1999) ............................................................... 27, 28, 31

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United States v. Showalter


569 F.3d 1150 (9th Cir. 2009) ..................................................................... 54, 55
United States v. Staten
466 F. 3d 708 (9th Cir. 2006) ............................................................................ 47
United States v. Stewart Clinical Laboratory, Inc.
652 F.2d 804 (9th Cir. 1981) ....................................................................... 25, 26
United States v. Stockwell
472 F.2d 1186 (9th Cir.), cert. denied, 411 U.S. 948 (1973) ............................ 83
United States v. Stoddard
150 F.3d 1140 (9th Cir. 1998), cert. denied, 525 U.S. 1168 (1999) ................. 78
United States v. Trujillo
713 F.3d 1003 (9th Cir. 2013) ........................................................................... 63
United States v. Tsinhnahijinnie
112 F.3d 988 (9th Cir. 1997) ....................................................................... 25, 26
United States v. Van Alstyne
584 F.3d 803 (9th Cir. 2009) ............................................................................. 32
United States v. Wallace
848 F.2d 1464 (9th Cir. 1988) ........................................................................... 37
United States v. Ward
732 F.3d 175 (3d Cir. 2013), cert. denied, 134 S.Ct. 2684 (2014) .................... 76
United States v. Ward
747 F.3d 1184 (9th Cir. 2014). (ER 975-977.) ............................................ 20, 27
United States v. Watt
910 F.2d 587 (9th Cir. 1990) ............................................................................. 74
United States v. Whitehead
532 F. 3d 991 (9th Cir. 2008) ............................................................................ 82
United States v. Zipkin
729 F.2d 384 (6th Cir. 1984) ................................................................. 40, 42, 44

xi

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United States Constitution


Amendment V ....................................................................................... 20, 25, 27, 74
Amendment VI ..................................................................................... 19, 27, 29, 37
Amendment XIV .................................................................................................... 76
Federal Statutes, Sentencing Guidelines and Rules
Title 11 United States Code
523(a)(15) ....................................................................................................... 51
704(5).............................................................................................................. 55
Title 18 United States Code
152 .................................................................................................................. 31
152(1).................................................................................................... 5, 22, 29
152(7)................................................................................................................ 5
981(a)(2)(A).................................................................................................... 78
1956 ......................................................................................................... passim
1956(h)........................................................................................................ 5, 57
1957 ......................................................................................................... passim
3231 .................................................................................................................. 3
3553(a) ..................................................................................................... passim
3553(c) ...................................................................................................... 70, 73
3582 ................................................................................................................ 63
3661 ................................................................................................................ 76
3663(a) ............................................................................................................ 77
3742 ............................................................................................................ 4, 47
Title 28 United States Code
1291 .................................................................................................................. 4
Sentencing Reform Act........................................................................................... 86
United States Sentencing Guidelines
2B1.1........................................................................... 47, 48, 49, 50, 51, 53, 54
2S1.1 ............................................................................................. 56, 58, 59, 60
3B1.1................................................................................................... 59, 60, 62
3E1.1 ............................................................................................................... 84

xii

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Federal Rules of Criminal Procedure


Rule 16 ............................................................................................................... 39
Rule 32 ........................................................................... 46, 48, 49, 52, 54, 74, 76
Rule 52(b) .......................................................................................................... 37
Rule 408 ...................................................................................................... passim
Federal Rules of Evidence
Rule 103(a) ........................................................................................................ 37
Rule 702 ....................................................................................................... 37, 40
Federal Rules of Appellate Procedure Rule 4(b) ...................................................... 4
Other Authorities
Guidance Memo., Dept. of the Treasury, Financial Crimes
Enforcement Network 1 (Nov. 9, 2006), available at
http://www.fincen.gov/statutes_regs/guidance/pdf/AdvisoryOnShel
ls_FINAL.pdf .................................................................................................... 57
NACDL, Comparative Fraud Table 2005-2009, available at
http://www.nacdl.org/criminaldefense.aspx?id=14143&terms=com
parative+fraud+table .......................................................................................... 64
U.S.S.C., Loss Primer (2B1.1) (2010), Available at
http://www.ussc.gov/sites/default/files/pdf/training/primers/Primer
_Loss.pdf ........................................................................................................... 50
Letter to the U.S. Sentencing Commission from The Constitution
Project, Aug. 26, 2011, http://www.constitution
project.org/pdf/USSC2012.pdf .......................................................................... 86
Richard A. Oppel, Sentencing Shift Gives New Leverage to
Prosecutors, New York Times, Sept. 9, 2011, available at
http://www.nytimes.com/2011/09/26/us/tough-sentences-helpprosecutors-push-for-plea-bargains.html?_r=0 ................................................. 85
U.S.S.C. Quick Facts_Fraud (2014), available at
http://www.ussc.gov/sites/default/files/pdf/research-andpublications/quickfacts/Quick_Facts_Theft_Property_Destruction_Fraud_FY14.pdf .................. 82
xiii

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INTRODUCTION
This is a bankruptcy fraud case that went horribly wrong. The jury trial was
rife with prejudicial errors. The district judge, presiding in his first federal jury
trial, created a constructive amendment or prejudicial variance by enabling jurors
to convict appellant Steven Zinnel for bankruptcy fraud on uncharged conduct,
which also infected the predicate specified unlawful activity element for the
remaining offenses. The court admitted recordings of settlement negotiations
obtained by government-sponsored deceit in violation of Federal Rule of Evidence
408, allowed two lawyer-witnesses to testify on conclusions of law, and denied a
Rule 29 motion on money-laundering conspiracy that lacked sufficient evidence.
This appeal demonstrates a high probability that appellant Zinnel would not have
been convicted but for the district courts litany of errors.
Steve Zinnel, a fifty-year-old entrepreneur and job-creator with no criminal
past but a long history as a productive, decent human being and devoted father of
two (ZSER 21-41), was convicted by a jury for bankruptcy fraud and related
money laundering counts. After rejecting two five-year plea offers, which was
represented by the government as a reasonable and appropriate sentence, Zinnel
was convicted at trial and was sentenced to a miscalculated mid-range sentence of
17.67 years and a $500,000 maximum fine. (ER 156.)
At sentencing the court committed numerous reversible procedural errors

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including miscalculating the Guidelines, relying on the PSRs unsupported loss


figures without requiring the government to produce any evidence, ignoring
defense evidence, chilling appellants allocution, and failing to explain reasons to
permit appellate review for imposing the shockingly-high sentence and maximum
fine on a first-time offender. Zinnel received 28 levels of objected-to
enhancements with each 2-level enhancement adding 42 months in prison.
Moreover, although the 18 U.S.C. 3553(a) sentencing factors are the bedrock of
federal sentencing, the judge myopically failed to consider a single factor other
than the Guidelines. In a DOJ press release issued within hours of sentencing, the
government bragged that Zinnel's sentence was the longest for bankruptcy fraud in
the history of the Eastern District of California. (ZJN175; Exh 16.) Many
similarly situated defendants have received three to six years in prison.
The court compared Zinnels conduct to that of Letantia Bussell, but ignored
the disparity between Bussells 36-month sentence for sophisticated bankruptcy
fraud and Zinnels 212-month term. Zinnels sentence and maximum fine are far
above the norm for similar offenders, and are draconian and unprecedented.
QUESTIONS PRESENTED
I.

An unconstitutional constructive amendment or prejudicial variance

was caused by the confluence of the governments introduction of evidence and


arguments that Zinnel committed bankruptcy fraud by hiding three property

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interests that were not charged, and by the district courts refusal to instruct the
jury on which properties were charged in Counts 1 and 2.
II.

The jury instructions on all counts were unconstitutionally inadequate,

incorrect and/or prejudicially confusing.


III.

The district court erred by admitting prejudicial evidence of

settlement negotiations to prove the criminal liability and the invalidity of Zinnels
claim, based upon the courts pretrial determination of guilt, in violation of Federal
Rule of Evidence 408.
IV.

The district court erred by allowing two lawyer-witnesses to testify on

conclusions of law about the defendants guilt and debtors obligations under
bankruptcy law.
V.

There was insufficient evidence as to Count 18, Money Laundering

Conspiracy.
VI.

The sentence is procedurally erroneous on numerous grounds

including incorrect Guidelines calculations, and subjected Zinnel to unwarranted


disparity, and is substantively unreasonable.
JURISDICTION
The district court had jurisdiction over this criminal trial under 18 U.S.C.
3231. The court entered final judgment as to Steven Zinnel on March 4, 2014.

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(ER1 156.) Zinnel filed a timely notice of appeal on March 14, 2014. FRAP 4(b).
(ER 474.) This Court has jurisdiction over this appeal. 28 U.S.C. 1291; 18
U.S.C. 3742. Zinnels and co-defendant Eidsons appeals are consolidated.
STATEMENT OF THE CASE
Appellants Steven Zinnel and Derian Eidson were charged in a 19-count
superseding indictment (indictment) on December 7, 2011. (ER 179.) The
indictment in Count 1 alleged transfers and concealments of assets in
contemplation of bankruptcy, listing alleged pre-petition transfers and
concealments in paragraphs 4(a)-(n), and in Count 2 specifically listed six property
interests that were allegedly concealed from the bankruptcy trustee. (ER 181-184.)
The court denied appellants motion for bill of particulars (ER 205), mistakenly
believing that the magistrate judge had already denied the motion. (ER 13.)
Appellants objected to the jury instructions for Counts 1 and 2 and requested
specification of the property interests charged in the indictment, citing the risk that
without such clarification, the jury could convict on conduct not charged in the
indictment. The court denied this request. (ER 232, 975-977.)
Before trial, appellants moved to exclude evidence of settlement
negotiations between Zinnel and Tom Wilbert and their respective lawyers Eidson
and Frank Radoslovich, and to exclude an email from Zinnel to his ex-wife, as

1

ER refers to Joint Excerpts of Record. ZSER refers to Zinnels Sealed


Excerpts. ZJN refers to Zinnels Exhibits to Motion for Judicial Notice.

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violations of Federal Rule of Evidence 408. (Dkt. 79.) On May 24, 2012, the
court denied the motion. (ER 3-8.) Appellants reasserted this objection in limine
and at trial, unsuccessfully. (ER 16-17, 20, 806.)
Appellants objected to testimony from attorney Radoslovich on the grounds
that he was being asked to provide legal conclusions, that he was an undisclosed
expert, and that his testimony was irrelevant, which the court overruled. (ER 772782.) At the close of the evidence, appellants moved for a judgment of acquittal on
all counts pursuant to Federal Rule of Criminal Procedure 29, which was denied.
ER 39B-C, 989-990.)
On July 16, 2013, a jury convicted Zinnel of concealment or transfer of
property in anticipation of bankruptcy, 18 U.S.C. 152(7) (Count 1), concealing
property in his bankruptcy case, 18 U.S.C. 152(1) (Count 2), money laundering,
18 U.S.C. 1956(a)(1)(B)(i) (Counts 4-12), monetary transactions in criminallyderived property, 18 U.S.C. 1957 (Counts 15-17), and money laundering
conspiracy, 18 U.S.C. 1956(h) (Count 18). Codefendant Eidson was convicted
of Count 18, conspiracy, and Count 19, attempted money laundering, 18 U.S.C.
1956(a)(1)(B)(i). (ER 251-261.)
At Zinnels March 4, 2014 sentencing, the court cumulatively added 28
objected-to levels in enhancements. (ER 96-102.) The court imposed a 212-month
sentence (17.67 years), three years supervised release, the maximum $500,000

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fine, and $2,513,319 in Restitution (ER 116-117, 156-161.)


The parties waived a jury as to forfeiture. (ER 1042.) Over defense
objection (Dkt. 245), the court ordered forfeited: the Luyung vacant lot, Zinnels
home, Done Deal, and System 3, and ordered a personal money judgment for
$1,297,158.20. (ER 62-64, 165-173, 176-178.) The court denied Zinnels motion
to stay forfeiture pending appeal. (ER 4-5.) On April 2, 2014, Ms. Eidson was
sentenced to 121 months in prison. (ER 146.)
CUSTODY STATUS
Zinnel was remanded at conviction and has been incarcerated since July 16,
2013. He is currently at FCI Terminal Island in San Pedro, California. His
projected release date is December 5, 2028.
STATEMENT OF FACTS
A.

Personal History of Steve Zinnel

Appellant Steven Zinnel started as a journeyman electrician. (ER 87-88,


448.) He worked 60 hours a week, went to college at night, and earned a
bachelors degree in management and a masters degree in business administration.
(ER 1237, ZSER 11, PSR 52.) He became an entrepreneur, starting several viable
electrical contracting businesses. (ZSER 5,7, PSR 5, 21.) Zinnel provided a
warm and happy home life for his two children during his custody time, including
during the acrimonious post-separation years. He took his kids on camping trips,

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and taught them how to fish, drive a boat, and change the oil in a car. (ZSER 22,
29, 34.) He was an excellent CEO and leader, who worked with his employees to
help them improve, and his companies made a positive long-term impact on his
community. (ZSER 32.)
B.

Formation of System 3

This criminal case arose from the investigation of Zinnels personal Chapter
7 bankruptcy petition, filed on July 20, 2005 in the Eastern District of California.
(ER 1358.) In October 2001, Zinnel, his brother David, and electrician Wilbert
formed an electrical contracting company called System 3 by executing a business
formation agreement. (ER 635, 1337-1340.) Wilbert testified that Zinnel was a
silent partner in System 3 because he was having troubles with his wife and wanted
to keep his interest in the new company confidential. (ER 518.) However, under
the marital property judgment, Michelle Zinnel (Michelle) had no community
property interest in System 3. (ER 1588-1589, 1593-1594.) In December 2001
and early 2002, Corporate Control, Inc., one of the companies Zinnel started,
contributed capital to start System 3s operations. (ER 503-505, 1336.) Corporate
Control, Inc. was listed on Zinnels bankruptcy schedules. (ER 1393.) Zinnels
company also contributed vehicles, and assisted with corporate and financial
matters. (ER 538-539.)
System 3 was established as an S-corporation. As the sole shareholder,

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Wilbert paid all the corporations income taxes on his personal return and received
K-1 distributions to reimburse him for taxes paid on the corporations pass-through
income. (ER 525-526.) In 2008 and 2009 alone, Wilbert took distributions
totaling $13.5 million from System 3. (ER 631-632, 1528, 1530.) Wilbert claimed
the distributions over eight years was mostly for taxes, (ER 632, 634), but
Wilbert used company funds to buy a new Porsche, to invest in the Wilberts
personal E*Trade account, and to buy increasingly luxurious homes. (ER 754,
757, 761-762.)
Between 2001 and 2004, System 3 was barely profitable. (ER 663, 668.) In
2005, the company made a net profit of $1.2 million and Wilberts salary was
$500,000, but no distributions or payments were made to Zinnel. (ER 665.) In
fact, there were no distributions to anyone besides Wilbert from System 3's
inception in 2001 through June 2006. (ER 639, 1437.) The December 2004
financial statement for System 3, six months before the Zinnel bankruptcy filing,
shows that a 46% interest in System 3 had a value of about $355,771 (46% of
$773,417). (ER 1605.) Later, in 2007 and 2008, the companys revenue and
profitability greatly increased from about $1 million in annual revenue to $100
million, (ER 640, 664-665, 669, 752.)
Wilbert represented himself to the world as the sole shareholder and officer
of System 3. (ER 534, 633, 750, 1549-1563.) For the tax years 2004 through

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2009, Wilbert filed a Schedule K-1 with the IRS showing himself as the 100%
owner of System 3. (ER 652, 655-656, 1521-1530.) Zinnel was never issued any
System 3 stock certificates or K-1 statements as required by the business formation
agreement. (ER 633, 754.) Wilbert represented under penalty of perjury on
numerous license applications that he was the sole owner of System 3 since its
inception, even after the government directed Wilbert to amend his tax returns in
2009 to correct tax fraud for the years 2005 through 2008. Wilbert continued to
list himself on the amended K-1 as 100% owner of System 3. (ER 655-656, 1523,
1525, 1527, 1529.) Zinnel never worked at System 3, never hired or fired any
employees, and never bid on jobs for the company. (ER 666.)
C.

The Luyung Property

Before the divorce, Zinnel and his wife agreed to sell the Luyung property to
Tom Cologna for $161,718. (ER 497A, 1341.) In their April 8, 2002 property
division judgment, all of Zinnels businesses, their assets, and the Luyung property
were awarded to him. (ER 1588-1589, 1593-1594.) Zinnels ex-wife deeded her
interest in Luyung to Zinnel before the sale. (ER 954-955.) Cologna bought the
Luyung property on May 3, 2002. After payment of a secured creditor (Zinnels
grandmother), Zinnel received $4,742.69 from the sale. (ER 497A, 1341-1342.)
Two years later, Cologna sold the Luyung property for $169,804. (ER 498, 1345.)
The purchase funds came from Corporate Control Profit-Sharing Plan (PSP),

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Zinnels ERISA-approved retirement plan (a different entity than Corporate


Control, Inc.). (ER 903-904, 913-914, 1242.) The PSP was listed on Zinnels
schedules, and exempt from the bankruptcy. (ER 903-904, 912-914, 1363.)
Cologna told an IRS agent in June 2011 that he viewed the Luyung property as an
investment. (ER 498A.) At trial prosecutors argued these transactions were
designed to hide Luyung from the bankruptcy. (ER 1118.)
D.

The Safeco Litigation

In May 2002, Safeco Insurance and two subsidiaries, General Insurance and
First National Insurance, sued five Zinnel companies for non-performance on
electrical installation contracts guaranteed by Safeco as surety. They also sued the
Zinnels for indemnity based on their personal guarantee. (ER 909A, 1621-1624.)
Zinnel fought the case for three years in pro se, until U.S. District Judge Shubb
granted Safeco a judgment against Zinnel in October 2004 for $1,192,000, ordered
Zinnel to indemnify his ex-wife and pay her attorneys fees of $9,870.43, and
dismissed with prejudice Safecos additional claims for $1,607,133. (ER 375-376,
386-387, 390, 392-393.) Zinnel appealed the judgment. (ER 909, 1623.) Zinnels
ex-wife listed her indemnification judgment as an asset of her own bankruptcy
estate several months before Zinnel filed his. (ZJN128, Exh. 13.)
E.

Done Deal

Attorney Eidson formed Done Deal, Inc. in July 2004. (ER 942, 1346.)

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Eidson was the sole owner and officer. (ER 1346.) Eidson opened a checking
account and an E*Trade account for Done Deal, and later made Zinnel a signer on
both. (ER 946, 1351-1352.) Eidson advised Wilberts attorney that Zinnel had
assigned his interest in System 3 to Done Deal in July 2004. (ER 837.) After the
bankruptcy, Zinnel was a salaried employee of Done Deal. (ER 1419, 1533-1547.)
In 2004 through 2007, Zinnel consulted for System 3, reviewing monthly
financials, and Done Deal was paid at least $3,333 monthly for his services. (ER
669, 753, 1400.) From December 2006 through 2008, System 3 paid Done Deal
on invoices, some but not all of which Wilbert and his wife testified were fake.
(ER 568-571, 577, 583, 719-739, 753.) Eidson represented System 3 in two
lawsuits, fees for which were billed and paid through Done Deal. (ER 578-581,
724.) However, Julia Wilbert claimed that some legal services were false. (ER
728-729.) Zinnel sent an email dated June 11, 2008 itemizing distributions System
3 paid out, as well as payments for services. (ER 573-576, 1436-1438.) Wilbert
and his wife were largely discredited. They admitted gaining financial windfalls
by expensing payments to Done Deal, committed tax fraud, would lie for money,
and avoided prosecution by testifying. (ER 572, 696, 744-745, 750-751.)
F.

Family Law Litigation

Zinnel and his ex-wife separated on December 4, 1999. (ER 918, 1587.) In
2001, Zinnel sent her one of many heated emails in their contentious divorce

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negotiations, stating that his company was filing bankruptcy, which would limit his
income, and that her support would be severely restricted when he filed personal
bankruptcy. (ER 918A, 1334.) They litigated over spousal and child support for
years. Zinnel appealed a ruling on child support, and Eidson used Done Deal
funds to pay Zinnels $75,158 child support appeal bond. (ER 923-925.) The
government asserted that Zinnels motive for bankruptcy fraud was to avoid child
support. However, child support is not dischargeable in bankruptcy. (ER 494.)
G.

The Bankruptcy

On July 20, 2005, Zinnel filed his Chapter 7 bankruptcy petition. (ER
1358.) The pro se petition reported total assets of $842,620 and total claims of
$6,050,362.54. (ER 1360.) By the time of the bankruptcy filing, Zinnel had never
received a single payment or distribution from System 3. Zinnel worked as a
financial consultant for System 3. (ER 669.) In his bankruptcy, Zinnel listed debts
that included questionable and potential claims, secured debts, undischargeable
debts such as child support, double-counted debts, and some debts that were not
even incurred. (ER 494, 1371-1382.) All but one of the scheduled claims were
disputed, contingent or unliquidated. (ER 1371-1382.)
H.

Wilbert and His Attorney Become Informants and


Engage in Settlement Negotiations

In May 2008, Wilbert initiated negotiations to terminate his business


relationship with the other owners of System 3. (ER 671, 674-676, 840, 1564

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1565.) Wilbert confirmed that this was not Zinnel and Eidson shaking [him]
down, but rather he wished to end the business relationship. (ER 675.) On May
22, 2008, Wilbert emailed Zinnel a proposed settlement agreement. (ER TRT 675676, 1425-1426, 1565.) Key provisions included that Wilbert has always been the
sole record ownerof System 3, that he did not acknowledge or admitthat
Sellers have or ever had a lawful interest in [System 3], typical contractual terms
such as a mutual release, a confidentiality clause, and a purchase price of
$3,944,799. (ER 1425-1430.)
After Wilbert initiated negotiations, the government selected Zinnel as a
target and informed Wilberts lawyer that Wilbert was not a target. (ER 657,
1548.) Wilbert and Radoslovich began working as government informants in
October 2008, planning to draw Zinnel into recorded settlement discussions. (ER
600, 648-650, 656.) Between June and November 2008, Zinnel did not contact
Wilbert urging resolution; instead Wilbert himself was pushing the issue. (ER
677.) In November 2008, Wilbert emailed Zinnel to arrange a secretly recorded
meeting. (ER 677-678.) Wilbert and Radoslovich met with FBI agents to discuss
how to talk to Zinnel, and later an agent instructed Wilbert to work in certain
topics in future recorded communications. (ER 680, 688-689, 1584.)
Wilbert met with Zinnel on December 3, 2008 at Starbucks, which was
recorded. (ER 594, 1444-1457.) Radoslovich had two face-to-face negotiation

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meetings with Zinnels attorney Eidson, on February 17 and March 3, 2009. (ER
590-592, 595-597, 797-820, 1444-1520.) The government secretly recorded those
settlement meetings and sponsored lying by attorney Radoslovich, such as the
identity of the agent in the room who posed as an associate. (ER 791, 881, 1458.)
Both Wilbert and Radoslovich intended and attempted to negotiate a real
settlement. (ER 679-681, 790, 797, 839-840.) Wilbert and Radoslovich testified
over objection about correspondence and statements made during those
negotiations. (ER 585-599, 786-821.) The government argued that the settlement
recordings proved appellants guilt on all counts. (ER 1044-1045, 1048, 11141116, 1132-1135.) The government also argued that Zinnels 2001 email to his exwife during their divorce negotiations proved his long-term plan to file bankruptcy
to deny her child support. (ER 1048, 1135.) In 2011, when the bankruptcy was
reopened, Wilbert successfully argued to the trustee that Zinnel owned no interest
in System 3, and the trustee agreed to accept Wilberts payment of $350,000 as the
maximum value of any interest Zinnel owned. (ER 672-673.)
I.

The Trial

This was Judge Nunleys first federal jury trial. (ER 1147.) At trial, the
government introduced evidence that Zinnel concealed from the trustee certain
assets, including System 3 and the Luyung property, which were alleged in the
indictment, as well as assets that were not charged in Count 1 or Count 2; namely,

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his personal bank account at Washington Mutual (WAMU) (ER 488-489, 890904, 908, 915, 1333), Corporate Control (ER 901-902), and Done Deal (ER 488B,
905-908.) The bankruptcy trustee testified that, if he had known Zinnel had access
to Done Deals bank account or if he knew Corporate Control had assets, he would
have investigated those interests. (ER 902, 908.) Both prosecutors argued that the
jury could convict Zinnel on Counts 1 and 2 based on concealing those uncharged
assets. (ER 1048, 1053-1054, 1116-1119.)
The jury instructions on Counts 1 and 2 failed to identify any assets, yet
referred to the alleged items of property and the above items of property as if
the assets were itemized above or the jury had received the indictment, which it
had not. (ER 1019-1021.) The jury instructions for all money laundering were
also fatally defective by failing to detail the predicate unlawful activity by
omitting the assets alleged in the indictment, failure to define proceeds as profits,
and stating that a simple transfer of cash is sufficient to establish money
laundering. (ER 1021-1027.)
The court allowed expert testimony by two lawyer-witnesses on issues of
law. Undisclosed expert Radoslovich opined, over objection, on several legal
issues, including Zinnels ownership interest in System 3, the illegality of Zinnels
nondisclosure of System 3 to the bankruptcy court and to Zinnels ex-wife, the
illegality of helping paper up Zinnels bankruptcy fraud, and the extortionate

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nature of statements by Eidson. (ER 783-785, 805-811, 819, 883.) Radoslovich


was not disclosed as an expert, and admitted he was not knowledgeable in criminal
or bankruptcy law. (ER 792, 832.) Disclosed bankruptcy expert Edmund Gee
opined on which assets debtors must disclose, and the meaning and purpose of the
notice of the five-year maximum for false statements on a bankruptcy petition,
which Gee opined was a significant penalty. (ER 488A, 490-491, 496-497.)
The government was allowed, over objection, to introduce a large body of
evidence of the Zinnel/Wilbert settlement negotiations, including letters, emails,
testimony, and audio excerpts of meetings that were played for the jury repeatedly.
(ER 585-599, 784-792, 839-840, 879-881.) In all, the prosecution offered 20
settlement-related documents into evidence and played selected audio clips from
recorded settlement meetings 27 times. The prosecutors argued that this evidence
proved that Zinnels claim for payment by System 3 was invalid, the bankruptcy
was fraudulent, and their efforts to negotiate payment were illegal. (E.g., ER
1065-1068, 1133-1134.)
J.

Sentencing

The loss amount and number of victims were based solely sum of the
disputed and unverified claims (including new claims filed after the indictment),
and the number of claimants, lifted from the bankruptcy list of claims. The court
adopted the PSRs calculations of intended loss and number of victims, despite

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defense objections and contrary evidence. (ER 96, 98-99.)


The intended loss figure included Safecos bogus claim for $1,607,133,
which a federal judge dismissed before the bankruptcy because these amounts were
not incurred as losses. (ER 375-376, 392-393.) The intended loss figure also
improperly included a secured claim by First Bank for $115,000 which, as the
government conceded, could not be counted since no loss resulted. (ER 99.)
Zinnel extensively objected and provided evidence and offers of proof that
most claims were not compensable under the bankruptcy laws, were uncountable
under the Guidelines, and that other enhancements were erroneous. See Dkt. 300.
The judge failed to resolve most of Zinnels objections, and failed to explain
his decisions to impose 212 months, two years over the PSRs recommended
mega-sentence, and the maximum fine. He gave no consideration to Zinnels
disparity and mitigation arguments under 3553(a). (ER 1173-1207.) The court
pre-announced the sentence, and then repeatedly interrupted Zinnels allocution
and set arbitrary time and content limits. (ER 1207, 1210, 1240-1249.) The court
imposed the highest bankruptcy fraud sentence ever in the district, 212 months, the
maximum fine of $500,000, and inflated restitution. (ER 158, ZJN175; Exh.16.)
K.

Forfeiture

The court granted the governments motion for forfeiture of a $1,297,158.20


money judgment plus: (1) the Luyung Property, (2) Zinnel's home, (3) Done Deal,

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and (4) System 3, and ordered that the home and substitute assets be applied to the
money judgment. (ER 62-64, 152-155, 165-178.) In 2014, the court allowed
Wilbert to pay $2.8 million in lieu of forfeiture of 46% of System 3. (ER 65-68.)
SUMMARY OF ARGUMENT
I.

The evidence that Zinnel concealed three property interests not charged in

the indictment, the prosecutors argument that jurors could convict Zinnel of
bankruptcy fraud based on those uncharged concealments, and the inadequate jury
instructions enabled jurors to convict based on conduct not charged by the grand
jury. This constructive amendment or prejudicial variance requires reversal
because it is impossible to know whether the jury convicted Zinnel on the
uncharged conduct. Reversal is also required on the money-laundering counts,
which depended on the predicate offenses charged in Counts 1 and 2.
II.

The bankruptcy fraud instructions were fatally flawed as argued in Issue I,

and because they referred to the alleged and the above items of property with
no items listed. The money laundering instructions gave inadequate guidance on
specified unlawful activity and the meaning of proceeds, and improperly
instructed that a simple transfer of cash could satisfy the financial transaction
element and jurisdictional requirement of 18 U.S.C. 1956.
III.

The court erred in allowing secretly recorded evidence of settlement

negotiations between parties and their attorneys, based on improper pretrial

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findings of guilt. The evidence was used to prove the invalidity of disputed claims
and to establish criminal liability, in violation of Federal Rule of Evidence 408.
This evidence was prejudicial because the government used it pervasively
throughout the trial and arguments, and it impacted every count of conviction.
IV.

The court erroneously admitted prejudicial, inadmissible expert testimony

from two lawyers, Radoslovich and Gee, on conclusions of law, including the
disclosure obligations of bankruptcy debtors, Zinnels commission of bankruptcy
fraud, and that paying Zinnel would constitute helping money-laundering.
Radoslovich was not a disclosed or qualified expert, and the improper testimony
invaded the province of the jury and denied Zinnels Sixth Amendment rights.
V.

There was insufficient evidence of the financial transaction and

agreement with another culpable person elements as to Count 18.


VI.

The court committed numerous reversible procedural sentencing errors. The

sentence was procedurally and substantively unreasonable, and subjected Zinnel to


unwarranted disparate treatment.
ARGUMENT
I.

THE COURT AND PROSECUTORS CREATED A CONSTRUCTIVE


AMENDMENT OR PREJUDICIAL VARIANCE ON
COUNTS 1 AND 2 THAT TAINTED ALL COUNTS
The governments evidence and arguments that Zinnel committed

bankruptcy fraud by hiding properties that were not charged in the indictment, and

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the courts refusal to instruct the jury on which properties were charged in Counts
1 and 2, constructively amended the indictment, allowing the jury to convict Zinnel
for uncharged conduct, in violation of the Fifth Amendment.
A.

Standard of Review

This Court reviews this claim de novo because Zinnel objected to the jury
instructions for Counts 1 and 2, conveying the risk of conviction for unindicted
conduct if the charged property interests were not listed for the jury. United States
v. Ward, 747 F.3d 1184, 1189 (9th Cir. 2014). (ER 975-977, 983-985.)
B.

The Indictment, Trial Evidence and Jury Instructions

Count 1 in 4(a)-4(n) listed specific actions as ways and means of


concealing specified property to defeat the bankruptcy laws, and then alleged in 5
that Zinnel excluded from his bankruptcy interests in assets transferred or
concealed as alleged in 4(a)-4(n) above. (ER 181-184.) Count 2 alleged
fraudulent concealment of Zinnels interests in System 3, 4Results, Auto and Boat
Store, and Luyung, payments Zinnel was receiving from [System 3] through
Done Deal, and Zinnels interest in Done Deals bank account. (ER 185.)
The defense moved unsuccessfully for a bill of particulars.2 (ER 205-207.)
The government argued the indictment was sufficiently detailed. (ER 210-212.)
Before trial, the governments trial brief clarified Count 1 by identifying the

At the hearing, the district judge denied the motion because he mistakenly
believed the magistrate judge had already decided it. (ER 13.)
2

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specific property it contended Zinnel transferred pre-petition as follows: System 3,


4Results, Auto and Boat Store, Derian Eidson Client Trust Account, Zinnels use
of Done Deals bank account to pay expenses, and the Luyung Property. (ER 235236.) Neither the indictment nor the governments trial brief mentioned Zinnels
WAMU account, or alleged that Zinnel transferred or concealed Corporate
Control, Done Deal, or Zinnels interest in Done Deal. (ER 182.)
Neither Count 1 or 2 alleged that Zinnel concealed his personal WAMU
account, Corporate Control, the entire company of Done Deal, other assets of Done
Deal besides its bank account, or Zinnels interest in Done Deal. (ER 184-186.)
At trial, prosecutors presented evidence that Zinnel concealed and omitted
from his bankruptcy schedules: his WAMU account (ER 488-489, 890-904, 915,
915, 1333); Corporate Control, Inc. (ER 901-902); and Done Deal (ER 488B, 905908.) Orally and in writing, appellants requested jury instructions that would list
the assets charged specifically in Counts 1 and 2, to protect against conviction on
unindicted conduct. (ER 976-977, 232.) Zinnels lawyer argued:
theres been so much mentioned about bank accounts and companies
and these are not alleged in the indictment. it prevents jury confusion
because some people might be up there saying let's vote on North
Valley, let's vote on that WAMU check. And that's a problem for us
because we can't defend something when he's not indicted for it, yet he
could be found guilty of it on a different entity or interest. (ER 976.).
In opposition, the prosecutor pointed to the phrase among others in Count
1, implying that it included unstated property interests. (ER 976.) This was

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inaccurate because, while Count 1 had the phrase among others in the ways and
means section, 5 of Count 1 referred to the omitted interests listed in 4(a)-4(n),
without the qualifier among others. (ER 184.) In her arguments, the AUSA
failed entirely to address Count 2 (ER 976), which nowhere used the term among
others, and explicitly listed the property interests allegedly concealed. (ER 185.)
The Ninth Circuit has no model jury instruction for 18 U.S.C. 152(1) or
152(7). The court refused appellants requests to instruct the jury it was limited to
charged property interest as a basis for Counts 1 and 2. (ER 976-977.) The court
acknowledged the problem of leaving jurors without guidance on which property
interests they could consider, asking if the verdict forms and closing arguments
would specify which companies relate to which count. (ER 976.) The
prosecutor revealed that the verdict forms would not so specify, but assured the
court that closing argument would do so. Id. The judge was wrong to rely on the
prosecutors closing argument to protect Zinnel from this prejudicial variance.
The jury instructions allowed the jury to find Zinnel guilty of Counts 1 and 2
based on concealments not charged by the grand jury. As to Count 1, the jury was
instructed inter alia: You may find the defendant guilty if you find that all of the
above elements have been proven beyond a reasonable doubt as to at least one of
the alleged items of property for each defendant and you unanimously agree to that
item, without explaining what interests comprised the alleged items of property.

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(ER 1019, emphasis added.) As to Count 2, the jury was instructed inter alia: The
law does not require that the government prove that each and every one of the
above items of property was concealed. You may find the defendant guilty if you
find that all of the above elements have been proven beyond a reasonable doubt as
to at least one of the above items of property for each defendant and you
unanimously agree to that item. (ER 1020-1021, emphasis added).
Neither the instructions nor the verdict form identified the above items,
and the jury was never read or given the indictment. The verdict forms did not
itemize property interests alleged in Count 1 or 2. (ER 251-252.) The jurors were
not limited, as the Constitution required, to the properties charged in the
indictment.
Jury Instructions and verdict forms in similar bankruptcy fraud cases in the
Eastern District of California have complied with the law by itemizing specific
misstatements or property concealments that were charged in the indictment,
directing jurors to agree unanimously on at least one misstatement or asset listed,
and check a box next to the asset(s) agreed on.3 However, the government and the
court declined to use that format here. (ER 977.)
In closing and rebuttal arguments, government counsel argued that Zinnel

E.g. United States v. Burke, CR 05-365-JAM; United States v. Klassy, CR 05503-MCE. The jury instructions and verdict forms in these cases specified the
charged interests. (ZJN009, 0013, 0017, 0021; Exh. 1-4.)

3

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concealed the WAMU account, Corporate Control, and the entire company of and
Zinnels interest in Done Deal, and that concealment of any of those assets could
serve as the basis to find Zinnel guilty of Counts 1 and 2. (ER 1053-1054, 11161119.) For example, as to Count 1 the prosecutor argued: But does he have a
beneficial interest in Done Deal? Absolutely. And as you heard in the jury
instructions given by the judge, concealment of any one of these pieces of property
is sufficient for conviction. (ER 1048.)
On Count 2, the prosecutor argued that Zinnels WAMU account isn't here
on Schedule B, personal property, from his bankruptcy schedules, and that Zinnel
concealed an equitable interest in Done Deal. (ER 1053, 1333.) She then argued
jurors could convict based on any one of: 4Results, Luyung, Auto and Boat. An
ownership interest in System 3. Equitable control of Done Deal. And listed
personal bank account. Just as in Count 1, any one item of concealed property is
sufficient. (ER 1054.)
In rebuttal, the other prosecutor displayed the bankruptcy schedules and
argued: (1) Where is Done Deal? Done Deal is nowhere; (2) Zinnel's personal
account is not disclosed; and (3) in the 341 hearing,Zinnel says all the assets
of Corporate Control were sold in 2002 and went to First Bank. (ER 1116, 1119.)
The prosecutions arguments about uncharged assets were so memorable that the
judge recalled them at sentencing eight months later. (ER 1251.) Those arguments

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made it likely that jurors convicted Zinnel based on the uncharged transfer or
concealment of the uncharged WAMU account, Corporate Control and/or Done
Deal, and it is impossible to ascertain that they did not.
C.

The Jury Instructions and the Governments Arguments, Allowed


the Jury to Convict Zinnel Unconstitutionally on Uncharged Conduct

A person is entitled under the Fifth Amendment not to be held to answer for a
felony except on the basis of facts which satisfied a grand jury that he should be
charged. He is entitled to fair notice of what he is accused of, and not to be twice put
in jeopardy on the accusation. United States v. Tsinhnahijinnie, 112 F.3d 988, 992
(9th Cir. 1997); U.S. Const. Amend. V. In federal court a defendant may not be
convicted of an offense different from that specifically charged by the grand jury.
United States v. Stewart Clinical Laboratory, Inc., 652 F.2d 804, 807 (9th Cir.
1981). [T] he indictment's charges may not be broadened by amendment, either
literal or constructive, except by the grand jury itself. United States v. Adamson, 291
F.3d 606, 614 (9th Cir. 2002)(citing Stirone v. United States, 361 U.S. 212, 215-16
(1960)). An amendment to an indictment occurs when the essential elements of the
offense contained in the indictment are altered to broaden the possible bases for
conviction beyond what is contained in the indictment. United States v. Dennis,
237 F.3d 1295, 1299 (11th Cir.), cert. denied, 534 U.S. 821 (2001). Neither the
statutory citation nor the heading in an indictment is considered part of the indictment.
United States v. Pazsint, 703 F.2d 420, 423 (9th Cir. 1983).

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Amending the indictment to charge a new crime through the jury instructions
constitutes per se reversible error. Stewart Clinical Laboratory, at 807. Just as in
Tsinhnahijinnie, the problem in this case is thus not that the government failed to
prove an element of the crime, but that it failed to comply with the requirements of the
Constitution. Id. Whether deemed constructive amendment or prejudicial variance,
the error here was unconstitutional and prejudicial because it enabled the jury to
convict Zinnel on Counts 1 and 2 based on uncharged concealment of three assets.
This error violated Zinnels constitutional rights to notice, freedom from double
jeopardy, and to be convicted only on charges found by the grand jury. The
indictment gave no notice that Zinnel was being charged in Counts 1 and 2 with
transferring or concealing the WAMU account, Done Deal and Corporate Control.
Given the governments exhortations to jurors to convict based on any of these
uncharged property interests, it is impossible to find that Zinnel was not convicted of
Counts 1 and 2 based on concealment of property not charged by the grand jury.
In Adamson, the indictment charged that the defendant falsely stated that
upgrades to servers had been made, whereas the trial evidence proved that he told
a different lie; [about] how upgrades had been made. Id., 291 F.3d at 616. The
trial court instructed the jury in Adamson that it must agree unanimously on at least
one falsehood, but did not specify the falsehoods charged in the indictment. Id. at
611. This Court held that this was a prejudicial variance, because the court instructed

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the jury in such a way as to allow the defendant to be convicted on the basis of
conduct other than that with which he was charged. Id. at 616.
In Ward, this Court reversed on nearly identical facts. While the indictment
named two identity theft victims, the jury heard testimony evidence that Ward also
victimized others. The trial court instructed the jury that it could convict if the
defendant stole the identity of a real person, without specifying any names. This
Court reversed, reasoning that where the trial included evidence of both charged and
uncharged conduct that would satisfy an element of an offense, the jury instructions
did not limit the jury to the charged conduct, then the defendant's conviction could be
based on conduct not charged in the indictment. That possibility creates a constructive
amendment of the indictment, requiring reversal, because it destroy[s] the defendant's
substantial right to be tried only on charges presented in an indictment. Ward, 747
F.3d at 1186-1188, 1191 (quoting Stirone, 361 U.S. at 217). See also United States
v. Shipsey, 190 F.3d 1081, 1085 (9th Cir. 1999). This is exactly what occurred here.
Ward and Adamson compel reversal of Zinnels bankruptcy fraud
convictions. The variation between pleading and proof, the prosecutors arguments
encouraging jurors to convict Zinnel on Counts 1 and 2 based on concealing
uncharged assets, and the defective jury instructions affected Zinnels substantial
rights under the Fifth and Sixth Amendments. Stirone, 361 U.S. at 218-219. See
United States v. Lloyd, 807 F.3d 1128, 1164 (9th Cir. 2015).

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This Court must also reverse all of Zinnels money laundering convictions
(Counts 4-12, 15-18) because they were predicated on the defective bankruptcy
fraud convictions. (ER 190, 192-194, 196.) United States v. Garrido, 713 F.3d
985, 998-999 (9th Cir. 2013), cert. denied, __ U.S. __, 134 S.Ct. 1333 (2014)
(reversing 1957 convictions where the alleged criminally-derived property was
derived from defective fraud conviction); Shipsey, 190 F.3d at 1083, 1088
(reversing 1956 convictions predicated on reversed theft convictions).
D.

Alternatively, Denial of a Bill of Particulars Was Prejudicial

If this Court somehow finds that Count 1 or 2 was broad enough to include
the WAMU account, Done Deal and Corporate Control, then the district court
abused its discretion in denying the Bill of Particulars. Zinnel was surprised at trial
by the governments argument that jurors could convict him for concealing three
uncharged properties, having relied on the indictment and the governments trial
brief (which functioned as a Bill of Particulars). (ER 235-236.) See United States
v. Rodrigues, 678 F.3d 693, 702 (9th Cir.), cert. denied, 133 S. Ct. 359 (2012).
II.

THE COURT PREJUDICIALLY ERRED IN INSTRUCTING THE JURY


A.

Standard of Review

This Court reviews the language and formulation of jury instructions for
abuse of discretion. United States v. Christensen, 801 F.3d 971, 990 (9th Cir.
2015). Omitting an element of an offense is constitutional error that requires reversal,

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unless the error was harmless beyond a reasonable doubt, i.e., if there is no
reasonable possibility that the error materially affected the jurys deliberations.
United States v. Pierre, 254 F.3d 872, 877 (9th Cir. 2001).
B.

The Jury Instructions on Bankruptcy Fraud Were Fatally Flawed

This claim incorporates Issue I above. The jury instructions on Bankruptcy


Fraud (ER 1015-1021) violated Zinnels Fifth and Sixth Amendment rights to be tried
only on charges in the indictment and to notice of the charges against him, and were
also prejudicially confusing. Zinnel timely objected. (ER 232, 975-977, 983-984.)
1.

The Bankruptcy Fraud Instructions Were Inadequate Because


They Omitted the Property Allegedly Transferred or Concealed

A defendant can be found guilty of bankruptcy fraud only upon proof that he
knowingly transferred or concealed the property stated in the indictment. 18 U.S.C.
152(1) and 152(7). Of the seven circuits that have pattern instructions for
sections 152(1) or 152(7), six require a description of the property the indictment
alleged was transferred or concealed.4 The description of the property is critical to
allow preparation of a defense. E.g., 10th Cir. Pattern Crim. Jury Instr. 2.10 (Rev.
2011), cmt. (the property should be sufficiently identified in the instructions)
(quoting United States v. Arge, 418 F.2d 721, 724 (10th Cir. 1969)).

See First Cir. Pattern Crim. Jury Instr. 4.18.152(1) and 4.18.152(7); Third Cir.
Manual of Model Crim. Jury Instr. No. 6.18.152(1) (Rev. 2012); Seventh Cir. Pattern
Crim. Jury Instr. 18 U.S.C. 152(1) (Rev. 2013); Eighth Cir. Model Crim. Jury Instr.
No. 6.18.152A (Rev. 2014); Tenth Cir. Pattern Crim. Jury Instr. No. 2.10 (Rev. 2011);
Eleventh Cir. Pattern Jury Instr. (Crim.) No. 2 (Rev. 2010). (ZJN054-071; Exh. 8.)
4

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In creating the bankruptcy fraud instructions given here (ER 221-226), the
government borrowed from United States v. Klassy, CR 05-503-MCE (E.D. Cal.).
However, the government omitted Klassys list of the property charged. (ZJN017018, Exh. 3.) The jury instructions in United States v. Burke, CR 05-365-JAM
(E.D. Cal.), also authored by the same U.S. Attorneys Office, also listed the
properties alleged in the indictment. (ZJN009; Exh. 1.) By omitting which items of
property the jury could consider, the jury instructions for Counts 1 and 2 were
inadequate to guide the jury. Reversal is warranted, as stated in Issue I, because it is
impossible to determine if this error materially affected the verdicts.
2.

The Instructions on Counts 1-2 Created Juror Confusion

In addition to omitting the property interests alleged in the indictment, the jury
instructions for Counts 1 and 2 were prejudicially confusing because each instruction
referred to property items as if they were identified elsewhere. The instructions made
reference to at least one of the alleged items of property for Count 1 (ER 1019),
and as to at least one of the above items of property as to Count 2. (ER 10201021.) These phrases were obviously borrowed from the jury instructions in Burke
and Klassy (ZJN009, 017, 021-022; Exh. 1, 3.) However, unlike in those cases,
Judge Nunley never identified the alleged items of property or the above items
of property. The jury never got the indictment, and the verdict forms did not
identify the interests. (ER 251-252.) The instructions created unresolvable jury

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confusion. Jurors were left to glean the possible items of property from the
prosecutors arguments, which urged them to convict on uncharged conduct. (ER
1053-1054, 1116-1117, 1119.) It cannot be said that there is no reasonable
possibility that this error materially affected the verdict. Pierre, 254 F.3d at 877.
C.

The Jury Instructions on Money-Laundering Were Fatally Flawed

All the money laundering convictions (Counts 4-12 and 15-18) were
unconstitutionally defective, because they rested on the specified unlawful
activity of bankruptcy fraud as described in the defective jury instructions for
Counts 1-2, and because money laundering convictions must fall where the
predicate conviction is reversed. Garrido, at 998-999; Shipsey, at 1083, 1088.
As to the 1957 counts, the jury was also not instructed that it must find the
property was in fact derived from specified unlawful activity, as required by Ninth
Circuit Model Criminal Jury Instruction 8.150. The indictment alleged that the
criminally derived property was money derived from a violation of 18 U.S.C.
152. (ER 190, 192-194, 196.) The jury was erroneously instructed that it must find
the property was, in fact, derived from bankruptcy fraud, without specifics. (ER
51.) The jury was left to select any conduct it felt was bankruptcy fraud.
This was a constitutional error requiring reversal, because it is impossible to
find the error harmless beyond a reasonable doubt. Pierre, 254 F.3d at 877. This
Court cannot determine whether the jury used (1) one of the uncharged property

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interests (the WAMU account, Corporate Control, Done Deal or equitable control of
Done Deal) as the predicate unlawful activity to convict Zinnel on the 1956 counts,
and/or (2) used one of these same uncharged property interests or some other conduct,
unlawful or lawful, as the predicate unlawful activity for the section 1957 counts.
Second, the judge failed to instruct the jury that, as to both section 1956 and
1957 counts, proceeds means profits rather than gross proceeds. See United States
v. Santos, 553 U.S. 507, 514 (2008) (plurality); United States v. Bush, 626 F.3d
527, 536 (9th Cir. 2010) (applying Santos to 1957). In United States v. Van
Alstyne, 584 F.3d 803 (9th Cir. 2009), this Court held that absent a profits
instruction, Santos required reversal where the transactions charged as money
laundering were [t]ransactions that normally occur during the course of running
a[n illegal scheme]. Van Alstyne, 584 F.3d at 816 (quoting Santos, 553 U.S. at
517). Here, simple deposits of System 3 checks (Counts 4-12) and the payments
charged in Counts 15-17 were normally occurring transactions under Santos.
This error prejudiced Zinnel because System 3 repaid his 2001 investment
(ER 557, 564), and the jury was not instructed it could convict only if profits, as
distinguished from the initial investment, were concealed or spent. The refunded
investment should have been credited against some of the checks deposited as
charged Counts 4-9 under 1956 (requiring not guilty verdicts on some counts),
and again from the expenditures charged in the 1957 counts (Counts 15-17).

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This error meets the plain error standard. The error was plain because this
instruction was clearly required by Santos, and the jury instructions failed to define
a key term in an element of the offense. The error affected his substantial rights
because the jury was allowed to convict Zinnel on Counts 4-9 and 15-17 based on
receipt and expenditures of $600,000 of initial investment rather than profits.
Unlike United States v. Alghazouli, 517 F.3d 1179, 1189-1190 (9th Cir.), cert.
denied, 555 U.S. 904 (2008), the jury was not instructed by alternate means, such
as by correctly defining proceeds and providing a list of the property
concealments in verdict forms of the indictment. The error seriously affects the
fairness, integrity, or public reputation of judicial proceedings, United States v.
Cannel, 517 F.3d 1172, 1175-77 (9th Cir.), cert. denied, 555 U.S. 854 (2008),
because the judge disregarded Supreme Court precedent, causing nine convictions.
D.

Joinder in Eidsons Jury Instructions Arguments:

Finally, Zinnel joins all arguments in Eidsons Opening Brief in Case. No.
14-10196, that the money laundering instructions unconstitutionally instructed the
jury that the simple transfer of cash from one person to another may constitute a
money laundering offense. (ER 50.) This unconstitutional expansion of 1956
allowed the jury to convict Zinnel on Counts 4-12 and 18 without finding the
essential element of a financial transaction and the jurisdictional prerequisite of a
nexus to interstate commerce. In addition, this error requires reversal of Zinnels

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1957 convictions (Counts 15-17), because the court instructed the jury on coconspirator liability for Counts 13-17, and that it could convict on 1957 based on
membership in the conspiracy charged in Count 18, at the time the offense
charged in Counts 4-12 and/or 19 was committed. (ER 53.) Since the jury found
Zinnel guilty of Count 18 and Eidson guilty of Count 19, they may have found
Zinnel guilty of Counts 15-17 based on the simple transfer of cash instruction.
These instructional errors require reversal of all Zinnels convictions.
III.

THE DISTRICT COURT IMPROPERLY REFUSED TO


EXCLUDE EVIDENCE OF SETTLEMENT NEGOTIATIONS
IN VIOLATION OF FEDERAL RULE OF EVIDENCE 408
Zinnel joins all arguments raised in Eidsons Opening Brief regarding

erroneous admission of settlement negotiation evidence under Federal Rule of


Criminal Procedure 408.
A.

The Error Was Prejudicial to Zinnel

The pervasive evidence and arguments concerning settlement negotiations


were especially prejudicial to Zinnel. In addition to prejudice discussed in Eidsons
brief, the evidence of settlement talks was especially damning to Zinnel. For
example, Wilbert testified: I told Steve Zinnel that he had lied to the bankruptcy
about ownership. (ER 591.) Wilbert and Radoslovich asserted throughout the
recordings and testimony that Zinnel committed bankruptcy fraud and that any
pay-out by System 3 would be criminal[ly] wrong. (ER 784-785, 791, 805, 809.)

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The Rule 408 errors also prejudiced Zinnel on the money laundering counts.
They rested on the predicate offenses of bankruptcy fraud, and the settlement
evidence was used to prove the specified unlawful activity element of money
laundering. In addition, the prosecutors argued that Zinnels and Eidsons efforts
to obtain $4 million proved conspiracy to launder proceeds of bankruptcy fraud.
(ER 1134.) The settlement evidence was the only evidence on Count 18.
The prosecutors arguments amplified the prejudice to Zinnel. In argument,
the AUSAs played 8 audio clips, and referenced the negotiations often, arguing
that they established Zinnels guilt on all counts. (ER 1048, 1127, 1114-1116,
1132-1135.) For example, AUSA Segal argued that Eidson lied about involvement
in Zinnels bankruptcy because she knows that the bankruptcy is red hot with
fraud. (ER 1133-1134.) The negotiations evidence was essential to the
prosecution case against Zinnel. Without it, no convictions were possible.
B.

The District Court Also Abused its Discretion in


Admitting Evidence of Family Court Negotiations

The court erroneously admitted Zinnels 2001 email to his ex-wife, which
stated: that after Zinnel gets driven into bankruptcy by what both knew was an
inevitable lawsuit by Safeco, there will be no subjectivity to what my
compensation will be. Your support will almost go to zero and you will have to
go to work. As soon as the bank and the bonding company sue me for my
personal obligation, I will file personal bankruptcy as well. (ER 920, 1334.) As

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part of the negotiations in their acrimonious divorce, Zinnel reminded his ex-wife
that he was being driven into bankruptcy (ER 921) and the resulting drop in
income would reduce her bargaining power. (ER 1585.) Thus, it falls squarely
within the parameters of Rule 408(a)(2). The purposes for which this evidence
was used also defied Rule 408. The government argued this evidence proved
criminal liability (i.e., guilt) because it showed he was planning to fake his
financial death as the prosecutor argued. (ER 1048, 1135.) See United States v.
Davis, 596 F.3d 852, 859-861 (D.C. Cir. 2010).
All the settlement evidence prejudiced Zinnel. It featured prominently and
pervasively in evidence and arguments, and was used to establish guilt on all
counts. (ER 477, 916-917, 1048, 1135, 1334.) It was the sole evidence on Count
18. This Court must reverse on all counts, and should exclude at retrial all
statements made during negotiations, and all testimony about negotiations.
IV.

THE DISTRICT COURT ERRED IN ADMITTING PREJUDICIAL


LEGAL CONCLUSIONS BY LEGAL EXPERTS

The court allowed the government to elicit, over objection, prejudicial legal
conclusions from undisclosed and unqualified expert Frank Radoslovich, System
3s attorney, on legal issues such as the illegality of Zinnels nondisclosure of an
interest in System 3 in bankruptcy and the need to reopen the bankruptcy to cure
the nondisclosure. (ER 783-785, 805-811, 819, 883.) Radoslovichs legal
conclusions reached all counts against Zinnel, invaded the province of the jury, and

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denied appellants substantial rights to fair trial under the Sixth Amendment. In
admitting this testimony, the court abused its discretion and abdicated its duty to
ensure expert testimony is both reliable and relevant. Fed.R.Evid. 702. The
government elicited from disclosed bankruptcy expert Edmund Gee improper legal
conclusions concerning debtors disclosure obligations and penalties Zinnel
purportedly faced for nondisclosure. (ER 488A, 490-491, 496-497.)
A.

Standard of Review

This Court reviews for abuse of discretion the district courts evidentiary
rulings. United States v. Angwin, 271 F.3d 786, 798 (9th Cir. 2001), cert. denied,
535 U.S. 966 (2002). Evidentiary rulings are reversible if they more likely than
not affected the verdict. Id.; Fed.R.Evid. 103(a). Even if the individual errors do
not rise to the level of reversible error, their cumulative effect may be so
prejudicial that reversal is warranted. United States v. Wallace, 848 F.2d 1464,
1475-76 (9th Cir. 1988). Zinnel timely objected to Radoslovichs testimony. Plain
error applies to Gees testimony. Fed.R.Crim.P. 52(b).
B.

Objections to Radoslovichs Expert Testimony

When the prosecutor asked Radoslovich if anyone else held any interest in
System 3, Zinnels counsel objected calls for a legal conclusion, which was
overruled. (ER 772-773.) Radoslovich testified the Zinnel brothers owned
interests in System 3. (ER 773-774.) The prosecutor then asked Radoslovich to

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explain the relevance of judicial estoppel to the discussions between System 3


and Zinnel. Zinnels lawyer objected: sounds like an expert opinion, which was
overruled. (ER 774-775.) The AUSA then asked to what degree did you think
that you had Zinnel and Eidson over a barrel? (ER 777.) Zinnel objected.
At sidebar, the prosecutor said he intended to elicit System 3s position
about its legal ownership. (ER 776-778.) Zinnel objected that Radoslovich was
not declared an expert, and objected to Radoslovichs testifying to his legal theory
that Wilbert could assert judicial estoppel based on the fraud that [Zinnel]
committed in the bankruptcy, which the AUSA confirmed he planned to elicit.
(ER 240, 778-780.) Zinnel also objected on relevance grounds to Radoslovichs
opinion that Zinnel was over a barrel (i.e., estopped). Eidson joined. Later,
defense counsel reimpose[d their] prior objections. (ER 806.) The court
overruled defense objections to Radoslovichs opinion testimony. (ER 780-781.)
C.

Radoslovichs Legal Opinion Testimony

Based on this ruling, Radoslovich testified on key legal issues as follows:


(1) Steve Zinnel owned an interest in System 3 (ER 773-774);
(2) Zinnels failure to disclose the interest on his bankruptcy schedules was a
huge problem (ER 798);

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(3) the only right or honest resolution was to reopen the bankruptcy and
disclose Zinnels interest in System 3 (ER 805-806, 808, 811), and that that if
they were to reopen the bankruptcy, we might not all be here today (ER 840);
(4) absent disclosing Zinnels interest, payment by System 3 under the
buyout agreement would be criminal[ly] wrong, and would be helping an
individual paper up a transaction that was fraudulent (ER 805-806, 1469);
(5) Zinnel would have difficulty getting a court to enforce his interest in
System 3 due to his wrongful nondisclosure in the bankruptcy (ER 783-784);
(6) Zinnels wrongful concealment of assets from his ex-wife created a risk
that she would sue System 3 if the company paid Zinnel (ER 784);
(7) Wilbert and System 3 risked a potentially devastating civil law suit or
criminal charges if System 3 paid Zinnel according to a buyout agreement, because
Wilbert knew of Zinnels nondisclosures in bankruptcy (ER 784-785); and
(8) Eidsons statements to Radoslovich concerning what might happen if no
agreement were reached constituted an extortion-like threat. (ER 819, 883.)
D.

Radoslovich Was Not Noticed As An Expert

Failure to properly disclose Radoslovich as an expert witness and provide a


summary of his anticipated testimony rendered his expert testimony inadmissible.
Fed.R.Crim.P. 16(a)(1)(G); Lloyd, 807 F.3d at 1153. Radoslovichs testimony was
based on his legal training, comprised opinions rather than percipient observations,

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and addressed legal questions essential to the jurys determinations. Moreover,


Radoslovich was admittedly unqualified to give expert opinions regarding criminal
or bankruptcy law. (ER 792, 832.) Fed.R.Evid. 702.
E.

Expert Testimony on Issues of Law is Inadmissible

Admitting Radoslovichs impermissible expert legal testimony was an abuse


of discretion. Established doctrine prohibits expert testimony on an ultimate issue
of law, the province of the court, or how the facts apply to the law, the jurys role.
Brodie, 858 F.2d at 495-496 (expert testimony that taxpayers owed no taxes). See
United States v. Zipkin, 729 F.2d 384, 387 (6th Cir. 1984) (bankruptcy judges
testimony on matters of law); United States v. Messner, 107 F.3d 1448, 1454 (10th
Cir. 1997) (U.S. Trustees attorneys testimony on how assets should be disclosed).
The court applied this rule to exclude a defense-sponsored expert. (ER 37-39.)
F.

Admitting Radoslovichs Legal Opinions Was Prejudicial

The erroneous admission of the legal opinions was prejudicial and more
likely than not affected the verdicts on all counts. Angwin, 271 F.3d at 798.
Radoslovich opined that Zinnel would have trouble getting a court to enforce his
interest due to his bankruptcy fraud (ER 774-775, 783-784), and that Zinnels
nondisclosure of System 3 was illegal and required him to come clean (ER 798,
805-806, 808, 811), and that payments from System 3 were the proceeds of illegal
conduct (ER 791, 811) each constituted opinions of Zinnels guilt on all charges.

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Radoslovichs testimony on System 3s exposure to criminal liability were


conclusions that appellants were guilty of conspiracy and money laundering. He
clarified his recorded reply to Eidson about helping an individual paper up a
transaction that was fraudulent (ER 1469), opining that, because he and Wilbert
knew of Zinnels nondisclosure in the bankruptcy, if they were going to fund a
buyout agreement like this, we would [be] doing somethingcriminal wrong,
ethically wrong. (ER 805.) While Radoslovich did not use the terms bankruptcy
fraud and money laundering, this was his legal opinion that the proposed
agreement was attempted money-laundering, and the payout funds would be
proceeds of bankruptcy fraud. The prosecutor adopted Radoslovichs judicial
estoppel theory in rebuttal argument. (ER 1127.) Radoslovichs legal conclusion
that Zinnel wrongfully concealed assets from his ex-wife was prejudicial because it
buttressed the governments theory that Zinnels motive for bankruptcy fraud was
to deprive his ex-wife of child support payments. (ER 1051, 1115.)
Finally, Radoslovichs opinion that Eidson made an extortion-like threat
(ER 883) was also highly prejudicial to Zinnel. While Zinnel was not charged with
extortion, extortion is an inflammatory legal term and a crime about which expert
testimony was improper. This statement portrayed Eidson as a deliberate criminal,
and implied that her criminal knowledge and motives were shared by Zinnel.

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It is highly likely the jury was persuaded to adopt Radoslovichs opinions by


his expertise as a lawyer participating in the negotiators, the judges stamp of
approval by overruling the objections, and the prosecutors emphasis in argument.
(ER 1127.) [I]t is the sole function of the judge to instruct the jury on the law.
Zipkin, 729 F.2d at 387. Radoslovichs legal opinions usurped the role of the judge
to give the jury the law, and supplanted the jurys independent evaluation of the
evidence and application of the law to the facts. This violated Zinnels substantial
rights to due process, fair trial, and to have the jury decide the charges against him.
G.

Prejudicial Expert Testimony On Issues Of Law By


Bankruptcy Expert Gee Was Reversible Plain Error

Despite the governments recognition that a lawyers testimony about


whether a defendants conduct complied with bankruptcy law would be improper
(ER 240-241), the prosecutor elicited from its bankruptcy expert Edmund Gee
precisely such improper testimony. Gee testified that: (1) the debtor is not legally
allowed to pay off a debt during bankruptcy (ER 496); (2) the debtor cannot legally
decide what to disclose, but rather must disclose any interest that conceivably can
come in, (ER 496-497); (3) a bankruptcy debtor is required to disclose an interest
in a bank account if the debtor has an ATM card or a signature card to another
persons account (ER 490-491); and (4) that the penalty for bankruptcy fraud is
five years in prison, and is a significant penalty. (ER 488A.) This was
prejudicial plain error warranting reversal.

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Because there was no defense objection, the plain error standard applies.
Relief for plain error is available if there has been (1) error; (2) that was plain; (3)
that affected substantial rights; and (4) that seriously affected the fairness,
integrity, or public reputation of the judicial proceedings. United States v. Cannel,
517 F.3d 1172, 1175-77 (9th Cir. 2008).
Gees improper testimony satisfied the plain error standard. As argued
above, the prohibition on expert opinion concerning matters of law is wellestablished. The government contravened its own promise in its trial brief that Mr.
Gee will not be testifying as to any ultimate issue. (ER 240-242.) Gees legal
opinions listed above were all improper expert opinions on bankruptcy law and
ultimate issues of guilt, even though Gee omitted Zinnels name from his opinions.
Gee also impermissibly testified that the maximum penalty for bankruptcy
fraud is five years in prison, and that the reason for the warning on the bankruptcy
petition was to apprise the debtor that he must be truthful or face a significant
penalty. (ER 488A.) This testimony violated the prohibition on a jurys
consideration of punishment. United States v. Frank, 956 F.2d 872, 879-880 (9th
Cir.), cert. denied, 506 U.S. 932 (1992). This was plain error.
Gees legal opinions were highly prejudicial and more likely than not
affected the verdict, Angwin, 271 F.3d at 798, because they usurped the role of the
judge to establish the law, and of the jury to decide guilt by applying the law to the

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facts. Moreover, the testimony about the maximum penalty falsely lulled jurors
into believing that Zinnel only faced five years if convicted, when in fact he faced
(and got nearly) twenty years in prison.
The errors affected Zinnels substantial rights, especially when considered
cumulatively with Radoslovichs improper legal opinions. Gee testified that
bankruptcy law required certain disclosures which the evidence arguably showed
that Zinnel did not make, and prohibited actions which the evidence arguably
showed that Zinnel did, which all went to the heart of the bankruptcy fraud
charges, and the predicate specified unlawful conduct element of the money
laundering charges. Gees testimony was prejudicial because it constituted stark
legal opinions that went directly to guilt on all charges, by a declared bankruptcy
law expert. Zipkin, 729 F.2d at 387. Because Zinnels own expert was precluded
from testifying to the contrary, the jury was highly likely to rely on Gees opinions.
Gees opinions were also wrong. Bankruptcy Trustee Reynolds testified that
Zinnels signing authority for Done Deal and use of a credit card for Done Deal
doesnt necessarily mean that he had to declare the credit card as an asset. (ER
910-911.) Regardless of Reynolds testimony, Gees testimony still was highly
prejudicial because the jury would likely accept the testimony of the bankruptcy
expert over that of a former trustee. Zipkin, 729 F.2d at 387. This testimony
seriously affected the fairness and integrity of the trial because the court abdicated

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its duty to provide the law, and to prevent government experts from usurping the
roles of judge and jury, and because the jurys verdict was likely based on this
improper testimony. A new trial is required under United States v. Christian, 749
F.3d 806, 813 (9th Cir. 2014) because the improper expert testimony by both
lawyer-witnesses actually prejudiced Zinnel.
V.

THERE WAS INSUFFICIENT EVIDENCE AS TO COUNT 18


A.

Standard of Review

Zinnel joins the Standard of Review for sufficiency of the evidence in Eidsons
brief.
B.

There Was Insufficient Evidence of Interstate Commerce and


Agreement with a Culpable Person for Count 18

Zinnel joins all of Eidsons insufficiency of the evidence arguments. The


government utterly failed to prove the element and jurisdictional requirement of
Count 18 that the buy-out that was the subject of the alleged agreement involved or
would have involved a financial transaction as required by 1956(c)(4) or a
monetary transaction by, through or to a financial institution affecting interstate
commerce as required by 1957.
The failure to prove Eidsons knowledge that the $4 million was the
proceeds of bankruptcy fraud also compels reversal of Count 18 as to Zinnel,
because it means that there was insufficient evidence that Zinnel conspired with
any culpable person. Eidson was the only co-conspirator alleged in the indictment.

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(ER 196.) Therefore, Zinnels conviction on Count 18 must be reversed without


retrial.
VI.

THE DISTRICT COURT COMMITTED NUMEROUS


PROCEDURAL SENTENCING ERRORS

The court disregarded the steps required by United States v. Carty, 520 F.3d
984, 992-994 (9th Cir.) (en banc), cert. denied, 553 U.S. 1061 (2008). The result
was a sentencing plagued by significant procedural errors. Gall v. United States,
552 U.S. 38, 51 (2007).
A.

Standard of Review

This Court reviews a district court's interpretations of the Sentencing


Guidelines de novo, and reviews factual findings on enhancements and restitution
for clear error, and application of the Guidelines for abuse of discretion. United
States v. Kimbrew, 406 F.3d 1149, 1151 (9th Cir. 2005). This Court reviews de
novo: compliance with Federal Rule of Criminal Procedure 32, United States v.
Houston, 217 F.3d 1204, 1206 (9th Cir. 2000); issues of constitutional law, United
States v. Berger, 587 F.3d 1038, 1042 (9th Cir. 2009); denial of meaningful
allocution, United States v. Navarro-Flores, 628 F.2d 1178, 1184 (9th Cir. 1980);
and the legality of a restitution order. United States v. Bussell, 504 F.3d 956, 964
n.9 (9th Cir. 2007), cert. denied, 555 U.S. 812 (2008).
This Court has repeatedly recognized but not resolved an intra-circuit split
on whether application of the Guidelines to the facts is reviewed de novo or for

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abuse of discretion. See e.g. United States v. Brown, 771 F.3d 1149, 1155 n.5 (9th
Cir. 2014); United States v. Staten, 466 F. 3d 708, 713 n.3 (9th Cir. 2006). De
novo review should apply here, given that application of the Guidelines to the facts
is a mixed question of fact and law.
This Court must first determine if the lower court committed a significant
procedural error, such as failing to calculate (or improperly calculating) the
Guidelines range, treating the Guidelines as mandatory, failing to consider the
3553(a) factors, selecting a sentence based on clearly erroneous facts, or failing to
adequately explain the chosen sentence. Gall, 552 U.S. at 51.
If so, then this Court must remand for resentencing pursuant to 18 U.S.C.
3742(f), without reaching whether the sentence as a whole is reasonable in light of
3553(a). United States v. Cantrell, 433 F.3d 1269, 1280 (9th Cir. 2006). If this
Court finds no procedural error, then it shall evaluate the sentence under section
3553(a) for substantive reasonableness under an abuse of discretion standard.
Gall, at 51; Carty, 520 F.3d at 993-994. This Court does not treat guideline
sentences as presumptively reasonable. Id.
B.

Intended Loss

The court found the intended loss was $3,615,758.30, based on the PSRs
so-called discharge figure, and added 18 levels. U.S.S.G. 2B1.1(b)(1)(J).
(1181-1182; PSR 21, ZSER 7). The PSR lifted this figure from the list of

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unverified claims in the reopened bankruptcy. Neither the government, the trustee,
nor any court evaluated any claim listed in the PSR for truth or validity. The court
failed to require the government to carry its burden to prove any fact to support any
enhancement. United States v. Ameline, 409 F.3d 1073, 1085-86 (9th Cir. 2005)
(en banc). The proven loss was zero.
Zinnels factual objections to the PSR's calculations, Dkt. 300, triggered the
governments obligation to submit clear and convincing evidence to support the
18-level mega-enhancement for loss.5 Fed.R.Crim.P. 32(i)(3)(B). The government
chose instead to rely solely on Zinnel's bankruptcy schedules, and offered no
evidence at sentencing. The prosecutor announced that the loss calculation was
all academic [because] there was a trial herewe proved it beyond a reasonable
doubt, and called Zinnel's bankruptcy petition the gold standard of evidence.
(ER 1176, 1180-1181.) This was inaccurate, because every listed claim was
disputed, unliquidated, or contingent, several were not dischargeable or were
uncountable under U.S.S.G. 2B1.1, cmt. n.3(D), and according to the
governments expert, claims may be scheduled even if meritless. (ER 492-493).
This Circuit requires strict compliance with Rule 32. United States v.
Pineda-Doval, 614 F.3d 1019, 1040 (9th Cir. 2010). [W]hen a defendant raises

The court found that due process required the clear and convincing evidence
standard of proof for facts supporting loss, citing United States v. Jordan, 256 F.3d
922, 926, 930 (9th Cir. 2001), but refused to apply this standard to all
enhancements as required by Jordan. (ER 94-96, 1160.)
5

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objections to the PSR, the district court is obligated to resolve the factual dispute,
and the government bears the burden of proof.... The court may not simply rely on
the factual statements in the PSR, as the court did here. Ameline, 409 F.3d at
1085-86; Fed.R.Crim.P. 32(i)(3)(B).
While the court is afforded wide latitude to determine the amount of loss,
it still must make a reasonable estimate of the loss, given the available
information. Bussell, 504 F.3d at 960; U.S.S.G. 2B1.1, cmt. n.3(C). Where the
government offers no evidence, the loss finding must be vacated. See United
States v. Lake, 2014 U.S. LEXIS 10772 (5th Cir. 2014).
Judge Nunley found Zinnels offense conduct factually similar to Bussell,
504 F.3d 956. (ER 1182-1183.) Notably, Bussell received 36 months for
$3,057,927 intended loss, as compared with Zinnels 212-month sentence. Under
Bussell, a court must make a fact-based determination of the loss-calculation
method that best reflects the economic realities, and a fact-based estimate of the
loss, based on available information. The court here did neither. No evidence at
trial or sentencing established that any creditor was entitled to recover any claimed
amount. Zinnels conviction of bankruptcy fraud did not constitute a jury finding
of countable loss amount to any victims.
Not only did the government offer no evidence that any creditor was entitled
to recover the amount claimed, but the court disregarded contrary defense evidence

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proving numerous claims were uncountable as intended loss. (ER 358-364, 11731187.) A sentencing judge may not ignore a defendants offer of proof to rebut a
loss calculation. U.S.S.C., Loss Primer (2B1.1)6 (2010) at 13. As defense
counsel argued, at trial Zinnel had no obligation or incentive to disprove the claim
details. The defense presented evidence at sentencing that refuted the validity of
certain claims and victims (ER 1170), and highlighted other uncountable claims.
(ER 1172.) The judges response was that the PSR listed the creditors on Zinnels
bankruptcy schedules and that 11 people filed claims. (ER 1187.)
The defense established that the PSRs discharge figure the court relied on
was overstated by at least $2,887,598.40 (ER 358-366, 1179, 1184-1185):
(1) Zinnel's scheduled assets of $842,620 (ER 1360) should have offset
intended loss, see U.S.S.G 2B1.1, cmt. n.3(E)(i);
(2) $1,807,133 claimed by Safeco, $1,607,133 dismissed with prejudice prebankruptcy (ER 393-394), and $200,000 secured (ER 495, 1369);
(3) $115,000 claimed by First Bank which was secured (ER 1368-1369) and
thus not dischargeable in bankruptcy, as the prosecutor conceded (ER 1180), thus
First Bank was not a victim;
(4) $47,132.09, the difference between $461,417.59, which the PSR
misstated as Gulf/Travelers claim, and $414,285.50, the actual amount owed (ER

Available at
http://www.ussc.gov/sites/default/files/pdf/training/primers/Primer_Loss.pdf
6

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407-407B; ZSER 14, PSR 69);


(5) $36,965 in child support claimed by M. Zinnel, which is not
dischargeable, 11 U.S.C. 523(a)(15);
(6) approximately $929 in uncountable interest on the $12,705 attorneys
fees judgment claimed by Ms. Zinnel, U.S.S.G. 2B1.1, cmt. n.3(D) (ER 393, 408
-- see Box 5);
(7) $12,705.43 in attorneys fees (ZSER 50-51, 56; ER 408), forfeited by
Ms. Zinnel in her bankruptcy (ZJN129, Exh. 13)(thus she was not a victim);
(8) $2,026.48, the difference between $3,026.48 falsely claimed by Stuart
Allen, and Travelers actual $1,000 payment to Arrow Drillers (ER 395-398) (thus
Stuart Allen is not a victim);
(9) $23,088.17 in uncountable interest and fees, U.S.S.G. 2B1.1 cmt.
n.3(D): $10,799.35 (Fog Cutter), $8,506.17 (Wells Fargo), $3,641.15 (MBNA),
and $141.50 (Arrow Financial). (ER 359-365).
The loss proven by the government is zero, but subtracting the above
uncountable amounts from the PSRs so-called discharge amount yields
$728,160.00, the highest possible discharge sum, had the government carried its
burden. Applying 2013s Fraud Table, under $1 million would add 14 levels.
2B1.1(b)(1)(H)(2013).
Because the court adopted the PSRs loss figure without deciding or

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mentioning each defense objection, this Court is left guessing whether the district
court recognized, contemplated, and resolved the objections. Houston, 217 F.3d
at 1208-1209. Guessing is for contestants on television game shows, not for
judges applying the law. Id., 217 F.3d at 1209. Resentencing is necessary
because the court abandoned its Rule 32 obligations to consider defense evidence,
rule on each objection, and require the government to prove intended loss.
Moreover, the PSRs alternative loss calculation method failed to use the fair
market value of the undisclosed assets at the time of the concealment, July 2005.
United States v. Paley, 442 F.3d 1273, 1278 (11th Cir. 2006) (holding that using
appreciated value of undisclosed stock instead of initial investment was error).
After Zinnels indictment, in October 2011, the bankruptcy trustee determined that
$350,000 was the fair-market value of the estates interest, if any, in System 3.
The trustee was duty-bound to obtain the highest possible value for the estate, and
relied on an expert accountant who determined the net worth of System 3 as
$350,000. Therefore, any alternative loss calculation must use $350,000 as the
value of the undisclosed interest in System 3.
Finally, this Circuit adheres to the governing legal principle that whenever a
court estimates drug quantity, the court must err on the side of caution. United
States v. Scheele, 231 F.3d 492, 498-500 (9th Cir. 2000). The justification for this
rule is that a defendant's sentence depends in large part upon the amount of drugs

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attributable to his conduct, and approximation is by definition imprecise. Id. at


498 (quoting United States v. August, 86 F.3d 151, 154 (9th Cir. 1996)). This
principle applies equally, if not even more strongly, to the estimation of intended
loss, due to the massive impact of the loss enhancement. This is especially critical
where the defense proved, inter alia, the above errors in the PSRs loss figure. The
courts failure to err on the side of caution involved a failure to follow a
governing legal principal rather than an exercise of the district court's broad
discretion. Scheele, at 499-500.
C.

There Were Not 10 or More Victims

The 2B1.1(b)(2)(A) enhancement for 10 or more victims, like all two-level


enhancements here, represents 42 months additional imprisonment for Zinnel. A
victim is any person who sustained any part of the actual loss. U.S.S.G.
2B1.1, cmt. n.1. The government must prove that each victim to be counted
sustained a monetary loss and that loss must be correctly included in the loss
calculation. United States v. Armstead, 552 F.3d 769, 780-81 (9th Cir.
2008)(emphasis original); U.S.S.G. 2B1.1 cmt. n.3(A)(iii).
Like the loss calculation, because the government failed to offer proof that
any victim suffered actual, countable loss, the number of victims is zero. In the
alternative, the number of victims enhancement was erroneously based on the
objected-to PSR (ZSER 14, PSR 69) and the claimants listed on Zinnel's

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bankruptcy schedule. (ER 1187; ZSER 6,8,14, PSR 8, 22, 69.) The court
ignored Zinnels objections, evidence and offers of proof showing several
claimants suffered no countable loss as argued above, and did not require the
government to submit evidence, in violation of Rule 32(i)(3)(B).
Zinnel objected to the victim count and presented evidence and offers of
proof, as stated above, that: Fogcutter, MBNA, Stuart Allen, Arrow Financial, First
Bank and Michelle Zinnel were not victims under the Guidelines because they
suffered no actual countable loss, U.S.S.G. 2B1.1, cmt. n.1. Zinnel also
established that he contracted with Safeco in one indemnity agreement, so Safeco
and its subsidiaries should count as one victim. (ER 373 n.2.) Safeco, General
Insurance, and First National shared identical officers and corporate executives, as
well as litigation counsel. (ER 373A-373B.)
Zinnels objection triggered the governments obligation to prove that ten or
more identifiable persons suffered actual, countable monetary loss. United States
v. Showalter, 569 F.3d 1150, 1160 (9th Cir. 2009). Instead, the government asked
the court to rely on the PSRs list of unsubstantiated claimants. (ER 1186.) The
Guidelines [] do not allow a district court to estimate the number of victims under
2B1.1(b)(2). Showalter, at 1160. Neither may the court adopt disputed
conclusions in the PSR or rely on the bankruptcy trustees list of creditors where
the defense objects. Id. at 1161. In Showalter, the list of victims and claim

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amounts the probation officer obtained from the trustee were deemed insufficient
to support the victim enhancement. Id. at 1159.
As in Showalter, the court here entirely relied on the PSRs repetition of the
trustees list of creditors, without evidence that any claimants suffered actual,
countable loss. (ER 1187-1188.) The Chapter 7 trustee had a fiduciary duty to
examine claims and object to them if appropriate, to maximize the legitimate
creditors recovery. 11 U.S.C. 704(5); Durkin v. Benedor Corp. (In re G.I.
Indus.), 204 F.3d 1276, 1280-1281 (9th Cir. 2000).
As Zinnel argued below (ER 358, 361), the number of victims was zero
because the government offered no evidence to verify any claim. At most, the
number of victims was three -- Safeco, Travelers and First Bank -- because the
government failed to refute defense evidence by providing any evidence to prove
other claims were dischargeable and properly countable as loss.
Perhaps forecasting remand, the prosecutor suggested he would offer proof
of collateral victims if its ever appropriate. (ER 1188.) However, the
government should not get a second bite at the apple on remand. This Court
departs from the general rule of remanding on an open record where there was a
failure of proof after a full inquiry into the factual question at issue. United States
v. Matthews, 278 F.3d 880, 886 (9th Cir. 2002) (en banc); United States v. Ponce,
51 F.3d 820, 829 (9th Cir. 1995) (remanding on closed record because the

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government had offered no evidence to support sentencing at criminal history


category III). The enhancement for 10 or more victims must be reversed.
D.

Sophisticated Money Laundering

Over objection, the court erroneously added two levels for sophisticated
money laundering. U.S.S.G. 2S1.1(b)(3) applies only if there was complex or
intricate offense conduct pertaining to the execution or concealment of the 18
U.S.C. 1956 offense. U.S.S.G. 2S1.1 cmt. n.5(A). The typical earmarks of
sophisticated laundering are fictitious entities, shell corporations, layering of
transactions, or offshore accounts. U.S.S.G. 2S1.1, cmt. n.5(A).
1.

The Court Improperly Based the Adjustment on


Bankruptcy Fraud and 1957 Conduct

The complex or intricate offense conduct necessary to support the


sophisticated laundering enhancement must pertain[] to the execution or
concealment of the 18 U.S.C. 1956 offense. U.S.S.G. 2S1.1 cmt. n. 5(A). The
court impermissibly based this enhancement on facts pertaining to the bankruptcy
fraud and section 1957 counts instead of the section 1956 charges. (ER 11931195.) The court improperly relied on Auto and Boat Store, which was connected
only to pre-petition bankruptcy fraud charged in Count 1. (ER 499-502.)
Similarly, the multiple levels of transactions and use of Eidsons client trust
account and personal account all pertain to section 1957 counts. (ER 947-953,
1398, 1411-1413, 1417-1418, 1439-1443.)

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No section 1956 count involved layered transactions, fictitious entities, or


offshore accounts. Counts 4-12 each charged the negotiation of a check from
System 3 to Done Deal, and each was a one-step deposit. (ER 1403-1408.) The
section 1956(h) conspiracy to secure a buyout (Count 18) involved no layered
transactions or other earmarks of sophisticated laundering.
The one fact the judge relied on that pertained to 1956 conduct, that
System 3 paid Done Deal and Zinnel used those funds for personal expenses, was
not even arguably sophisticated. The courts assertion that Zinnels use of Done
Deal, a so-called shell company, justified this enhancement was clear error
because the prosecution failed to prove that Done Deal was a shell company, and
that use of Done Deal in the 1956 counts was complex or intricate.
A shell corporation is a company that is incorporated, but has no significant
assets or operations. Nautilus Ins. Co. v. Reuter, 537 F.3d 733, 737 (7th Cir.
2008)). Shell corporations typically have no physical presence (other than a
mailing address) and generate little or no independent economic value. Guidance
Memo., Dept. of the Treasury, Financial Crimes Enforcement Network 1 (Nov. 9,
2006)7 (quoted in Nautilus at 737). The government here offered no evidence that
Done Deal lacked independent operations or assets. Instead, trial evidence showed
that Done Deal provided legal and financial consulting services, and had earnings

available at
http://www.fincen.gov/statutes_regs/guidance/pdf/AdvisoryOnShells_FINAL.pdf
7

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and a physical address. (ER 578-581, 669, 732, 742, 1409.) Further, the simple
deposit of checks payable to Done Deal into the Done Deal bank account was not
complex or intricate offense conduct. U.S.S.G. 2S1.1, cmt. n.5(A)(iii). (E.g.
ER 1401-1408.)
2.

The Government Waived Any Unraised Arguments

The government should be limited to arguments, facts and evidence it


presented at sentencing, given that it had a full opportunity to do so. Caceres-Olla,
738 F.3d at 1057. The government first argued that 2S1.1(b)(3) should apply
only if the Court somehow finds that the bankruptcy concealment was not
sophisticated. (ER 414.) The court did find sophisticated means. (ER 102-103.)
Second, the government argued 2S1.1(b)(3) should apply based on multiple hops
of money in 2008 from Eidsons client trust account to her personal account, then
to third parties. (ER 103-104, 292A (citing GX 1401 & 1502), 1413-1414.) These
multiple hops were charged under section 1957 (Counts 14 and 15), not section
1956, so they cannot support this enhancement.
The government had an opportunity to present proof to support the
enhancement, and the court held a full inquiry into the factual question at issue.
Matthews, 278 F.3d at 886. The government should be barred on appeal or remand
from reasserting this enhancement on a new theory. The sophisticated laundering
enhancement must be reversed because the court clearly erred in its fact-finding

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and misapplied 2S1.1(b)(3) by relying on non-section 1956 conduct.


E.

Aggravated Role

The role enhancement must be reversed. The court misinterpreted U.S.S.G.


3B1.1(c) (which is reviewed de novo) by considering Zinnels conduct throughout
the bankruptcy scheme, rather than conduct related only to the money laundering
counts, as required by U.S.S.G. 2S1.1 cmt. n.2(C). (ER 100-101.) The
government also failed to carry its burden of proof. United States v. MaresMolina, 913 F.2d 770, 773 (9th Cir. 1990).
The court based the role enhancement on the following findings:
(1) Zinnel originated the bankruptcy scheme and directed others to
facilitate commission of the crimes;
(2) Zinnel had others place their names on bank accounts to launder
bankruptcy fraud proceeds;
(3) Zinnel had Eidson create Done Deal to launder System 3 payments;
(4) Zinnel made Chris Garrison CEO of Auto and Boat Store without
Garrisons knowledge; and
(5) He used friends and family to defraud the bankruptcy court. (ER 100.)
The judge then adopted the prosecutors prompt to find Zinnel managed as
participants Eidson and the two Wilberts, despite the lack of connection to his
factual findings. (ER 101.)

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1.

The Court Incorrectly Based the Role


Adjustment On the Wrong Conduct

Under U.S.S.G. 2S1.1(a)(1), all Chapter 3 enhancements must be based on


money laundering conduct, not bankruptcy fraud. U.S.S.G. 2S1.1 cmt. n.2(C).
United States v. Salgado, 745 F.3d 1135, 1138-1140 (11th Cir. 2014). The court
impermissibly based the role enhancement on Zinnels conduct throughout the
bankruptcy scheme. Findings 1, 2, 4 and 5 above related exclusively to bankruptcy
fraud. Finding 3 is not supported by any evidence at trial or sentencing. The judge
found: I dont believe the governments contention that Zinnel was always able to
use Done Deal for its [his] purposes. (ER 93.) The courts improper reliance on
bankruptcy fraud conduct requires reversal of the role enhancement.
2.

Zinnel Exerted No Control Over Culpable Participants


Relating to Money Laundering Counts

The key element for finding an aggravated role is the exercise of control
over culpable participants. Mares-Molina, 913 F.2d at 773. There was no
evidence that Zinnel directed any culpable person in the money-laundering
conduct. That Zinnel may have first proposed committing the offense is
insufficient. U.S.S.G. 3B1.1 cmt. n.4.
Garrison could not be counted because he was an innocent party and his
involvement predated the bankruptcy. While Julia Wilbert assisted in her
husbands tax fraud by expensing sums paid to Zinnel (ER 739, 741), she was

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unaware that the Zinnel payments were proceeds of bankruptcy fraud. She
assumed Done Deal was one of Zinnels many companies. (ER 717.) The court
found that she testified she had no knowledge of why these payments were being
made. (ER 743.) There was no evidence she even knew of the bankruptcy.
Therefore, she was not a culpable participant in money laundering.
There was no evidence that Zinnel exerted any authority over Mrs. Wilbert.
Zinnel communicated with her only by email. (ER 712-714, 728, 749.) Zinnels
request for her to do him a big favor shows his lack of authority. (ER 721-722.)
The evidence suggested she was directed by or collaborated with her husband.
When asked why she went along with this system, Mrs. Wilbert replied: Because
I was asked to. (ER 718, 739.) Not because Zinnel asked her to.
Julia Wilbert admitted that she and her husband avoided paying taxes by
expensing these large sums. (ER 745.) Even after federal agents got involved, she
notarized false contract applications that benefitted the Wilberts. (ER 746-748.)
Zinnel obviously had no role in that conduct.
There was no evidence that Zinnel controlled or directed Eidson in
connection with money laundering which benefitted her equally. Eidson was an
independent business-owner and an experienced lawyer. Her personal strength is
evident in the recordings used at trial. (ER 1444-1520 and audio.)
Tom Wilbert cannot be criminally responsible in Count 18, because he

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became a government informant before the December 2008 Starbucks meeting.


U.S.S.G. 3B1.1, cmt., n.1. Notably, Wilbert initiated the buyout negotiations. He
got a get out of jail free card for his many crimes, including tax fraud, bank
fraud, and perjury. There is also no evidence Zinnel directed Wilbert regarding the
System 3 payments (Counts 4-12) before Wilberts cooperation. Wilbert
benefitted richly from expensing payments to Done Deal. Wilbert controlled
System 3, and he gave Zinnel the boot when he no longer wanted Zinnels advice.
The government failed to prove that Zinnel directed any culpable participant in
money laundering conduct. The courts contrary finding was clear error.
F.

The Sentence Subjected Zinnel to Unwarranted Disparity

The out-of-control fraud enhancement promoted sentencing disparity. As


one district court observed: By making a Guidelines sentence turn, for all
practical purposes, on this single factor, the Sentencing Commission effectively
ignored the statutory requirement that federal sentencing take many factors into
account, see 18 U.S.C. 3553(a), and, by contrast, effectively guaranteed that
many such sentences would be irrational on their face.8 Judge Nunleys
mechanical Guidelines application, coupled with his imprecise estimation of loss,
produced a shockingly-high sentence that violated Congresss admonition to avoid
unwarranted disparity. See United States v. Booker, 543 U.S. 220, 292-293 (2005);

United States v. Gupta, 904 F. Supp. 2d 349, 350-351 (S.D.N.Y. 2012), affd, 747
F.3d 111 (2d Cir. 2014), cert. denied, 135 S.Ct. 1841 (2015).
8

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18 U.S.C. 3553(a)(6).
1.

The 212-Month Sentence Resulted In Unwarranted Disparity


When Compared To Similarly Situated Defendants

Congresss primary goal in implementing the Sentencing Guidelines


was to alleviate the problem of criminal sentencing disparity nationwide. Booker,
543 U.S. at 253. Federal sentencing courts are explicitly directed to consider the
need to avoid unwarranted sentence disparities among defendants with similar
records who have been found guilty of similar conduct. 18 U.S.C. 3553(a)(6).
The sentence imposed on Zinnel was excessive and resulted in unwarranted
disparity when compared to similarly situated defendants, especially because the
court gave no explanation for rejecting the defense arguments for leniency based
on several section 3553(a) factors, one of the strongest and best-supported of
which was disparity. In United States v. Trujillo, 713 F.3d 1003, 1009 (9th Cir.
2013), this Court reversed a district courts refusal to reduce a lengthy sentence
under 18 U.S.C. 3582 for drug trafficking, because the court gave no explanation
for rejecting the defendants nonfrivolous section 3553(a) arguments, which
included family ties, lack of other criminal history, and the need to avoid
unwarranted sentencing disparities. Id. at 1009-1011.
Zinnels nearly 18-year sentence is an outlier among similarly situated fraud
defendants. Numerous defendants in similar cases have received much lower
prison terms than Zinnel, as illustrated by the charts of Bankruptcy Fraud cases and

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Other Fraud cases submitted to the district court (ER 424-430), as well as similar
cases on the IRS website and collected by the National Association of Criminal
Defense Attorneys.9 (ZJN077-122; Exh. 9-12.) In these cases, downward
variances from the draconian fraud guidelines are the rule, not the exception.
Many bankruptcy fraud defendants who went to trial, with similar loss
amounts, similar conduct, and identical or higher criminal histories, received
sentences that were significantly lower than Zinnels.10 Zinnel has not been able to
find a similar bankruptcy fraud case where the defendant got a higher sentence.
The following are several examples of similarly situated defendants:
Letantia Bussell, whose offense conduct and economic realities Judge
Nunley found similar to Zinnels, was sentenced after trial to 36 months for
causing $2.93 million in actual losses, with intended losses of $3,057,927. To
avoid tax liability, the Bussells set up corporations to conceal their ownership and
control over assets, then filed for bankruptcy. One of the new corporations served
as the employer for Dr. Bussell. They also opened an off-shore account to receive
and conceal funds from John Bussells pension plan. Bussell, 504 F.3d at 958-962.
Michael Wayne Harding was sentenced six days after Zinnels sentencing, in

NACDL, Comparative Fraud Table 2005-2009, available at


http://www.nacdl.org/criminaldefense.aspx?id=14143&terms=comparative+fraud+
table
10 Since Zinnel had zero criminal history, no other bankruptcy fraud defendant had
a lower criminal history.
9

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the Western District of Virginia, to 30 months for a $2 million bankruptcy fraud


involving fraudulent invoices securing mortgages, forged releases, liens and deeds
of trust, and lying to the bankruptcy court. (ZJN085, 152-153; Exh. 10, 14.)
James Burke looted his trucking company, diverting $2.6 million in
company funds into personal accounts (also avoiding taxes), and then declared
bankruptcy, still owing $2.5 million to a bank. While in bankruptcy, Burke
laundered the concealed funds through 10 accounts in the names of shell entities,
trusts, and family members. A jury in the Eastern District of California convicted
Burke of bankruptcy fraud involving over $7 million. Burke got only 15 months
prison and a $100,000 fine. (ZJN142-144; 166-174; Exh. 14-15.)
Jimmy Quan masterminded three bankruptcy fraud schemes lasting eight
years, wherein he and his girlfriend concealed property, checks, and real estate
belonging to his companies' bankruptcy estates, and diverted approximately $4.7
million in revenues from one company. A Northern District of California jury
convicted Quan of multiple counts of bankruptcy fraud, false record entry, false
declaration, concealment of assets, and money laundering. The intended loss of
$6.5 million got him just 48 months. (ZJN146-148, 179; Exh. 14, 16.)
Milton Vandevort got 70 months after he was convicted by a jury in the
Central District of California of concealing assets in bankruptcy and money
laundering with losses of $1.35 million. He also assaulted the bankruptcy trustees

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process server with a golf club, and then Vandevort called 911 to falsely report a
home invasion. He opened bank accounts in the name of his nursing business,
diverted its revenue to these accounts, and used straw persons as bank signatories
and officers of his business entities, to hide his assets. The money laundering
convictions stemmed from Vandevorts use of undisclosed income from his
nursing business to pay personal expenses and use of proceeds from refinancing
his home to buy land in a relatives name. (ZJN149-151, 180; Exh.14, 16.)
Dr. Colon Ledee and his attorney-sister were sentenced to 72 months and 36
months respectively, for concealing the pre-petition transfer of property to his
secretly-owned corporation, then making several property transfers using relatives,
layered transactions, and forged checks. The intended loss was $1.4 million.
United States v. Colon Ledee, 772 F.3d 21, 25-26, 39 (1st Cir. 2014).
Robert Brennan, who caused much higher losses than Zinnel, was convicted
by a jury in the Southern District of New York of concealing from the bankruptcy
trustee $4 million in bearer bonds, $500,000 in casino chips, and $18 million in
proceeds from investing those concealed assets through an off-shore trust. United
States v. Brennan, 395 F.3d 59, 62-63 (2d Cir. 2005) (as amended). With intended
loss of $22 million, almost ten times the intended loss imputed to Zinnel, Brennan
was sentenced to 110 months, slightly over half of Zinnels sentence. Id.
Harold Rosbottom received 120 months for his bankruptcy fraud and money

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laundering convictions in the Western District of Louisiana, which caused actual


losses of over $5.3 million. Rosbottom concealed $1.7 million in cashiers checks,
and then used them to purchase a boat, a plane, and other luxury items. United
States v. Rosbottom, 763 F.3d 408, 411-413 (5th Cir. 2014), cert. denied, __ U.S.
__, 135 S.Ct. 985 (2015).
These and myriad other bankruptcy defendants, many responsible for much
higher losses and/or harm to more victims, received significantly lower sentences
than Zinnel. Zinnels sentence was unjustifiably between two and fourteen times
the sentences imposed on these other defendants who are similar both in terms of
their loss amount, and the type and complexity of their conduct.
2.

The Average Sentences Imposed Nationwide


Also Demonstrate the Huge Disparity Here

The 212-month sentence imposed on Zinnel was ten times the median
sentences imposed on defendants convicted of bankruptcy fraud and money
laundering nationwide. According to the Judicial Business of the U.S. Courts
Annual Reports, in fiscal 2011-2014, the median prison sentences imposed for
bankruptcy fraud were 25 months (2011), 21 months (2012), 24 months (2013),
and 18 months (2014). (ER 416, 419, ZJN024, 0031, Exh. 5-6.) The median
prison sentences for money laundering were similar. In fiscal 2011, 2012, 2013 and
2014, the median sentences were 64.5 months (2011), 46 months (2012), 37.5
months (2013), and 41 months (2014). (ER 417, 420, ZJN027, 034; Exh. 5-6).

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Zinnels 212-month sentence was out-of-whack when compared to sentences


imposed on other similarly situated defendants, and created unwarranted disparity,
which justifies reversal given the courts failure to consider nationwide disparity
(or any disparity beyond codefendant Eidson) as required by section 3553(a)(6).
3.

Comparing Sentences Imposed in Massive Fraud Cases

After analyzing a compendium prepared by the government of nationwide


fraud sentences between 2001 and 2008, the district court concluded in United
States v. Parris, 573 F. Supp. 2d 744, 753 (E.D.N.Y. 2008) that: [t]hose who were
not cooperators and were responsible for enormous losses were sentenced to
double-digit terms of imprisonment (in years); those whose losses were less than
$100 million were generally sentenced to single-digit terms.
Zinnels 212-month sentence resembles the double-digit sentences imposed
on the class of fraud defendants whose massive frauds caused enormous and
widespread losses to many victims, such as Jeffrey Skilling (Enron, $45 million in
actual losses, 24 years before appeal), Marc Dreier ($400 million in actual losses to
investors and clients who lost their life savings, 20 years), Bernard Ebbers
(WorldCom, 25 years), John and Timothy Rigas (Adelphia, 12 and 17 years on resentencing), Phillip Bennett (Refco, 16 years), and Samuel Israel (Bayou, 20
years). United States v. Panice, 598 F.3d 426, 443-444 (7th Cir. 2010); United
States v. Parris, 573 F. Supp. 2d 744, 753 (E.D.N.Y. 2008). (See also ER 431.)

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The above defendants destroyed the life savings of hundreds of individuals.


The scale of their financial crimes in number of victims and loss amount vastly
outstripped Zinnels, even assuming the overstated loss and victim count were
correct. The magnitude of harm attributed to Zinnel was not comparable in any
way to the harm caused by the Enron defendants and their brethren.
The Parris court provided the chart below showing below-guidelines
sentences for non-cooperators involving losses over $1 million, which were each
about half of Zinnels or lower. Parris, 573 F. Supp. 2d at 753.

Name

Amount of Loss

Sentence

Hotte

$67 million

108 months

Formisano

$9.8 million

78 months

Smirlock

$12.6 million

48 months

Adelson

$50-100 million

42 months

Betts

$1.3 million

366 days

Chavrat

$1.1 million

6 months

Tursi

$1.1 million

41 months

Scuteri

$2.5 million

21 months

Kearney

$1.3 million

51 months

Rutkoske

$12 million

108 months

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Cushing

$24 million

97 months

The defendants listed above caused far more harm than did Zinnel even
accepting the governments position. The disparities between Zinnels sentence
and the moderate sentences imposed on Bussell, Burke, Quan, Vandevort, and the
others discussed above and cited in the charts provided to the district court were
unwarranted, in violation of 18 U.S.C. 3553(a)(6).
G.

The Court Violated 18 U.S.C. 3553(a) and (c)


1.

The Court Failed to Consider, and Failed to Explain Its


Reasons for Rejecting, Defense Arguments Regarding
Disparity and the Fraud Guidelines

After calculating the Guidelines range and allowing the parties to argue,
district courts must consider the section 3553(a) factors and decide if they support
the sentence suggested by counsel. Carty, 520 F.3d at 992-993. [W]hen a party
raises a specific, non-frivolous argument tethered to a relevant 3553(a) factor . . .
[,] the judge should normally explain why he accepts or rejects the party's
position. Id. The court here utterly failed to do so.
The judge nearly skipped over two of the Carty steps, of hearing arguments
and considering 3553(a) factors, agreeing with the AUSA that: we're doing the
appropriate Carty two-step of correctly calculating the guidelines and then doing

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sentencing.11 The court then announced the 212-month sentence, and asked if
judgment and sentence should not proceed at this time? (ER 109-110.)
Next, when defense counsel stated her intention to address disparity, the
court showed its disregard for this factor, repeating: Other than that, is there any
reason why judgment and sentence should not proceed at this time? Id. Earlier,
the court had inaccurately summarized Zinnels disparity objections as based on
the disparity between the sentences recommended for Eidson and Zinnel. (ER
107.) Zinnels actual disparity argument was unrelated to Eidsons sentence. The
courts erroneous synopsis ignored 15 pages of analysis and a raft of supporting
exhibits. (ER 433-448 and Dkt. 307-1.)
Defense counsel demonstrated disparity by pointing to numerous similarlysituated bankruptcy fraud defendants who got sentences much lower than 212
months, that Zinnels sentence was far higher than sentences nationwide in
bankruptcy fraud cases involving worse criminality and higher losses. She also
argued that the increasingly punitive amendments to the fraud table were
unsupported by reliable data, and thus the sentence was substantively
unreasonable. (ER 1224-1228.) Numerous support letters spoke of a generous,
loyal friend, father, brother and son, contradicting the judges perception of Zinnel.

The actual Carty steps are: (1) properly calculate the guideline range, (2) allow the
parties to argue for the appropriate sentence, and (3) consider the 3553(a) sentencing
factors to decide if those factors support the sentence suggested by the parties. Only
then may the court decide the sentence. Carty, 520 F.3d at 991.
11

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(ZSER 21-41.) The court did not address any of Zinnels oral or written
arguments, or any of the mitigation argued.
Just before finally re-announcing the 212-month sentence, the court noted a
few positive qualities in Zinnel, then announced a tirade of negative attributes:
selfishness, narcissism, lying and blaming others. (ER 113-116.) Even if these
criticisms were justified, they were not markedly different or worse than the greed
and selfishness that underlies every fraud case, and certainly did not justify a
sentence four to six times that imposed on many similarly situated defendants.
The judge then imposed the identical sentence he pre-announced before any
mitigation arguments or allocution, evincing no recognition of defense counsels
3553(a) arguments. In particular, the judge did not utter a word about disparity,
other than his earlier mischaracterization of Zinnels disparity argument. Despite
extensive briefing and oral argument addressing disparity, the judge ignored the
directive of 3553(a)(6). As in Panice, the court did not give adequate
consideration to the disparities between [Zinnels] sentence and those given to
other white collar criminals with similar or more culpability. Id., 598 F.3d at 443.
Further, the court here ignored the Supreme Courts repeated admonition
that a district court must not presume a Guideline-range sentence reasonable. See
Nelson v. United States, 555 U.S. 350, 352 (2009). The court disregarded the
Supreme Courts clear instruction to treat the Guidelines as only one factor as

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part of 3553(a)s overarching instruction to impose a sentence sufficient, but


not greater than necessary to accomplish the sentencing goals advanced in
3553(a)(2). Kimbrough, 552 U.S. at 90, 111; Gall, 552 U.S. at 49-50 & n.6. The
Seventh Circuit remanded for resentencing in Panice, 598 F.3d at 443-44 because
it [was] not clear that the judge gave meaningful consideration to the factors
argued by [the defendant]. Resentencing is similarly required here.
2.

The Court Failed to Explain Its Reasons for the Sentence

Once the sentence is decided, the judge must explain it sufficiently to


permit meaningful appellate review. Carty, 520 F.3d at 992 (quoting Rita v.
United States, 551 U.S. 338, 356-357 (2007)); 18 U.S.C. 3553(c). Failure to
explain the reasons behind the sentence is a significant procedural error requiring
remand. Gall, 552 U.S. at 51. Because Zinnel requested a specific [variance],
argued that a different sentence is otherwise warranted, [and] challenged the
Guidelines calculation itself as contrary to 3553(a) (ER 1224-1228, Dkt. 307308), Carty, at 992, Carty and Gall compelled a specific explanation.
The PSR recommended the bottom of the range, 188 months, based on lack
of criminal history (ZSER 17, PSR 88), but the court imposed six months above
the middle of the already-onerous guideline range and 24 months above the PSRs
low-end recommendation. The judge treated the 212 months sentence for a firsttime nonviolent offender as routine and deserving no explanation. On the

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Statement of Reasons, the court added a rote and pitifully inadequate explanation
for the massive sentence: Due to the nature, circumstances, and seriousness of the
offense. (ZSER 43.) Similarly, the court also gave no explanation for imposing
the maximum fine (in a $20,000-$500,000 range), and violated Rule 32(i)(3)(B) by
not resolving Zinnels objections and ignoring evidence that he was broke. (ER
370-371, 1197, 1200.)
Zinnel got the highest-ever bankruptcy fraud sentence in the Eastern District
of California. (ZJN175; Exh.16.) The lack of an explanation sufficient[] to permit
meaningful appellate review compels remand. Carty, 520 F.3d at 992.
3.

The Court Failed to Apply the Parsimony Principle

The court completely disregarded Congresss overarching instruction to


sentencing courts to impose a sentence sufficient, but not greater than necessary,
to comply with the purposes of sentencing set forth in 3553(a).
H.

The Fine Punished the Exercise of Fifth Amendment Rights

[A] sentencing court cannot consider against a defendant any


constitutionally protected conduct. United States v. Watt, 910 F.2d 587 (9th Cir.
1990). A sentencing court may not force a defendant to waive Fifth Amendment
protection as the price of leniency in sentencing. United States v. Messer, 785
F.2d 832 (9th Cir. 1986). On the advice of counsel Zinnel declined to provide
information about his finances for the PSR. The prosecutor urged a $500,000 fine

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because Zinnel refused to provide information, although the government seized his
assets and had evidence he was without any funds. The court imposed the
maximum fine for no stated reason other than Zinnels silence. Thus, Zinnel was
punished for exercising a constitutional right, and the fine must be vacated.
I.

The District Court Denied Zinnel Meaningful Allocution


1.

Factual Analysis

Before allocution and counsels arguments, the court pre-announced the


sentence, stating: it is the Court's intent to sentence the defendant to 212 months
of imprisonment. (ER 110.) The courts declaration telegraphed to Zinnel that
his allocution had no potential to impact the sentence. Moments later the judge
confirmed that he had definitively decided the sentence, stating: notwithstanding
any statement that might very well be provided by Mrs. Zinnel, this court intends
to sentence the defendant according to what I've indicated. (ER 1210.)
During allocution, Zinnel was interrupted three times. First, the judge
interrupted to announce: Mr. Zinnel, I'm going to cut you off right here. Are you
almost done? I'm going to give you three more minutes to finish this up. (ER
1240.) Zinnel twice objected and begged for more time. (ER 1241.) During the
second interruption, this time by the AUSA, the judge proclaimed: I'm going to
allow you to proceed and, if it keeps along this same vein, I'm going to cut you
off. (ER 1244.) The court interrupted Zinnel again, stating: I was allowing you

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to speak only to the extent that your statements mitigated any possible sentence
you might receive. (ER 1247.) Zinnel spoke briefly, then stopped. (ER 1249.)
2.

Meaningful Allocution Is a Due Process Right

In this Circuit, denial of the right of allocution violates due process under the
Fourteenth Amendment and Rule 32(i)(4) of the Federal Rules of Criminal
Procedure. Boardman v. Estelle, 957 F.2d 1523, 1526 (9th Cir.), cert. denied, 504
U.S. 904 (1992); Ashe v. North Carolina, 586 F.2d 334, 336 (4th Cir. 1978). The
most persuasive counsel may not be able to speak for a defendant as the defendant
might, with halting eloquence, speak for himself. Green v. United States, 365
U.S. 301, 304, (1961) (plurality). The judge was wrong to limit the content of
Zinnels allocution, because he had the right to speak on any subject of his
choosing prior to the imposition of sentence. United States v. Ward, 732 F.3d
175, 181-82 (3d Cir. 2013), cert. denied, 134 S.Ct. 2684 (2014); 18 U.S.C. 3661.
3.

The Court Denied Meaningful Allocution By


Pre-announcing the Sentence Before Allocution

Allocution must be meaningful, not an empty formality after the judge has
stated the chosen sentence. United States v. Luepke, 495 F.3d 443, 450 (7th Cir.
2007) (the substantial purpose of allocution is not served simply because, at some
point before the close of a sentencing proceeding, a defendant is invited to speak).
The judge denied meaningful allocution by definitively announcing the
sentence before inviting Zinnel to speak. United States v. Landeros-Lopez, 615

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F.3d 1260, 1266-1268 (10th Cir. 2010); Luepke, 495 F.3d at 448-450. As occurred
here, [b]elatedly inviting the defendant to speak after announcing his sentence
does not satisfy this standard, even if the sentence has yet to be formally imposed.
Luepke, at 450; Landeros-Lopez, at 1266. Although Zinnel was not entirely
silenced, his allocution was chilled by the courts interruptions, limits, and
threats to cut him off (ER 1240 1244, 1247), which deprived him of meaningful
allocution. United States v. Sarno, 73 F3d 1470, 1503-1504 (9th Cir. 1995), cert.
denied, 518 U.S. 1020 (1996). Resentencing is required.
J.

Restitution Must Be Reversed

For the reasons argued in the Victims section above, this Court must
reverse the erroneous order of restitution as to any persons who do not meet the
requirements of 18 U.S.C. 3663(a). Restitution under 3663(a) is limited to
actual monetary loss that was (1) properly included in the loss calculation,
Armstead, 552 F.2d at 780-781, and (2) caused by conduct underlying an offense
of conviction. Hughey v. United States, 495 U.S. 411, 416 (1990).
Zinnels ex-wife submitted three successive versions of her claim for
restitution, asserting increasing amounts ($242,671, $644,511 and $1,039,739)
(ZSER 49-58), demanding assets awarded to Zinnel in the divorce, lost wages,
future child support, and health insurance, and none of which could be counted as

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actual loss. She was awarded restitution of $305,058.12 (ER 142, 144.) Part of the
award included the indemnification for attorneys fees that Mrs. Zinnel had
forfeited in her own bankruptcy, and uncountable interest and child support.
Consequential expenses, such as child support and attorneys fees spent to clarify
support orders, cannot be included as restitution. United States v. Stoddard, 150
F.3d 1140, 1147 (9th Cir. 1998), cert. denied, 525 U.S. 1168 (1999).
K.

Erroneous Criminal Forfeitures

The Luyung and Old Eureka properties lacked a sufficient nexus to any
offense of conviction. Neither was forfeitable as proceeds of bankruptcy fraud,
because they were already Zinnels and thus were not obtained as a result of
bankruptcy fraud. 18 U.S.C. 981(a)(2)(A). The money laundering statute
amended in 2009 uses obtained or retained while the forfeiture statute enacted in
2000 uses only the term obtained. Compare 18 U.S.C. 981(a)(2)(A);
1956(c)(9) (2009). See Keene Corp. v. United States, 508 U.S. 200, 208 (1993).
Moreover, the verdicts on Counts 1-2 did not identify Luyung or Old Eureka.
The Old Eureka property was also erroneously forfeited because the
$235,000 cashiers check, not the Old Eureka property, was the corpus of money
laundering Count 16. (ER 291.) The entire property is not forfeitable simply

Although the restitution order was stipulated, by its terms the stipulation did not
waive any objections to guideline calculations or findings, such as that Michelle
Zinnel is a victim or that any amounts she claims constitute loss under the
Guidelines. (ER 123, 141.)
12

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because laundered funds paid down the mortgage. United States v. Arthur, 2006
U.S. Dist. LEXIS 79184 at *18 (E.D. Wis. 2006), affd, 582 F.3d 713 (2009).
Moreover, the $1,297,158 forfeiture money judgment resulted in double recovery.
L.

The 212-Month Prison Term And Maximum


$500,000 Fine Are Substantively Unreasonable

Although Mr. Zinnels sentence must be vacated and remanded for


reversible trial errors and for procedural sentencing errors, the overarching
problem is that the sentence--17.67 years in prison and $500,000 fine--is
shockingly high. For that reason, this court should reach the question of
substantive reasonableness and reverse on that ground as well, to prevent further
litigation in this case. Zinnel received six times more prison time than factuallysimilar Letantia Bussell, and several times longer than many other similarlysituated defendants, as discussed above in the disparity arguments. Zinnel suffered
a trial tax of 3.5 times the twice-offered, five-year plea bargain, which the
government represented to be the appropriate sentence in this case. This is a
deserving case to reverse the sentence for substantive unreasonableness.
Six years ago, Judge Bea wrote in his dissent in the bankruptcy fraud case of
United States v. Edwards, 595 F.3d 1004 (9th Cir. 2010):
Sooner or later our circuit must come to the final question of...what term
of incarceration is unreasonable? At times like this, one is tempted to
reach for Justice Potter Stewarts definition of pornography and apply it
to determine whether a sentence is unreasonable: I know when I see it.
[citation omitted.] Such a personalized and subjective norm does not

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sound like what an appellate court should be laying down as a rule to the
district courts. But can we do any better by attempting to spell out what
constitutes unreasonable in the abstract? I think the Court, in Gall,
wants us to try.
Edwards, at 1022 (Bea, J., dissenting).
If substantive review of sentences actually exists, other than in theory, it
must be undertaken at least occasionally. This is an appropriate case for such
review, because it raises so starkly the problems with the out-of-control fraud loss
Guideline, the piling-on of enhancements, disparity, and the trial tax.
1.

Standard of Review and Definition of


Substantively Unreasonable

This Court reviews a substantively unreasonable sentence challenge for


abuse of discretion. Gall, 552 U.S. at 51. This Court considers the totality of the
circumstances and attaches no presumption of reasonableness to the fact that
Zinnels sentence falls within a Guideline range. Carty, 520 F.3d at 993. This
Court may reverse if, upon reviewing the record, it has a definite and firm
conviction that the district court committed a clear error of judgment in the
conclusion it reached upon weighing the relevant factors. United States v.
Amezcua-Vasquez, 567 F.3d 1050, 1055 (9th Cir. 2009).
A substantively reasonable sentence is one that is sufficient, but not
greater than necessary to accomplish 3553(a)(2)s sentencing goals. United
States v. Ressam, 679 F.3d 1069, 1089 (9th Cir. 2012). The sentencing court here

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shirked that overarching statutory charge, Carty, at 991, in imposing a nearly 18year sentence on Zinnel, a 50-year old first-time non-violent offender and devoted
father of two, for fraud crimes that caused at most limited harm. Zinnels sentence
was substantively unreasonable because: (a) the record does not show any rational
and meaningful consideration of the 3553(a) factors; (b) Zinnel was subjected
to a massive trial tax; and (c) his sentence far exceeded the sentences imposed in
many similar cases.
Zinnels sentence was simply unconscionably high. Zinnels 30 levels of
enhancements are a 400% increase from the base offense level of six for
bankruptcy fraud. In Amezcua, this court found that a 200% increase from the base
offense level (for illegal re-entry elevated by a stale aggravated felony) was
substantively unreasonable on the facts of the case, even though it was correct
under the Guidelines. Amezcua, 567 F.3d at 1055. Judge Nunleys rote addition of
30 levels of enhancements produced the longest sentence for bankruptcy fraud in
the Eastern District of California and possibly in the United States for similar
offense conduct and loss. This Court should find that Zinnels 212-month term
and maximum fine of $500,000 is substantively unreasonable based on the facts of
this case.
The sentence at issue is not the product of defendant-specific section 3553(a)
factors for which the district court was in a superior position to find the relevant

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facts and to judge their import. United States v. Whitehead, 532 F. 3d 991, 993
(9th Cir. 2008). Here, as explained above, the court did not consider a single
required section 3553(a) factor.
The Sentencing Commission reported that the average length of sentence for
fraud offenders in 2014 was 24 months. U.S.S.C. Quick Facts, Fraud (2014). A
sentence that is 900% over the 22-month national average for bankruptcy fraud and
488% higher than the 36 months Letantia Bussell received, when Judge Nunley
found that her case was factually similar to Zinnels, cannot be justified.
(a)

Lack of Meaningful Consideration of 3553(a) Factors

The touchstone of reasonableness is whether the record as a whole


reflects rational and meaningful consideration of the factors enumerated in 18
U.S.C. 3553(a). Ressam, at 1089 (citation omitted). As argued in the procedural
errors section above, the judge here failed to consider any 3553(a) factors apart
from the Guidelines. (ER 1171-1207.)
In particular, the court disregarded Zinnels extensive disparity arguments
and evidence. The court treated the disparity argument as if Zinnel argued the
disparity between the PSRs recommended sentences for Zinnel and Eidson (ER
1204), despite extensive briefing on the national disparity, and counsels
comparison of Zinnels case to Bussell, Quan, Burke and many other similar cases,
and the contrast between the culpability of Zinnel and mega-loss defendants who

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received lower sentences. (ER 431, 1224-1228.)


The sentence was driven by the Guidelines and the judges perception of Mr.
Zinnel as selfish and narcissistic (ER 1250-1253), personal flaws no doubt
shared by most fraud defendants, successful business-people, and even presidential
candidates -- which do not warrant a double-digit sentence far exceeding the actual
sentences imposed on many similar-situated defendants. Zinnels unexplained
mid-range guideline sentence and maximum fine fails properly to reflect
3553(a)(1), (a)(2) & (a)(6) considerations. Rita, 551 U.S. at 351.
(b)

The Sentence Is Substantively Unreasonable Because


Zinnel Received A Trial Tax Of 3.5 Times
More Prison Time For Exercising His Right To Trial

As Zinnel stated in his truncated allocution, he was unreasonably penalized


with a Trial Tax or trial penalty of 3.5 times the two five-year plea offers. (ER
1240-1242.) An accused must not be subjected to more severe punishment for
exercising his constitutional right to stand trial. United States v. Stockwell, 472
F.2d 1186 (9th Cir.), cert. denied, 411 U.S. 948 (1973).
As argued in the Disparity section, the median prison sentences for
bankruptcy fraud in 2011, 2012, 2013 and 2014 were well under 48 months. This
is demonstrated by the many cases described herein and in the attached charts and
I.R.S. announcements that similarly situated bankruptcy fraud defendants received
prison sentences of around 30 months. At sentencing, the court made a finding

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that the complex bankruptcy fraud of Letantia Bussell was factually similar to
Zinnels case. (ER 1182-1183.) However, after a jury trial, intended loss of $3
million and actual losses of almost $2.4 million, Bussell received a prison sentence
of 36 months. Bussell, 504 F.3d at 958-962.
The Sentencing Guidelines already have a built-in mechanism to inject a
modicum of leniency for pleading guilty rather than going to trial; i.e. the 2 or 3
point reduction for acceptance of responsibility. U.S.S.G. 3E1.1. However,
rather than simply deny that reduction as an appropriate consequence of going to
trial, the prosecutor and the court together wielded a sledgehammer.
This case is a prime example of the epidemic of extracting guilty pleas from
federal defendants fearing high sentences if they go to trial, by heavily penalizing
those who dare to put the government to its burden at trial. We now have an
incredible concentration of power in the hands of prosecutors said Richard E.
Myers II, a former Assistant U.S. Attorney.13 In plea negotiations and in court,
federal prosecutors effectively dictate the sentence through the Trial Tax.
In Zinnels case, the prosecutor knew every pertinent fact before making the
five-year offers (and one-year offer to Eidson). Neither Zinnel or Eidson testified
at trial. Yet, after Zinnel exercised his right to trial, the prosecutor initially argued

Richard A. Oppel, Sentencing Shift Gives New Leverage to Prosecutors,


9/25/2011, New York Times, available at
http://www.nytimes.com/2011/09/26/us/tough-sentences-help-prosecutors-pushfor-plea-bargains.html?_r=0
13

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for offense level 41 and a range of 324-405 months (27.5 to 33 years) (ER 294),
instead of Offense Level 26 as the plea offers stated. At sentencing, the prosecutor
argued for offense level 38, a trial tax of 15 levels, and cynically sought 20 years
(ER 1229, 1231) four times the five-year sentence offered before trial. The court
readily imposed an unconstitutional Trial Tax of 3.5 times more prison time after
Zinnels rejection of the plea offers.
The 212-month sentence was so much higher than the penalty the AUSA
earlier believed was appropriate, that this case cries out for a finding that this
sentence was substantively unreasonable due to the unconscionable Trial Tax.
c.

Massive Disparity Creates Substantive Unreasonableness

18 U.S.C. 3353(a)(6) directs sentencing courts to avoid unwarranted


disparity. As Zinnel has demonstrated in his disparity argument, Zinnels sentence
was six times what similarly-situated defendants received and almost double the
longest sentence Zinnel could find for any remotely similar bankruptcy fraud. The
median sentences for money laundering were similarly all under four years.
It strains credulity to believe that Zinnels bankruptcy fraud around $2.5
million (as the court erroneously found) could justify such massive disparities,
even if proven to be motivated by a desire to deny child-support, as the prosecutor
argued without proof at sentencing. (ER 1209.)

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Comparing Zinnel to the high-stakes defendants in mega-fraud cases, as the


district judge in Parris did, also highlights the substantive unreasonableness of
Zinnels sentence. Parris, 573 F.Supp. 2d at 755. The nature of the fraud crimes
here, is simply not of the same character and magnitude as the crimes of the
Enron, WorldCom and Computer Associates defendants, who wreak[ed]
unimaginable losses on their corporations and caused employees and stockholders
to lose their pensions and suffer financial ruin. Id. at 746.
Under current fraud guidelines [a] first-time, non-violent fraud offender can
receive a sentence similar to those who commit serious violent crimes, including
armed robbery, rape, and murder. This sort of unwarranted parity is no less
noxious to the goal of the [Sentencing Reform Act] than the unwarranted
disparities that drove Congress to act in the first place.14 If not struck down by
this Court as substantively unreasonable, almost 18 years in prison and a $500,000
fine for bankruptcy fraud will be the new high-water mark for disparity and
substantive unreasonableness.
A DIFFERENT JUDGE SHOULD BE ASSIGNED ON REMAND
Unusual circumstances exist to justify this Court to reassign this case to a
different judge on remand. United States v. Attondo-Santos, 385 F.3d 1199, 1201
(9th Cir. 2004). No showing of personal bias is needed. United States v. Huckins,

14

Letter to the USSC from The Constitution Project, Aug. 26, 2011,
http://www.constitution project.org/pdf/USSC2012.pdf.

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53 F.3d 276, 280 (9th Cir. 1995).


Reassignment to a different judge is warranted. First, Judge Nunley will
reasonably be expected to have substantial difficulty disregarding his firm belief
that the (wrongly calculated) 212-month Guideline sentence was a perfect fit, and
even if not, the appearance of fairness will be damaged.
Second, on remand this judge will likely be reversed on several grounds in
his first-ever federal jury trial. Both the appearance of fairness and the difficulty of
clearing the judges mind of any residual negative feelings arising from these
reversals require reassignment to a new judge.
Third, the judge may have difficulty setting aside his vociferously expressed
opinions about Mr. Zinnel personally. The judge expressed his unequivocal
contempt and anger at Zinnel, calling him narcissistic, selfish, and a liar. (ER 112116.) The judge also berated Zinnels counsel that her PSR objections were a
waste of the Courts time. (ER 1203.) The appearance of justice would be served
by having a different judge, who does not hold the harsh opinions that this judge
expressed at sentencing. See United States v. Quach, 302 F.3d 1096, 1104 (9th
Cir. 2002).
A new trial or resentencing by another judge would not entail waste or
duplication out of proportion to the gain achieved in preserving and appearance of
fairness, because a new trial or resentencing will be needed whether or not the case

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is reassigned. United States v. Paul, 561 F.3d 970, 975 (9th Cir. 2009) (per
curiam). For all these reasons, unusual circumstances exist for remand to a new
judge.
Resentencing must be on a closed record. This court departs from the
general rule of remanding on an open record where, inter alia, there was a failure
of proof after a full inquiry into the factual question at issue. Matthews, 278 F.3d
at 886.; United States v. Reyes-Oseguera, 106 F.3d 1481, 1484 (9th Cir. 1997).
Here, the Government had eight months to collect and present evidence on
sentencing enhancements. The government filed several sentencing briefs (see
Dkt. Nos. 299, 304, 306), and had a full opportunity and incentive to present any
evidence it wished. Failing to meet its burden after a full inquiry into the factual
question at issue, Matthews, 278 F.3d at 886, the government should not get a
second chance.
CONCLUSION
For the foregoing reasons, Zinnels convictions should be reversed for retrial
or dismissal as appropriate. At a minimum, Zinnels sentence must be vacated and
the case remanded for resentencing on a closed record, to a different judge.
Dated: February 29, 2016

Respectfully submitted,
/S/ Suzanne A. Luban
SUZANNE A. LUBAN
Counsel for Appellant Steven Zinnel

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APPELLANT STEVEN ZINNELS


STATEMENT OF RELATED CASES
Pursuant to Circuit Rule 282.6 of the Ninth Circuit Rules, DefendantAppellant Steven Zinnel hereby states that the following cases are related cases to
this appeal:
1.

United States v. Eidson, C.A. 14-10196 (Consolidated with this appeal);

2.

In re Steven K. Zinnel, Bankr. EDCA Case No. 05-28800-C7; and

3.

General Insurance Co. v. Corporate Control, Inc. et al., Civ. S-02-1020-

WBS (E.D. Cal.).


February 29, 2016

Respectfully submitted,
/S/ Suzanne A. Luban
SUZANNE A. LUBAN
Attorney for Steven Zinnel

Case: 14-10141, 03/01/2016, ID: 9885174, DktEntry: 27, Page 104 of 105

CERTIFICATE OF ATTEMPTED COMPLIANCE


Pursuant to FRAP 32(a)(7), I certify that this brief is proportionately spaced,
has a typeface of 14 points or more and contains 19,937 words. Because counsel
cannot meet the word limitation set forth by Circuit Rules 28-4, counsel has
requested an extension of word limit pursuant to Circuit Rule 32.2.
February 29, 2016

Respectfully submitted,
/S/ Suzanne A. Luban
SUZANNE A. LUBAN
Attorney for Steven Zinnel

Case: 14-10141, 03/01/2016, ID: 9885174, DktEntry: 27, Page 105 of 105

CERTIFICATE OF SERVICE
(When all Case Participants are Registered for the
Appellate CM/ECF System)
C.A. Nos. 14-10196 and 14-10141 (consolidated)
I hereby certify that on March 1, 2016, I electronically filed the foregoing
APPELLANT STEVEN ZINNELS OPENING BRIEF and APPELLANTS
EXCERPTS OF RECORD (7 VOLUMES) with the Clerk of the Court for the
United States Court of Appeals for the Ninth Circuit by using the appellate
CM/ECF system.
I certify that all participants in the case are registered CM/ECF users and
that service will be accomplished by the appellate CM/ECR system.

March 1, 2016

Respectfully submitted,
/S/ Suzanne A. Luban
SUZANNE A. LUBAN
Attorney for Appellant Steven Zinnel