United States v. Desage, 2:13–cr–00039–JAD–VCF

• Decision Date: 09 January 2017
• Docket Number: 2:13–cr–00039–JAD–VCF
• Parties: UNITED STATES of America, Plaintiff v. Ramon DESAGE, et al., Defendants
• Court: U.S. District Court — District of Nevada

229 F.Supp.3d 1209

UNITED STATES of America, Plaintiff

v.Ramon DESAGE, et al., Defendants

2:13–cr–00039–JAD–VCF

United States District Court, D. Nevada.

Signed January 9, 2017

Crane M. Pomerantz, John Patrick Burns, Lisa Cartier–Giroux, U.S. Attorneys Office, Las Vegas, NV, for Plaintiff.

Richard B. Herman, Richard B. Herman, PC, New York, NY, Richard A. Wright, Wright Stanish & Winckler, Anthony P. Sgro, Patti, Sgro, Lewis & Roger, Thomas F. Pitaro, Las Vegas, NV, for Defendants.

Order Sustaining the Government's Objections and Reversing in Part and Remanding the Magistrate Judge's Order

[ECF Nos. 127, 128, 129, 182, 183]

Jennifer A. Dorsey, United States District Judge

Ramon Desage stands charged with conspiracy to defraud the United States (1 count), wire fraud (18 counts), money laundering (27 counts), and income tax evasion (4 counts), all stemming from Desage's alleged investment-fraud scheme and related tax fraud.¹ In August 2015, the magistrate judge granted Desage's motion to compel production of ten years' worth of tax records for 14 individuals and entities.² The government objects.³ Because most of the requested tax records are not in the government's possession, this court lacks authority to compel their production under Rule 16 or Brady /Giglio . As to the few records in the government's possession, their disclosure under Rule 16 is prohibited by 26 USC § 6103, which broadly protects taxpayer information. I therefore sustain the government's objections and remand to the magistrate judge to determine whether the Hefetz/Frey returns are, in whole or in part, discoverable under Brady .

Background

A. Desage moved to compel tax records

In his four-page motion to compel, Desage requested the 2005–2014 tax returns for: (1) Jacob (Yakov) Hefetz; (2) any entity with which Hefetz is or was affiliated with that is alleged to have loaned funds to or invested funds with Desage or any entity with which Desage is affiliated; (3) Harold Foonberg; (4) Stanley Sunkin; (5) any entity with which Foonberg is or was affiliated with that is alleged to have loaned funds to or invested funds with Desage or any entity with which Desage is affiliated; (6) Harvey Vechery; (7) Linda Vechery; (8) any entity with which H. Vechery is or was affiliated with that is alleged to have loaned funds to or invested funds with Desage or any entity with which Desage is affiliated; (9) William Richardson; (10) any entity with which William Richardson is or was affiliated that is alleged to have loaned funds to or invested funds with Desage or any entity with which Desage is affiliated; (11) Herb Frey; (2) AW Financial Group; (13) Federal Pants Company, Inc; and (14) F & S Partners LP. Of these individuals and entities, only Hefetz, Harvey Vechery, Foonberg, and Richardson are alleged victims in this case. This is the sole basis Desage proffered for his broad request:

Mr. Desage expects that Mr. Richardson's, Mr. Vechery's and Mr. Foonberg's personal and corporate tax returns will show that they did not take into account their receipts of cash from Mr. Desage. These omissions from their tax returns will constitute significant impeachment material regarding the credibility of these alleged victims. Thus, the tax returns are crucial to Mr. Desage's defense that he did not defraud investors/lenders.⁴

The government opposed the request, arguing that Desage failed to make the threshold showing that the returns are material, disclosure is prohibited under 26 U.S.C. § 6103, and the prosecution team is not in possession of the requested returns.⁵ If the magistrate judge granted the motion, the government requested that the records be first examined by the court in camera to determine if any Brady /Giglio material is present before disclosure to defense counsel. The government also requested a protective order limiting Desage's use of the tax information.

B. The magistrate judge granted Desage's motion

After reciting the standards for disclosure under Federal Rule of Criminal Procedure 16 and Brady /Giglio , the magistrate judge granted Desage's motion. The full explanation for the ruling is:

Mr. Desage is not engaged in a fishing expedition. His motion requests specific tax records for specific years for specific victims. Nor has Mr. Desage failed to make a plausible showing that the tax records are favorable to his defense. He contends that the records will show that the victims failed to report earned income, which they received in cash from Mr. Desage. This plausibly shows that the tax records contain impeachment evidence. [FN. 1 The government concedes that it possesses the tax records Mr. Desage seeks].⁶

C. The government objected

The government objected to the magistrate judge's order, arguing that there were three errors warranting reversal: the magistrate judge incorrectly held that Desage made the requisite materiality showing under Rule 16 and Brady /Giglio , the magistrate judge accepted Desage's faulty and unsupported argument that the returns would constitute impeachment material, and the order is significantly overbroad.⁷ One of the alleged victims whose records were ordered disclosed, William Richardson, filed a motion for relief under the Crime Victim Rights Act⁸ and joined in the government's objections.⁹

The parties stipulated to multiple continuances of the deadline for Desage's response to the government's objections, ultimately extending the deadline for almost one year. Shortly before the government's response was due in August 2016, the government—now represented by two new U.S. Attorneys—moved for leave to file supplemental briefing in support of its objections to address 28 U.S.C. § 6103.¹⁰ I found that additional briefing on § 6103's interaction with Rule 16 and Brady /Giglio would be helpful and that the delay would not be prejudicial to Desage, who had still not filed his response to the government's initial objections.¹¹ I therefore gave the government seven days to file a new, complete appeal of the magistrate judge's order and ordered both of the parties to address the applicability of § 6103 to the magistrate judge's order and to the production of the tax records requested in this case.

D. Supplemental briefing

The government's newly filed objections flesh out its § 6103 –based arguments and its arguments that Desage failed to make the required materiality showing far beyond the thin discussion originally provided to the magistrate judge.¹² The government comprehensively argues that, under the plain language of § 6103 and its interpretive jurisprudence, this court lacks the power to compel production of taxpayer return information unless the United States Attorney already possesses the taxpayer information under one of two narrow exceptions that are not applicable here. The government maintains that it cannot be required to produce—under Rule 16 or Brady /Giglio —information that is not in its actual or constructive possession and clarifies that, with the exception of the tax returns of two of the victims, it does not possess the requested documents. Finally, the government contends that the tax-return information is not material to this case and therefore not subject to disclosure, and that the magistrate judge's order is erroneous and overbroad because he failed to individually assess the requested records. Richardson joins in the government's objections.¹³

Desage maintains that the tax returns "will yield crucial impeachment evidence" and are thus discoverable under Rule 16 and Brady /Giglio and that the magistrate judge's order is not overbroad. In response to the government's § 6103 –based arguments, Desage contends that there is nothing in the statute that prohibits the court from ordering the government to obtain taxpayer information that is not already in its possession and that falls within § 6103(h)(2) and (4) subsection (B)–(C)'s exceptions for release of taxpayer information. Desage also questions the government's assertion that, with the exception of the records of two of the victims, it is not in possession of the requested tax records. The rest of Desage's response opposes Richardson's motion for relief under the Crime Victim Rights Act.

Discussion

A. Standard of review

A district judge may "reconsider any pretrial matter ... where it has been shown that the magistrate judge's order is clearly erroneous or contrary to law."¹⁴ The district judge may affirm, reverse, or modify the magistrate judge's order and may also remand the matter to the magistrate judge with instructions.¹⁵ A magistrate judge's order is "clearly erroneous" if the court has a "definite and firm conviction that a mistake has been committed."¹⁶ "An order is contrary to law when it fails to apply or misapplies relevant statutes, case law, or rules of procedure."¹⁷

I find that the order is clearly erroneous because it is premised on the misperception that the government possesses all of the requested tax records despite the government's representation that it did not, in fact, have the records. The order is also clearly erroneous because it failed to individually address the 14 different categories of requested tax returns. Because I find that the order is clearly erroneous, I reconsider Desage's motion to compel, reverse in part the magistrate judge's order granting it, and remand for further findings on whether the few returns in the government's possession are discoverable under Brady .

B. 26 U.S.C. § 6103

Desage's request for income-tax returns submitted to the IRS is a request for "taxpayer return information," which is presumptively confidential under 26 U.S.C. § 6103 unless one of the statute's narrow exceptions applies. Desage points to § 6103(h)(2) and (4) as the basis for his request. Section 6103(h) provides for disclosure to certain federal officers and employees for matters involving tax administration. Subsection (h)(2) and (4) provide that return information may be "open to inspection by or disclosure to" United States Attorneys and...