U.S. v. Brodnik

Citation710 F.Supp.2d 526,105 A.F.T.R.2d 2010
Decision Date29 April 2010
Docket NumberCriminal Action No. 1:09-cr-00067
CourtU.S. District Court — Southern District of West Virginia
PartiesUNITED STATES of America, Plaintiff, v. Randy Michael BRODNIK and Anthony Ira Kritt, Defendants.
710 F.Supp.2d 526
105 A.F.T.R.2d 2010


UNITED STATES of America, Plaintiff,
v.
Randy Michael BRODNIK and Anthony Ira Kritt, Defendants.


Criminal Action No. 1:09-cr-00067.

United States District Court, S.D. West Virginia.

April 29, 2010.

710 F.Supp.2d 528

L. Anna Forbes, U.S. Attorney's Office, Charleston, WV, for Plaintiff.

710 F.Supp.2d 529

MEMORANDUM OPINION AND ORDER

IRENE C. BERGER, District Judge.

The Court has reviewed motions filed by both Defendants Randy Brodnik and Anthony Kritt and the United States. Defendant Brodnik's Motion to Dismiss Indictment in Part [Docket 52]; Second Motion to Dismiss Indictment in Part [Docket 94]; Supplement to Second Motion to Dismiss Indictment in Part [Docket 96]; Response to Mr. Kritt's Motion to Dismiss [Docket 97]; Motion to Strike the Expert Testimony of Robert L. Sommers [Docket 53]; and Motion for Discovery [Docket 61] are pending. Defendant Kritt's Motion to Dismiss the Superseding Indictment [Docket 92] is also pending, as is the United States' Motion to Disqualify Dr. Brodnik's Counsel, Mr. Robert J. Stientjes, Due to Conflict of Interest [Docket 49].

By Order of Reference filed on March 26, 2009, the Court referred this matter to United States Magistrate Judge R. Clarke VanDervort "for the purpose of doing all things proper to hear and determine or make recommendations for disposition of any pretrial motions filed in this case including, without limitation, conducting a hearing on the motions, if necessary, and entering into the record a written order setting forth the disposition of the motion or recommendation for disposition, as the case may be." [Docket 7]. Magistrate Judge VanDervort filed his Proposed Findings and Recommendation ("PF & R") on February 17, 2010, 2010 WL 2267858. [Docket 112]. In that filing, Magistrate Judge VanDervort recommended that the undersigned deny Defendants' motions, and grant the motion of the United States.

The Court is not required to review, under a de novo or any other standard, the factual or legal conclusions of the magistrate judge as to those portions of the findings or recommendation to which no objections are addressed. Thomas v. Arn, 474 U.S. 140, 150, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985). In addition, failure to file timely objections constitutes a waiver of de novo review and Defendants' right to appeal this Court's order. See Snyder v. Ridenour, 889 F.2d 1363, 1366 (4th Cir.1989); United States v. Schronce, 727 F.2d 91, 94 (4th Cir.1984).

However, a defendant must cite to specific instances of error. United States v. Midgette, 478 F.3d 616, 621 (4th Cir.2007) (stating that "[28 U.S.C.] Section 636(b)(1) does not countenance a form of generalized objection to cover all issues addressed by the magistrate judge; it contemplates that a party's objection to a magistrate judge's report be specific and particularized, as the statute directs the district court to review only those portions of the report or specified proposed findings or recommendations to which objection is made.") (internal citations and quotations omitted) (emphasis in original). As the Fourth Circuit further stated in Midgette:

[a] party must object to the finding or recommendation on that issue with sufficient specificity so as reasonably to alert the district court of the true ground for the objection.... To conclude otherwise would defeat the purpose of requiring objections. We would be permitting a party to appeal any issue that was before the magistrate judge, regardless of the nature and scope of objections made to the magistrate judge's report. Either the district court would then have to review every issue in the magistrate judge's proposed findings and recommendations or courts of appeals would be required to review issues that the district court never considered. In either case, judicial resources would be wasted and the district court's effectiveness based on help from magistrate judges would be undermined.
Id. at 622. See also Fed.R.Crim.P. 59(b)(2) (requiring objecting party to file
710 F.Supp.2d 530
" specific, written objections to the proposed findings and recommendations") (emphasis added).

Here, objections to Magistrate Judge VanDervort's PF & R were due by March 8, 2010, pursuant to 28 U.S.C. § 636(b)(1) and Fed.R.Crim.P. 59. Defendants timely filed objections [Docket 116 and 117], to which the United States responded [Docket 118]. The undersigned now reviews de novo the portions of Magistrate Judge VanDervort's PF & R to which Defendants Brodnik and Kritt objected.1

I. BACKGROUND

Defendant Randy Michael Brodnik, D.O., is an osteopathic physician with an obstetrics and gynecology practice, Bluefield Women's Center, Inc. ("BWC") in Bluefield, West Virginia. Defendant Anthony Kritt is a Maryland resident and attorney. Defendants were charged in a seven count Indictment filed on March 18, 2009, and an eight count Superseding Indictment filed on November 3, 2009. The Indictment and Superseding Indictment allege that Defendants violated the tax laws of the United States through "an elaborate 'employee-leasing' scheme" (Docket 67 at 2) that stretched from Defendant Brodnik's medical practice in rural Bluefield, West Virginia to the distant overseas locales of Ireland, Hungary, Cyprus, the Channel Islands, Nevis, and the Isle of Man. The Indictment charges Defendants with conspiring to defraud the United States of income taxes in violation of 18 U.S.C. § 371 2 (Count One) and separate counts of income tax evasion for tax years 1999 (Count Three), 2000 (Count Four), 2001 (Count Five), 2002 (Count Six) and 2003 (Count Seven) in violation of 26 U.S.C. § 7201.3 Count Two also alleged income tax evasion for the tax year 1998, but only named Defendant Brodnik. The Superseding Indictment added Count Eight, which charged that Defendants "did endeavor to corruptly obstruct and impede, and did corruptly obstruct and impede, the due administration of the internal revenue laws" and aided and abetted each other in doing so in violation of 26 U.S.C. § 7212(a) and 18 U.S.C. § 2.4 (Docket 66).

710 F.Supp.2d 531

Count One of the Superseding Indictment alleges that Defendants conspired to conceal from the Internal Revenue Service ("IRS") income that Defendant Brodnik earned from BWC, via an "elaborate 'employee-leasing' scheme." (Docket 66 at ¶ 4). The Superseding Indictment alleges that Defendants created and used a number of domestic and foreign entities ( Id. at ¶ 6) and executed "sham 'employee leasing' contracts" and created and used international bank accounts, shell corporations, and other entities in furtherance of the scheme. ( Id. at ¶¶ 5 and 9). The Superseding Indictment charges that Defendants committed overt acts "within the Southern District of West Virginia, and elsewhere." ( Id. at ¶ 12). The Superseding Indictment describes the overt acts as beginning with the execution of three contracts in September, 1998, that made Defendant Brodnik an employee of a company in Ireland, transferred that company's rights to a Nevada company which Defendant Kritt created, and leased Defendant Brodnik to BWC. ( Id. at ¶ 13) The Superseding Indictment alleges that thereafter BWC transferred millions of dollars of untaxed income earned by Mr. Brodnik to his overseas accounts ( Id. at ¶¶ 13, 14, 20, 25, 30 and 35) and that Defendant Kritt prepared ( Id. at ¶¶ 23, 27, 33, 37, and 42) and Defendants filed false and fraudulent corporate and personal income tax returns claiming deductions of amounts attributable to Defendant Brodnik's "medical services as a 'leased' employee" declaring substantially reduced amounts as income to Defendant Brodnik. ( Id. at ¶¶ 16, 18, 22, 24, 28, 29, 32, 34, 36, 38, 41, 43, and 45). The Superseding Indictment alleges that, in 2000 and 2002, Defendants obtained lines of credit through the foreign entities which they were using so that Defendant Brodnik could take loans upon the funds which he had on account with the understanding that he would pay interest upon the loans which "was a sham since any interest payments [he] made would be returned to [the foreign entity], less administrative fees, to [his] ... account". ( Id. at ¶¶ 6(h), 21 and 31).

Paragraph 2 of Counts Two through Seven of the Superseding Indictment alleges that "in the Southern District of West Virginia and elsewhere" Defendants willfully attempted to evade income tax which Defendant Brodnik owed by creating "sham 'employee-leasing' contracts" and holding Defendant Brodnik out as an employee of foreign leasing companies under "a sham device," causing BWC to make payments of significant amounts in accordance with the sham contracts and device; and filing false personal and corporate income tax returns for the years 1998, 1999, 2000, 2001, 2002 and 2003. Paragraph 2 of Counts Two through Seven of the Superseding Indictment contains the following subparagraph (f) as an alleged affirmative act which was not originally in the Indictment:

filing with the IRS materially false and fraudulent U.S. Individual Income Tax Returns, Forms 1040, for tax years 2004 and 2005 that falsely claimed, among other things, that Defendant RANDY
710 F.Supp.2d 532
MICHAEL BRODNIK had been an employee of a Hungarian company.

Count Eight of the Superseding Indictment charges that Defendants "did endeavor to corruptly obstruct and impede, and did corruptly obstruct and impede, the due administration of the internal revenue laws" and aided and abetted each other in doing so in violation of 26 U.S.C. § 7212(a) and 18 U.S.C. § 2. Count Eight alleges that Defendants did so, among other things, as follows:

c. by causing to be prepared, subscribed to and filed with the IRS on or about October 15, 2008, an Amended U.S. Individual Income Tax Return for the year 2007, Form 1040X, which falsely described Defendant RANDY MICHAEL BRODNIK's offshore funds as 'Deferrals and Related Earnings .... from Foreign Employer's Nonqualified Deferred Compensation Plan,' when, in fact, Defendant BRODNIK had no foreign employer
...

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