zinnel appealate brief march 2016

7/26/2019 Zinnel Appealate Brief March 2016

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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 and14-10196 (consolidated)D.C. No. 11-cr-00234 TLN

APPELLANT STEVEN ZINNELS OPENING BRIEF

SUZANNE A. LUBAN (SB#120629)Attorney At Law3758 Grand Ave. #4Oakland, CA 94610(650) 724-6345

Attorney for Defendant-Appellant,STEVEN K. ZINNEL

Case: 14-10141, 03/01/2016, ID: 9885174, DktEntry: 27, Page 1 of 105


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i

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 andEngage 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 CONSTRUCTIVEAMENDMENT OR PREJUDICIAL VARIANCE ON COUNTS 1AND 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, Allowedthe Jury to Convict Zinnel Unconstitutionally on UnchargedConduct .......................................................................................... 25

D. Alternatively, Denial of a Bill of Particulars Was Prejudicial ....... 28

II. THE COURT PREJUDICIALLY ERRED IN INSTRUCTINGTHE JURY ............................................................................................ 28


B. The Jury Instructions on Bankruptcy Fraud Were FatallyFlawed ............................................................................................ 29

1. The Bankruptcy Fraud Instructions Were Inadequate BecauseThey 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 FatallyFlawed ............................................................................................ 31



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iii

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

III. THE DISTRICT COURT IMPROPERLY REFUSED TOEXCLUDE EVIDENCE OF SETTLEMENT NEGOTIATIONSIN 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 AdmittingEvidence of Family Court Negotiations ........................................ 35

IV. THE DISTRICT COURT ERRED IN ADMITTING PREJUDICIALLEGAL CONCLUSIONS BY LEGAL EXPERTS ............................ 36


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 BankruptcyExpert Gee Was Reversable Plain Error ........................................ 42

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


B. There Was Insufficient Evidence of Interstate CommerceAnd Agreement With a Culpable Person For Count 18 ................ 45

VI. THE DISTRICT COURT COMMITTED NUMEROUSPROCEDURAL SENTENCING ERRORS ........................................ 46



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iv


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 BankruptcyFraud 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 theWrong Conduct ........................................................................... 60

2. Zinnel Exerted No Control Over Culpable Participants Relatingto Money Laundering Counts ..................................................... 60

F. The Sentence Subjected Zinnel to Unwarranted Disparity ............ 62

1. The 212-Month Sentence Resulted In Unwarranted DisparityWhen Compared to Similarly Situated Defendants ................... 63

2. The Average Sentences Imposed Nationwide Also Demonstratethe 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 Reasonsfor Rejecting, Defense Arguments Regarding Disparity and theFraud Guidelines ........................................................................ 70

2. The Court Failed to Explain Its Reason for the Sentence ........... 73

3. The Court Failed to Apply the Parsimony Principle .................. 74



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v

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-announcingthe 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 AreSubstantively 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 ZinnelReceived A Trial Tax of 3.5 Times More Prison Time ForExercising 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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vi

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 States361 U.S. 212 (1960) .......................................................................................... 27

UnitedStates v. Adamson

291 F.3d 606 (9th Cir. 2002) ................................................................. 25, 26, 27

United States v. Alghazouli




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vii

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



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viii

United Statesv. 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 Statesv. 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 Statesv. 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. Huckins53 F.3d 276 (9th Cir. 1995) ............................................................................... 86

United States v. Jordan

256 F.3d 922 (9th Cir. 2001) ............................................................................. 48



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ix

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-Molina913 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. Parris573 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



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x

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. Ressam679 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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xi

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


United States v. Stoddard

150 F.3d 1140 (9th Cir. 1998), cert. denied, 525 U.S. 1168 (1999) ................. 78

United States v. Trujillo713 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. Whitehead532 F. 3d 991 (9th Cir. 2008) ............................................................................ 82

United States v. Zipkin

729 F.2d 384 (6th Cir. 1984) ................................................................. 40, 42, 44



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xii

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


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


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



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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 athttp://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-help-prosecutors-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-and-

publications/quick-

facts/Quick_Facts_Theft_Property_Destruction_Fraud_FY14.pdf .................. 82



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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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(ER1156.) 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

1ER refers to Joint Excerpts of Record. ZSER refers to Zinnels SealedExcerpts. 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 772-

782.) 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 criminally-

derived 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 inpro 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 andEngage 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 675-

676, 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, 1114-

1116, 1132-1135.) The government also argued that Zinnels 2001 email to his ex-

wife 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, 890-

904, 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 ONCOUNTS 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 novobecause 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 inDone 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 mistakenlybelieved the magistrate judge had already decided it. (ER 13.)



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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 235-

236.) 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, 905-

908.) 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 companiesand 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 usbecause we can't defend something when he's not indicted for it, yet hecould 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 propertyfor 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 propertywas 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 propertyfor 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 05-503-MCE. The jury instructions and verdict forms in these cases specified the

charged interests. (ZJN009, 0013, 0017, 0021; Exh. 1-4.)



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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, 1116-

1119.) 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. UnitedStates 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 Statesv. Dennis,

237 F.3d 1295, 1299 (11thCir.), 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 notconvicted of

Counts 1 and 2 based on concealment of property not charged by the grand jury.

InAdamson, 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 inAdamson 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 notcharged 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 (quotingStirone, 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.

WardandAdamsoncompel 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 Statesv. 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 BecauseThey 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)).

%SeeFirst 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. PatternCrim. 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.)



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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 omittedKlassyslistof the property charged. (ZJN017-

018, 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 ifthey 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 1020-

1021.) These phrases were obviously borrowed from the jury instructions inBurke

andKlassy(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 fromspecifiedunlawful 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 anyconduct 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. SeeUnited 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 (quotingSantos, 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 co-

conspirator 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 TOEXCLUDE EVIDENCE OF SETTLEMENT NEGOTIATIONSIN 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]

zinnel appealate brief march 2016

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