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Baxter v. United States

June 25, 2009


The opinion of the court was delivered by: James F. Holderman, Chief Judge


Petitioner Laura Baxter ("Baxter"), on August 15, 2007, filed the pending Motion to Vacate, Set Aside or Correct Sentence by a Person in Federal Custody, pursuant to 28 U.S.C. § 2255, (Dkt. No. 1), seeking to have her two-year prison sentence vacated. This court imposed that sentence after considering Baxter's presentence investigation report ("PSR") prepared by the U.S. Probation Office, hearing from counsel, and hearing from Baxter, who had pled guilty pursuant to a plea agreement (04 CR 371, Dkt. No. 41 ("Plea Agreement")) to a one-count superceding U.S. Attorney's criminal information (04 CR 371, Dkt. No. 33 ("Superceding Information")) charging her with obstructing and impeding the administration of the federal tax laws in violation of 26 U.S.C. § 7212(a). The sentence was affirmed on appeal. United States v. Baxter, 217 F. App'x 557, 561 (7th Cir. 2007), cert. denied, 550 U.S. 957 (2007).

Baxter asserts in her pending motion that her Sixth Amendment right to the effective assistance of counsel was violated at both the plea bargaining and sentencing phases of her criminal case when the defense attorneys she had retained "failed/refused to retain the services of tax experts who would have been in a position to advise defense counsel that the government's 'tax loss' compilations and calculations were remarkably skewed." (Dkt. No. 1 at 5.)

On January 18, 2008, this court, after reviewing the briefing of Baxter's pending motion, ordered an evidentiary hearing to determine: (1) the reasons Baxter's attorneys failed to object to the $576,000 tax-loss amount used in sentencing Baxter; (2) the actions, if any, Baxter's attorneys took to investigate the appropriate calculation of the tax-loss amount; (3) whether a non-government tax expert would have concluded that the government's proffered $576,000 figure was improperly calculated or otherwise erroneous; and (4) whether Baxter's attorneys would have proven a tax-loss figure sufficiently lower than $576,000 to change the court's determination of Baxter's sentencing guidelines range, if they had the benefit of a tax expert's advice. (Dkt. No. 14 at 5.)

The evidentiary hearing was held in November and December of 2008. Now, after reviewing the exhibits and testimonial evidence presented at that 2008 evidentiary hearing ("2008 Hearing"), the court hereby grants Baxter's motion for the reasons stated below.


On April 8, 2004, Baxter was indicted by a federal grand jury on eleven counts of criminal income tax violations. United States v. Baxter, 04 CR 371 (N.D. Ill.). Before being indicted, Baxter worked as a Certified Public Accountant with her own accounting practice in Frankfort, Illinois. Among her clients was a married couple, Bruce and Tammy Groen ("the Groens"). For several years, Baxter prepared the Groens' individual income tax returns, as well as tax returns for the Groens' several trusts, among them the Groen Asset Management Company. During the years pertinent to Baxter's criminal case, 1994 through 1999, the Groens used a transaction accounting methodology involving a system of trusts purchased from the Aegis Company ("the Aegis Trust System"), which Baxter believed at the time to be lawful, but which was later shown by the government to be an illegal tax evasion scheme.

After plea negotiations between Baxter's counsel and the government's counsel, Baxter pled guilty to a one-count Superceding Information charging her with obstructing and impeding the administration of the federal tax laws in violation of 26 U.S.C. § 7212(a). When Baxter pled guilty on May 19, 2005, she admitted in her Plea Agreement and in open court that on October 29, 1997, she submitted a false document to Internal Revenue Service ("IRS") Revenue Agent Diane Jones, as well as other facts related to her criminal case.*fn1 In her Plea Agreement with the government, which was also signed by her attorney Keith Spielfogel, Baxter agreed for the purposes of calculating her sentencing guidelines range that "the offense involved a tax loss of more than $550,000 but less than $950,000." (Plea Agreement ¶ 6(a).) The government asserted, but Baxter disputed in the Plea Agreement, that Baxter was accountable for a tax loss of $5.1 million for sentencing purposes. The government contended, and Baxter denied in the Plea Agreement, that Baxter had criminally participated in a "longer and broader endeavor to obstruct and impede the administration of the internal revenue laws with respect to all of her clients who purchased systems of trusts from the Aegis Company." (Id. ¶ 5 at 5.)

In the PSR, the probation officer recommended a total offense level of 17 resulting in a sentencing guidelines range of 24 to 30 months, based primarily on the tax-loss figure of $576,000 to which Baxter and Mr. Spielfogel purportedly had agreed in the Plea Agreement. (Id. ¶ 5 at 5.) The PSR rejected the $5.1 million tax-loss figure as relevant conduct attributable to Baxter for sentencing purposes.

On August 29, 2005, the government filed its objections to the probation officer's rejection of the $5.1 million relevant conduct tax-loss figure in calculating Baxter's sentencing guidelines range. (04 CR 371, Dkt. No. 36.) Understanding that in tax cases the magnitude of the tax loss for which the defendant is liable is a primary factor in determining the sentencing guidelines range,*fn2 the government sought to raise Baxter's sentencing guidelines range to a level above the statutory maximum sentence of thirty-six months in prison for her crime. Indeed, the government's post-plea contentions were that Baxter was responsible for a tax loss to the United States of $5.5 million.*fn3

On September 27, 2005, the court conducted an evidentiary hearing ("2005 Hearing") regarding the government's objections to the PSR's not recommending that this court adopt the government's relevant conduct tax-loss figure in excess of $5 million in sentencing Baxter. At the 2005 Hearing, the government had the burden of proving by a preponderance of the evidence any disputed facts that the government sought to use to enhance Baxter's sentence based upon a tax loss greater than that agreed to by Baxter and Mr. Spielfogel of $576,000. United States v. Dean, 414 F.3d 725, 730 (7th Cir. 2005).

On April 27, 2006, the court, after full consideration of the evidence presented at the 2005 Hearing and the parties' submissions, issued a nine-page memorandum opinion finding, among other facts, that:

The government has failed to meet its burden of showing by a preponderance of the evidence that Baxter sought to defraud the government through her use of the Aegis system so as to be accountable for the $5.5 million in tax loss as the government contends.

(04 CR 371, Dkt. No. 54 ("4/27/2006 Order") at 6.)

This court thereafter, for the purpose of sentencing Baxter, accepted without further question the tax-loss amount of $576,000 to which Baxter and Mr. Spielfogel had agreed in the Plea Agreement. The court believed at the time, as stated in the court's April 27, 2006 opinion, that this tax-loss amount was the tax loss "resulting from Baxter's obstruction of the audit." (Id. at 6-7.) The court did not understand that the $576,000 agreed-upon tax-loss figure was a part of the over $5 million in tax loss which the government had failed to prove by a preponderance of the evidence Baxter knew was illegal at the time of her crime in October 1997.

On May 24, 2006, the court sentenced Baxter to twenty-four months in the custody of the Bureau of Prisons, which was the low-end of the sentencing guidelines range calculated on a $576,000 tax loss. As stated earlier, Baxter appealed, and on March 1, 2007, Baxter's 24-month sentence was affirmed. Baxter, 217 F. App'x at 561.

On August 15, 2007, Baxter filed this case pursuant to 28 U.S.C. §2255 and argued that the $576,000 tax-loss figure stated in her Plea Agreement, and relied upon by this court at her sentencing, was erroneous. She contended also that both of her criminal defense attorneys, Mr. Keith Spielfogel and Mr. James Montgomery, during plea negotiations and at sentencing, were constitutionally ineffective in violation of Baxter's Sixth Amendment rights, because they had failed to retain a tax expert to ascertain the correct amount of tax loss attributable to Baxter's criminal conduct and had failed to evaluate the correct tax ramifications of Baxter's criminal conduct for sentencing purposes.

Prior to Mr. Spielfogel's and Mr. Montgomery's appearances before this court on behalf of Baxter in the underlying criminal case, 04 CR 371, they each had appeared in cases before this court numerous times. This court considered, and still considers, them to be very good attorneys. Mr. Spielfogel had previously prevailed in his defense of another tax preparer in a criminal jury trial before this court, and Mr. Montgomery, who has a well-deserved national reputation as an outstanding attorney, had always previously been excellent in his representation of clients before this court.

At the 2008 Hearing, Mr. Montgomery, in an act that underscores his high professionalism, conceded that in hindsight his representation of Baxter was in essence constitutionally deficient as to the $576,000 tax-loss figure agreed to in the Plea Agreement and at Baxter's 2006 sentencing. Mr. Spielfogel, however, denied at the 2008 Hearing that his representation of Baxter was constitutionally deficient as to the $576,000 tax-loss figure to which he had agreed in the Plea Agreement and at Baxter's sentencing.


Under 28 U.S.C. § 2255, the court is authorized to vacate Baxter's sentence and resentence her if the court finds that Baxter's constitutional rights were violated. The Sixth Amendment guarantees the right to counsel at all "critical stages" of a criminal prosecution. United States v. Wade, 388 U.S. 218, 224 (1967). The government does not dispute that both plea proceedings and sentencing proceedings are critical stages of a criminal prosecution, at which a defendant is entitled to the effective assistance of counsel. Van Patten v. Deppisch, 434 F.3d 1038, 1043 (7th Cir. 2006) (plea proceedings), rev'd on other grounds, 128 S.Ct. 743, 747 (Jan. 7, 2008); Jackson v. Miller, 260 F.3d 769, 775 (7th Cir. 2001) (sentencing).

To demonstrate that she was denied her constitutional right to the effective assistance of counsel, Baxter must show both that: (1) her attorneys' performance fell below an objective standard of reasonableness; and (2) there is a reasonable probability that, but for her attorneys' errors, the result of the proceedings would have been different. Strickland v. Washington, 466 U.S. 668, 687-88, 695 (1984). "Strickland's 'reasonable probability' language does not require a petitioner [such as Baxter] to meet a preponderance of the evidence threshold, but it does require a petitioner to show 'a probability sufficient to undermine confidence in the outcome.'" Porter v. Gramley, 122 F.3d 351 (7th Cir. 1997) (quoting Strickland, 466 U.S. at 694).


Baxter's criminal defense attorneys' performance and any resulting prejudice must be analyzed as to each of the two critical stages of Baxter's criminal case, plea bargaining and sentencing, about which Baxter complains in her §2255 motion.

I. Performance

In the context of negotiating and reaching a plea agreement for a client charged with criminal conduct, a reasonably competent attorney is expected to (1) attempt to learn all of the facts of the case, (2) analyze the applicable law to make an estimate of the likely sentence; and (3) communicate the result of that analysis to his or her client. Julian v. Bartley, 495 F.3d 487, 495 (7th Cir. 2007).

It is undisputed that Baxter's criminal defense counsel, for purposes of learning the facts and analyzing the applicable law to make an estimate of Baxter's likely sentence, did not retain a criminal tax expert to critique or explain the $576,000 tax-loss amount that was ultimately stated in the Plea Agreement and used by this court in the 2006 sentencing of Baxter. It is clear from Mr. Spielfogel's testimony at the 2008 Hearing that, for purposes of the Plea Agreement and sentencing, he believed there was no need to obtain a tax expert as to the $576,000 tax-loss amount. It is also clear that he adopted the government's tax-loss theory that the $576,000 tax-loss amount was attributable to Baxter's October 1997 crime.

The key question under the Strickland performance prong is: Did Mr. Spielfogel's conduct, in forming his opinion that Baxter was responsible for the $576,000 tax loss at the plea bargaining stage without obtaining the advice and assistance of a criminal tax expert on that subject, fall below the objective standard of reasonableness?

To answer that question, the court will look at each of the objective standards of performance the Seventh Circuit has articulated that a reasonably competent attorney should follow in the context of the plea bargaining stage ...

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