United States v. Korn

• Decision Date: 13 June 2013
• Docket Number: 11-cr-00384-WMS-JJM
• Parties: UNITED STATES OF AMERICA, v. MARC IRWIN KORN, Defendant.
• Court: U.S. District Court — Western District of New York

UNITED STATES OF AMERICA,

v.MARC IRWIN KORN, Defendant.

11-cr-00384-WMS-JJM

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK

Dated: June 13, 2013

DECISION AND ORDER

Defendant is charged in Superseding Indictment [30]¹ with, inter alia, failure to pay over trust fund/payroll taxes for Fairchild Manor Nursing Home, LLC and Batavia Nursing Home, LLC, in violation of 26 U.S.C. §7202. Id., Counts 6-9. This matter has been referred to me by Hon. William M. Skretny for all pretrial proceedings [19].

Although defendant's pretrial motion seeks to suppress a variety of evidence and statements (defendant's Memorandum of Law [41-17], pp. 6-23), thus far I have concluded that defendant has only established his entitlement to an evidentiary hearing concerning the voluntariness of defendant's June 8, 2010 statements and the government's alleged breach of the no-contact rule in conducting that interview, without prejudice to possible expansion of the hearing. Transcript of the January 15, 2013 proceeding [59], pp. 35-36.

A hearing concerning these issues was conducted on February 27, 2013 [67]. Following the testimony of the government's witnesses (IRS Criminal Investigation Special Agent Michael Klimczak and FBI Special Agent Allan Rains), defendant's attorney stated that defendant would be the only possible defense witness, but requested that, before he made a final decision, I should determine whether IRS Revenue Officer Gil Reyes should testify concerning the alleged no-contact rule violation. February 27, 2013 hearing transcript [67], pp. 190-93. Idirected the parties to file briefs addressing whether additional witnesses should testify based on the current scope of the hearing, and whether and to what degree (if any) the scope of the evidentiary hearing should be expanded based on the hearing testimony thus far. March 1, 2013 Text Order [66].

During oral argument of these issues on May 14, 2013, I stated that I would consider the hearing closed on the alleged no-contact rule violation, without prejudice to the possibility of reopening the hearing should it be established in the post-hearing submissions that further evidence is necessary. This left the only open issue being whether defendant would testify concerning the voluntariness of his June 8, 2010 statements. Defendant's attorney asked that I address whether the hearing should expanded to address that aspect of his motion to suppress Revenue Officer Reyes' February 3, 2010 interview of defendant, before deciding whether defendant would testify.²

For the following reasons, I conclude that at this time there is no basis to expand the evidentiary hearing to address this aspect of defendant's pretrial motion seeking to suppress.

ANALYSIS

In December 2009 Revenue Officer Reyes took over the IRS Collection Division's investigation of Batavia Nursing Home, LLC's and Fairchild Manor Nursing Home's failure to pay employment taxes. Defendant's Reply Memorandum of Law [57], pp. 9-10. OnDecember 29, 2009, SA Klimczak advised Revenue Officer Reyes that the "IRS-CI had an open primary investigation on KORN in conjunction with a joint investigation with the USAO and FBI. Their investigation was initiated on something other than unpaid employment taxes", and asked Revenue Officer Reyes to let him know when his case was closed so that Agent Klimczak could obtain the file. [50-1], ¶¶3-4.

On February 3, 2010 Revenue Officer Reyes conducted an interview of defendant and during this interview did not inform defendant of his Miranda rights or the on-going criminal investigation. Defendant's Reply Memorandum of Law [57], p. 10. There is no allegation by defendant that this was a custodial interrogation. Aspects of this interview were memorialized on IRS Form 4180, "Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes". DeVita Affirmation [41], Ex. C.

Defendant seeks to expand the hearing in order to "question Officer Reyes about his awareness that 26 U.S.C. §7202 and 26 U.S.C. §6672 have the same elements and that the information he elicited during the 4180 interview could be used in a prosecution under 26 U.S.C. 7202". Defendant's post-hearing letter brief [70], p. 11. He argues that Revenue Officer Reyes' February 3, 2010 interview was a de facto criminal investigation since the elements of 26 U.S.C. §6672, the statute under which Revenue Officer Reyes was investigating defendant, "are virtually identical" to 26 U.S.C. §7202, the criminal statute under which defendant was ultimately charged. Defendant's Reply Memorandum of Law [57], p. 9; Superseding Indictment[30], Counts 6-9.³ As a de facto criminal investigation, defendant argues that Revenue Officer Reyes was required to provide defendant with the warnings mandated by the Internal Revenue Manual ("IRM"), which governs the procedures to be employed in IRS criminal investigations. The relevant provision of the IRM states:

"9.4.5.11.3.1 Informing of Constitutional Rights in Non-Custodial Interviews (05-15-2008)

(1) The special agent will advise the individual of his/her constitutional rights during non-custodial interviews when the individual is a subject of an investigation, a corporate officer or employee who appears to be implicated in an alleged wrongdoing involving a corporation under investigation, or when a witness' statement would incriminate the witness.

* * *

(3) To defend against an attack on the admissibility of any statement or documentary evidence furnished by a subject under investigation, the special agent will always inform the subject of his/her constitutional rights at the beginning of a formal question and answer interview, even if the subject had previously been advised.

(4) Failure to give subjects the constitutional warnings prescribed by Internal Revenue Service procedures has resulted in the exclusion of evidence obtained from the subjects. See US v. Leahey and US v. Heffner." Defendant's Memorandum of Law [41-17], p. 14 (quoting IRM 9.4.5.11.3.1, http://www.irs.gov/irm/ (last visited Oct. 2, 2012)).

The exclusionary rule does not apply when IRS agents violate internal regulations, unless compliance with those regulations are mandated by the Constitution or statute. See UnitedStates v. Caceres, 440 U.S. 741 (1979); United States v. Boykoff, 186 F.Supp.2d 347, 350 (S.D.N.Y. 2002), aff'd, 67 Fed.Appx. 15 (2d Cir. 2003) (Summary Order) ("It has been the law for over two decades that violation of agency rules in the conduct of an investigation does not warrant suppression of evidence obtained during that investigation" citing Caceres).⁴ However, the procedure outlined in the IRM, which requires Miranda-type warnings even in non-custodial settings, goes beyond what is required by law. "Neither the constitution nor federal law require the issuance of Miranda warnings in a non-custodial setting . . . . There is no doubt that the purpose of the IRS regulations was to extend the protections of Miranda to non-custodial inquiries into criminal tax violations . . . . It is equally clear, however, that the IRS was not compelled by any federal authority to enact such regulations." United States v. Mauser, 723 F.Supp. 995, 1002 (S.D.N.Y. 1989). See Irvine, 699 F.2d at 46 (same).

Caceres created a narrow exception, leaving "the door slightly ajar by indicating that it might be a denial of due process to induce reasonable reliance on the regulation and then pull the rug out from under the defendant." United States v. Kontny, 238 F.3d 815, 819 (7th Cir.), cert. denied, 532 U.S. 1022 (2001). However, here, "[t]here has been no suggestion thatthe defendant was aware of the IRS regulations, much less relied on them to his detriment." Mauser, 723 F.Supp. at 1002.⁵

Defendant also argues that "IRS civil revenue agent and officers cannot act as a 'cat's paw' for a criminal investigation by misleading the taxpayer into believing only civil consequences are at issue." Defendant's Memorandum of Law [41-17], p. 17. The government concedes that "[i]t is clear that the IRS may not develop a criminal investigation under the auspices of a civil audit." Government's Response [49], p. 16 (citing United States v. Grunewald, 987 F.2d 531 (8th Cir. 1993)). However, "[e]vidence obtained in the course of a criminal investigation, where the defendant has not been apprised of the nature of the investigation, may be suppressed only if the defendant establishes that: 1) the IRS had firm indications of fraud by the defendant, 2) there is clear and convincing evidence that the IRS affirmatively and intentionally misled the defendant, and 3) the IRS's conduct resulted in prejudice to defendant's constitutional rights." Grunewald, 987 F.2d at 534 (emphasis added).⁶

"To prevail on a claim of trickery and deception, [the defendant] must produce clear and convincing evidence that the [agency's] agents affirmatively misled them as to the true nature of their investigation . . . . It must also be shown that the misrepresentations materiallyinduced the defendants to make incriminating statements . . . . Inculpatory statements are not involuntary when they result from a desire to cooperate, or from a defendant's ignorance of, or inattention to, his right to remain silent . . . . Further, the [agency's] agents' failure fully to explain the purpose of the interviews does not amount to affirmative deceit unless defendant inquired about the nature of the investigation and the agents' failure to respond was intended to mislead." United States v. Mitchell, 966 F.2d 92, 100 (2d Cir. 1992) (addressing the conduct of EPA agents).

As argued by the government - and undisputed by defendant - it is defendant's burden to establish a claim of fraud, deceit or trickery. Government Response [49], pp. 17-18. See United States v. Tweel, 550 F.2d 297, 299 (5th Cir. 1977) ("The burden for determining whether or not the government has resorted to a deception is on the moving party"); United States v. Okwumabua, 828...