US v. Brennick, Crim. No. 95-10197-NG.

• Citation: 908 F. Supp. 1004
• Decision Date: 13 November 1995
• Docket Number: Crim. No. 95-10197-NG.
• Parties: UNITED STATES Of America, Plaintiff, v. John A. BRENNICK, Defendant.
• Court: U.S. District Court — District of Massachusetts

908 F. Supp. 1004

UNITED STATES Of America, Plaintiff, v. John A. BRENNICK, Defendant.

Crim. No. 95-10197-NG.

United States District Court, D. Massachusetts.

November 13, 1995.

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Terry Philip Segal, Robert Wolkon, Ferriter, Scobbo, Sikora, Caruso & Rodophele, Scott P. Lopez, Segal & Feinberg Law Office, Boston, MA, for defendant.

Stephen G. Huggard, United States Attorney, Boston, MA, for U.S.

MEMORANDUM AND ORDER

GERTNER, District Judge.

I. INTRODUCTION

The defendant, John A. Brennick, is charged with nine counts of structuring financial transactions to avoid currency reporting requirements (Counts 1-9), one count of bankruptcy fraud (Count 10), twenty-two counts of failing to truthfully account for and pay over payroll taxes (Counts 11-32), and one count of corruptly endeavoring to obstruct and impede the due administration of the internal revenue laws (Count 33).

In essence, the superseding indictment charges that Brennick, who was the president of a number of health care companies, withheld payroll taxes from his employees but failed to pay them over to the Internal Revenue Service, during the period from 1986 to 1993. Instead, the indictment charges, the defendant withdrew millions of dollars from these companies through structured cash transactions designed to avoid bank reporting requirements.

The indictment also charges that defendant subsequently filed for bankruptcy on behalf of himself and one of his companies, and that he made false statements under oath during the Section 341 meeting with creditors. Finally, the indictment charges that the defendant failed to timely remit withholding taxes, made misrepresentations to the IRS concerning the reasons for his failure to pay taxes, took his pay mainly in cash, structured cash transactions to avoid bank reporting requirements, obtained separate Employer Identification Numbers for each of his separate companies, retained checks made payable to the Internal Revenue Service by his staff rather than depositing them, and diverted business assets to his personal use, all as a way of corruptly endeavoring to obstruct and impede the due administration of the internal revenue laws.

Defendant has filed motions to dismiss various of the counts. I will address each of defendants' arguments in turn.

II. DOUBLE JEOPARDY

Counts 11 through 32 charge the defendant with violating 26 U.S.C. § 7202, by failing to "truthfully account for and pay over, either in whole or in part, to the Internal Revenue Service ... federal income taxes ... due and owing to the United States of America." Defendant contends that because he has already been assessed civil penalties in connection with these charges, the instant prosecution is barred by the Double Jeopardy Clause of the Fifth Amendment. In particular, he argues that the earlier IRS assessment of civil penalties against him constituted a "punishment" and, because the constitution prohibits multiple punishments for the same offense, the government is precluded from any further punitive action (be it civil or criminal) against him. See United States v. Halper, 490 U.S. 435, 440, 109 S.Ct. 1892, 1897, 104 L.Ed.2d 487 (1989).

The superseding indictment charges the defendant with failing to pay approximately $1.4 million in withholding taxes, and paying late an additional $700,000 of such taxes. The IRS imposed penalties pursuant to four distinct sections of the Tax Code: (1) late deposit penalties (26 U.S.C. § 6656); (2) late payment penalties (26 U.S.C. § 6653); (3) late filing penalties (26 U.S.C. § 6651); and (4) bad check penalties (26 U.S.C. § 6657).¹ The total amount of these penalties exceeds $600,000.

In contending that these earlier penalties constituted an imposition of punishment which bars the government from engaging in further criminal prosecution, defendant asks this court to reject the reasoning of Helvering v. Mitchell, 303 U.S. 391, 58 S.Ct. 630, 82 L.Ed. 917 (1938), which upheld the imposition of civil tax penalties against a double jeopardy challenge. In Helvering, the government prosecuted the defendant for willfully failing to pay income tax. After the defendant was acquitted, the government imposed a civil penalty equal to fifty percent (50%) of the unpaid tax. In upholding the imposition of the penalty against a double jeopardy challenge, the court held that the civil penalty was remedial, rather than punitive, and that the Double Jeopardy Clause therefore did not apply. The court found that the penalty was imposed "primarily as a safeguard for the protection of the revenue and to reimburse the Government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud." Helvering, 303 U.S. at 401, 58 S.Ct. at 634.

Helvering is directly on point. Defendant suggests, however, that two recent Supreme Court cases have called Helvering's reasoning into question. See Halper, supra; Montana DOR v. Kurth Ranch, ___ U.S. ___, 114 S.Ct. 1937, 128 L.Ed.2d 767 (1994). In Halper, the Supreme Court held for the first time that the imposition of a civil penalty could, under certain circumstances, raise double jeopardy concerns. Halper involved the imposition of civil penalties under the False Claims Act (FCA), which prohibits the making of false claims for payment from the federal government. Under the FCA, persons making false claims are subject to criminal prosecution but are also liable to the government for "a civil penalty of $2,000, an amount equal to 2 times the amount of damages the Government sustains ... and costs of the civil action." Halper, 490 U.S. at 438, 109 S.Ct. at 1896.

Halper had been charged and convicted of making false Medicare claims on 65 occasions, in a total amount of $585. He was sentenced to two years in prison and fined $5,000. The government then attempted to collect a civil penalty for each of the sixty-five instances of false billing, for a total penalty in excess of $130,000. Halper contended that the penalty constituted a prohibited second punishment for the same offense of which he had been convicted. The government argued that because the penalty was a civil one, the Double Jeopardy Clause did not apply.

The Court concluded that the relevant criterion for triggering double jeopardy protection was not whether the penalty in question was characterized as "civil" or "criminal," but rather whether it was "punishment." Halper, 490 U.S. at 447-448, 109 S.Ct. at 1901. A civil sanction is not punishment, the Court stated, if its purpose is merely to reimburse the government for the approximate expenses it incurred because of the defendant's unlawful activity. Id. at 448, 109 S.Ct. at 1901-02. If, however, the penalty has a deterrent or retributive quality to it, then it must be considered a form of punishment, and the double jeopardy clause applies. Id.

In Halper, the district court had concluded that the government's expenses associated with Halper unlawful acts were no greater than $16,000. The Supreme Court concluded that, on those facts, the government's proposed $130,000 penalty could not be reasonably interpreted as having a solely remedial purpose; therefore, it could not be imposed consistent with the Double Jeopardy Clause. Id. at 452, 109 S.Ct. at 1903-04. The Court was careful to note, however, the anomalous facts of the case and the "small gauge" nature of the defendant's activities. Id. at 449, 109 S.Ct. at 1902. It reiterated that "in the ordinary case, fixed-penalty-plus-double-damages provisions can be said to do no more than make the Government whole." Id.

In Kurth Ranch, the Court once again considered the circumstances under which a civilly imposed government exaction could constitute punishment for double jeopardy purposes. At issue in Kurth Ranch was a property tax which the State of Montana imposed on possessors of marijuana. The tax was only imposed in conjunction with criminal prosecutions, and far exceeded the market value of the taxed property. The Court determined that taxes could be considered punitive under some circumstances.

The Court conceded that taxes, unlike penalties, fines and forfeitures,² could not be classified as "punishment" merely because they had some deterrent effect, since virtually all taxes modify people's behavior to some extent. Kurth Ranch, ___ U.S. at ___, 114 S.Ct. at 1946-1947. Taxes are assumed, however, to have primarily a revenue raising purpose. It is only when the tax is clearly intended as a punishment, and loses its character as a "normal revenue law," that the Double Jeopardy Clause applies. Id. at ___, 114 S.Ct. at 1948.

In Kurth Ranch, the Court concluded that the tax in question was so unlike an ordinary tax that it could only be characterized as a form of punishment. Among the anomalous characteristics of the tax were the fact that it only applied to illegal activity, that it exceeded the actual market value of the taxed property, that it applied solely to property which had already been seized from its owner and destroyed by the government, and that it was only imposed upon the actual arrest of the taxpayer for criminal activity. Id. at ___, 114 S.Ct. at 1946-1948.

Does Helvering have continuing vitality in light of Halper and Kurth Ranch? A number of factors suggest that it does. First, both the Halper and Kurth Ranch courts cited Helvering with approval, strongly indicating that the Court did not intend to overrule Helvering sub silentio. In Halper, the Court cited Helvering for the proposition that, upon a determination that a statute was intended to be remedial rather than punitive, double jeopardy principles did not apply. Halper, 490 U.S. at 442-443, 109 S.Ct. at 1899. Although Halper went on to use a different method from Helvering to determine whether the statute in question was punishment, it never questioned that Helvering was correctly decided. In Kurth Ranch, Helvering was cited for its assumption that a tax could,...