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United States v. Herman

United States District Court, W.D. Texas, Austin Division

April 24, 2019

UNITED STATES OF AMERICA
v.
MICHAEL HERMAN AND CYNTHIA HERMAN

          ORDER

          XAVIER RODRIGUEZ UNITED STATES DISTRICT JUDGE.

         Michael and Cynthia Herman are married and reside together within the Western District of Texas. From 2005 through 2015, the Hermans owned and operated Cindy's Gone Hog Wild, a restaurant and bar in Travis County, Texas. The Hermans incorporated the business and reported its income and expenses on IRS Forms 1120.

         In addition to Cindy's Gone Hog Wild, from about 2009 to about 2014, the Hermans owned and operated two restaurants in Bastrop County, Texas: Cindy's Downtown and Hasler Brothers Steakhouse. The Hermans operated those two businesses under Cindy's Downtown, LLC, which reported its income and expenses on the Hermans' IRS Forms 1040.

         In Count One of the Indictment the Government alleges that the Hermans conspired to defraud the United States in violation of 18 U.S.C. § 371. In support of this allegation, the Government alleges that the Hermans concealed the true income of their businesses by depositing only a portion of the businesses' cash receipts into their business bank accounts and reported as income to their tax return preparer only those smaller amounts. The Government also alleges that the Hermans caused tax deductions for business expenses to be overstated by paying various personal expenses with business funds. The Government also alleges that the Hermans regularly paid third-parties, adding those individuals to the payroll of Cindy's Downtown, LLC, even though those persons performed no work for the company.

         In Count Two of the Indictment, the Government alleges that the Hermans filed a false IRS Form 1040 for the 2010 tax year in violation of 26 U.S.C. § 7206(1). The Government alleges that the gross receipts from Cindy's Downtown, LLC were substantially more than the reported amount of $1, 033, 815, and the incurred total expenses were substantially less than the reported amount of $413, 427.

         In Count Three, the Government alleges that the Hermans filed a false 2011 return. Count Four alleges that the Hermans filed a false 2012 return. Count Five alleges that Michael Herman filed a false 2010 return for Cindy's Gone Hog Wild, Inc. Count Six alleges that Michael Herman filed a false 2011 return for Cindy's Gone Hog Wild, Inc. Count Seven alleges that Michael Herman filed a false 2012 return for Cindy's Gone Hog Wild, Inc.

         Defendants' motions to preclude the Government from introducing expert testimony through its case agent Daniel Fannin (docket nos. 70, 72 and 77)

         Defendants argue that Special Agent Fannin is not qualified to render expert testimony in this case. Alternatively, the Defendants argue that having the case agent serve in these dual capacities is prejudicial. In addition, the Defendants argue that allowing the case agent to testify as an expert in this case will allow impermissible hearsay to be injected into the trial, because Special Agent Fannin's summaries incorporate statements of third parties. Lastly, the Defendants argue that the failure to clearly distinguish between fact and expert testimony will likely confuse the jury.

         The Government contends that although Special Agent Fannin is also a CPA, his expected testimony should not be viewed as expert testimony. The Government “plans to call SA Fannin to testify at trial to summarize voluminous bank and point-of-sale records of the defendants' businesses. This will lead to SA Fannin's computations summarizing the gross receipts the Hermans underreported on the tax returns related to their businesses, in addition to summarizing records reflecting the Hermans' use of business receipts to pay for personal expenses. SA Fannin will further testify as to the tax consequences of the Herman's actions.” Defendants' objections to the use of any “summary” evidence lack merit and are overruled. See United States v. Echols, 574 Fed.Appx. 350, 356 (5th Cir. 2014) (allowing case agent's testimony and Fed. E. Evid. 1006 material). In this case the Government repeatedly states it will not be offering SA Fannin as an expert witness, even though it could under United States v. Moore, 997 F.2d 55 (5th Cir. 1993). His expected testimony is not impermissible, and the motion is denied. SA Fannin, however, may not opine on the tax consequences of the Hermans' actions, except to indicate what line numbers on the tax returns or schedules are incorrect. Accordingly, Defendants' motions to preclude Fannin from testifying and motions in limine to exclude Fannin from offering “summary” evidence is granted in part and denied in part (docket no. 70, 72 and 77).

         Defendants' Motions to Dismiss Counts 2 and 3 (docket nos. 71 and 74)

         Defendants move the court to dismiss counts 2 and 3 arguing they allege more than one crime and are defective on grounds of duplicity. They argue “both counts each allege two false statements that are conceptually distinct and require distinct proof.” Specifically, they appear to complain that each count alleges that gross sales were under-reported and total expenses were under-reported. Defendants' motions are denied. The Government charged only one crime in each count of the indictment. As stated by the Eighth Circuit, “[t]here may be more than one piece of evidence to support each count, but that certainly does not make the counts duplicitous.” United States v. Fairchild, 819 F.3d 399, 412 (8th Cir. 2016). The motions are denied (docket nos. 71 and 74).

         Defendants' Motions to Dismiss Count One of the Indictment for Failure to State a Claim (docket nos. 73 and 76)

         Defendants argue that Marinello v. United States, 138 S.Ct. 1101 (2018) mandates the dismissal of count one. In Marinello, the Supreme Court interpreted 26 U.S.C. § 7212(a) and concluded that “to secure a conviction under the Omnibus Clause [of that statute], the Government must show (among other things) that there is a ‘nexus' between the defendant's conduct and a particular administrative proceeding, such as an investigation, an audit, or other targeted administrative action.” Id. at 1109. “In addition to satisfying this nexus requirement, the Government must show that the proceeding was pending at the time the defendant engaged in the obstructive conduct or, at the least, was then reasonably foreseeable by the defendant.” Id. at 1110. Defendants argue that “it is now clear that with regard to ‘obstruction conviction[s], the government would need to prove beyond a reasonable doubt that a person, acting with corrupt intent, engaged in obstructive conduct with a sufficient nexus to a pending or contemplated proceeding.'” Defendants further argue that the Indictment fails to include this essential element. This Court rejects Defendants' argument for the same reasons as stated by the Court in United States v. Flynn, No. CR 16-347 ADM/KMM, 2019 WL 135701, at *7 (D. Minn. Jan. 8, 2019). The limitations on the substantive offense of 26 U.S.C. § 7212(a) do not apply to Klein conspiracies charged under the general conspiracy statute of 18 U.S.C. § 371. See also United States v. Parlato, No. 15-CR-149-FPG, 2019 WL 988450, at *2 (W.D.N.Y. Mar. 1, 2019) (declining to apply Marinello to a statute the Supreme Court did not consider). The motions are denied (docket nos. 73 and 76).

         Defendants' Motions in Limine ...


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