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United States v. Ogbazion

United States District Court, S.D. Ohio, Western Division

April 10, 2017

UNITED STATES OF AMERICA,
v.
FESUM OGBAZION, Defendant.

          ORDER DENYING DEFENDANT'S MOTION TO DISMISS THE SUPERSEDING INDICTMENT

          Timothy S. Black United States District Judge

         This criminal case is before the Court on Defendant Fesum Ogbazion's motion to dismiss the superseding indictment (Doc. 84) and the parties' responsive memoranda (Docs. 85, 86).

         I. BACKGROUND

         Defendant formerly owned and operated ITS Financial, LLC (“ITS Financial”). (Doc. 6 at ¶ 3). ITS Financial was headquartered in Dayton, Ohio, and was the national franchisor of Instant Tax Service (“ITS”), a nationwide tax preparation franchise business started by Defendant in 2004 and marketed by ITS Financial throughout the United States. (Id.) ITS was purported to be the fourth largest tax preparation company in the United States.

         Defendant was also the founder and sole-owner of TCA Financial, LLC (“TCA”), which served as the holding company for ITS Financial. (Doc. 6 at ¶ 4). Defendant was also the founder and sole-owner of Tax Tree, LLC (“Tax Tree”), an entity formed in 2010 to raise capital from private investors in order to fund ITS loan products, including Instant Cash Loans (“ICL”) and Refund Anticipation Loans (“RAL”), which were marketed nationwide to ITS customers. (Id. at ¶¶ 5, 21). Tax Tree also served as a clearinghouse for tax refunds issued by the Internal Revenue Service (“IRS”). (Doc. 45 at 6). Defendant was also the sole-owner and operator of TaxMate, LLC (“TaxMate”). (Doc. 6 at ¶ 6).

         In November 2011, Defendant learned that the IRS's civil division was investigating ITS and its affiliated companies. (Doc. 45 at 6). Defendant cooperated in the investigation, appearing for several interviews and depositions, as well as providing requested documents to assist the IRS attorneys and agents. (Id. at 8-14). On March 28, 2012, Defendant Ogbazion, along with ITS Financial, TCA, and Tax Tree (collectively, the “Civil Defendants”), were named in a civil enforcement action brought by the Department of Justice (“DOJ”) Tax Division, on behalf of the United States, pursuant to 26 U.S.C. §§ 7402 and 7408 of the Internal Revenue Code. United States v. Fesum Ogbazion, et al., No. 3:12-cv-0095 (S.D. Ohio, Mar. 28, 2012).[1]

         In the civil action, the Government sought to permanently enjoin the Civil Defendants “from preparing or directing or assisting in the preparation of federal tax returns, from engaging in and facilitating tax fraud, and from engaging in any other conduct that substantially interferes with the administration or enforcement of the tax laws, including the conduct described in this complaint.” (Civil Doc. 1 at ¶ 11). On June 17, 2013, the civil case proceeded to a ten-day bench trial before this Court. (Civil Doc. 98).

         Ultimately, on November 6, 2013, a civil judgment was entered in favor of the Government (Civil Doc. 142) and an Order of Permanent Injunction was issued against the Civil Defendants (Civil Doc. 143). On November 21, 2014, the Sixth Circuit affirmed this Court's injunction on appeal, and a mandate was issued on January 13, 2015. (Civil Doc. 156). Several months later, and approximately one and a half years after the civil action was fully resolved in the district court, the Government commenced the instant criminal case. (Doc. 6).

         Specifically, on August 25, 2015, Defendant Ogbazion, along with co-defendant Kyle Wade, were charged in a twenty-three count Indictment with: engaging in a corrupt endeavor to obstruct and impede the due administration of the Internal Revenue Code, in violation of 26 U.S.C. § 7212(a) (Count 1); conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349 (Count 2); wire fraud, in violation of 18 U.S.C. § 1343 (Counts 3-7); money laundering, in violation of 18 U.S.C. § 1956(a)(1)(A)(ii) (Counts 8-13); bank fraud, in violation of 18 U.S.C. § 1344 (Count 14); tax evasion, in violation of 26 U.S.C. § 7201 (Count 15); and failure to collect and pay over payroll tax, in violation of 26 U.S.C. § 7202 (Counts 16-23). (Doc. 6).[2]

         On February 9, 2016, Defendant filed a motion to dismiss the Indictment. (Doc. 45). Specifically, Defendant argued that the Indictment should be dismissed, in whole or in part, or alternatively, that certain evidence should be suppressed, because: (1) the Government abused parallel civil proceedings to prosecute Defendant in this criminal case; (2) Counts 16 and 20, as well as parts of Counts 1 and 15, are barred by the applicable statutes of limitations; and (3) the Indictment fails to state an offense as to Count 1, as well as Counts 8 through 13. (Id. at 1). On October 17, 2016, this Court issued an Order only granting Defendant's motion as to the dismissal of Count 1, finding that “the Indictment fail[ed] to set forth an element of the 26 U.S.C. § 7212(a) omnibus clause offense, [and was therefore] legally deficient and must be dismissed.” (Doc. 66 at 40). Defendant's motion was denied in all other respects. (Id. at 43).

         On November 14, 2016, the Government filed a notice of interlocutory appeal as to the Court's dismissal of Count 1. (Doc. 70); United States v. Fesum Ogbazion, No. 16-4298 (6th Cir. 2016). During a status conference on November 21, 2016, the Government clarified that its Notice of Appeal was filed protectively, and that Department of Justice (“DOJ”) officials were still considering whether the appeal may proceed. (Min. Entry & Not. Order, Nov. 21, 2016).[3] A determination in that regard was anticipated by January 2017. (Id.)

         However, the DOJ's appellate review process ultimately took longer than anticipated. On December 22, 2016, the Government filed, in the Court of Appeals, an unopposed motion for a thirty-day extension of time, until February 2, 2017, to file its opening brief. (App. Doc. 12). The Court of Appeals granted the motion. (App. Doc. 13). On January 24, 2017, the Government moved for an additional extension until March 3, 2017 to file its opening brief. (App. Doc. 14). This time, Defendant opposed the motion, arguing that “further delay of [the interlocutory appeal] creates a very murky picture that prejudices [Defendant's] ability to adequately defend himself in the underlying case ….” (App. Doc. 15 at 4). Regardless, the Court of Appeals granted the Government's second motion for an extension of time. (App. Doc. 16). However, the Government learned shortly thereafter that the Solicitor General had elected not to pursue the appeal. (Doc. 85 at 13). Accordingly, on February 3, 2017, the Government filed a motion to voluntarily dismiss the appeal (App. Doc. 17), which the Court of Appeals granted (App. Doc. 18).

         Notably, on January 24, 2017 (i.e., shortly before dismissal of the appeal), the Government filed a thirty-one count Superseding Indictment in the criminal case. (Doc. 82).[4] Specifically, the Superseding Indictment includes Counts 2 through 23 of the initial indictment, but also adds the following charges as to both Defendants Ogbazion and Wade: conspiracy to defraud the United States and to commit wire fraud, in violation of 18 U.S.C. § 371 (Count 24); and wire fraud, in violation of 18 U.S.C. § 1343 (Counts 25-32). As to the conspiracy charge (Count 24), the Government alleges that from January 1, 2004 through November 6, 2013, Defendant engaged in a multi-object conspiracy involving: (1) defrauding the United States by impeding, impairing, obstructing and defeating the lawful government functions of the IRS; and (2) devising a scheme and artifice to defraud ITS customers, by means of false and fraudulent pretenses, using wire communications in interstate and foreign commerce. (Doc. 82 at ¶ 84). As to the wire fraud charges (Counts 25-32), the Government alleges that from January 24, 2012 through November 6, 2013, Defendant devised a scheme and artifice to defraud and to obtain increased income tax return preparation fees from ITS customers, using wire communications in interstate and foreign commerce. (Id. at ¶ 122).

         On February 17, 2017, Defendant filed the motion to dismiss the superseding indictment, currently at issue before the Court. (Doc. 84). The motion has been fully briefed and is now ripe for decision.

         II. STANDARD OF REVIEW

         Pursuant to Fed. R. Crim. P. 12(b)(1), “[a] party may raise by pretrial motion any defense, objection, or request that the court can determine without a trial on the merits.” A defendant may bring a motion to dismiss under Rule 12 in order to assert, inter alia, defects in instituting the prosecution or a defect in the indictment. Id. If the Court finds that “the indictment is legally deficient, the proper result is dismissal of the indictment.” United States v. Landham, 251 F.3d 1072, 1080 (6th Cir. 2001). Alternatively, the Court may “order[] the Government to submit a bill of particulars to supplement the allegations in the indictment ….” United States v. Jones, 542 F.2d 661, 666 (6th Cir. 1976).

         The Court “may ordinarily make preliminary findings of fact necessary to decide questions of law … so long as the trial court's conclusions do not invade the province of the ultimate factfinder.” United States v. Craft, 105 F.3d 1123, 1126 (6th Cir. 1997). However, “courts evaluating motions to dismiss do not evaluate the evidence upon which the indictment is based.” Landham, 251 F.3d at 1080.

         III. ANALYSIS

         Defendant argues that the Court should exercise its supervisory power to dismiss the Superseding Indictment in its entirety, with prejudice, based on the Government's alleged misconduct and vindictive prosecution. (Doc. 84 at 19-28). Alternatively, Defendant argues that certain counts of the Superseding Indictment are legally deficient and should be dismissed. (Id. at 28-38).

         A. Dismissal of the Superseding Indictment in its Entirety

         Defendant asserts that the Government has run afoul of his constitutional rights- namely his right to due process-by responding vindictively to the Court's dismissal of Count 1. (Doc. 84 at 19-28). Therefore, Defendant urges the Court to exercise its supervisory power to dismiss the Superseding Indictment, in its entirety, for vindictive prosecution. (Id.)

         “[D]ue process prohibits an individual from being punished for exercising a protected statutory or constitutional right.” United States v. Poole, 407 F.3d 767, 774 (6th Cir. 2005) (citing United States v. Goodwin, 457 U.S. 368, 372 (1982)). However, “the Due Process Clause is not offended by all possibilities of increased punishment …., but only by those that pose a realistic likelihood of ‘vindictiveness.'” Blackledge v. Perry, 417 U.S. 21, 27 (1974).

         Thus, “[a] defendant alleging prosecutorial vindictiveness must show either ‘actual vindictiveness' or a ‘realistic likelihood of vindictiveness.'” United States v. Roach, 502 F.3d 425, 443 (6th Cir. 2007) (quoting United States v. Dupree, 323 F.3d 480, 489 (6th Cir. 2003)). “Actual vindictiveness is demonstrated by ‘objective evidence that a prosecutor acted in order to punish the defendant for standing on his legal rights.'” Id. (quoting Dupree, 323 F.3d at 489). Conversely, to show a ‘realistic likelihood of vindictiveness, ' the defendant must show: “(1) exercise of a protected right; (2) the prosecutor's ‘stake' in the exercise of that right; (3) the unreasonableness of the prosecutor's conduct; and, presumably, (4) that the prosecution was initiated with the intent to punish the [defendant] for the exercise of the protected right.” Dupree, 323 F.3d at 489.

         If the defendant shows that “‘the prosecutor has some stake in deterring the [defendant's] exercise of his rights and [that] the prosecutor's conduct was somehow unreasonable, ' then the district court may find that there is a ‘reasonable likelihood of vindictiveness' and may presume an improper vindictive motive.” United States v. LaDeau, 734 F.3d 561, 566 (6th Cir. 2013) (quoting Bragan v. Poindexter, 249 F.3d 476, 482 (6th Cir.2001)) (emphasis added). “The government bears the burden of rebutting the presumption with ‘objective, on-the-record explanations' such as ‘governmental discovery of previously unknown evidence' or ‘previous legal impossibility.'” Id. (quoting Bragan, 249 F.3d at 482).

         Here, Defendant argues that the Government's conduct in this case amounts to vindictive prosecution, as evidenced by the Government's revival of the charge dismissed in Count 1, under a different count and statute, and the enhanced penalties associated with the additional charges brought in the Superseding Indictment. (Doc. 84 at 19-28). Additionally, Defendant alleges that he has been substantially prejudiced by the deprivation of trial preparation time, caused by the delay during the Government's (now abandoned) interlocutory appeal. (Id.)

         However, the Court finds that Defendant has not shown the Superseding Indictment to be a product of prosecutorial vindictiveness. Critically, as set forth below, the Court cannot conclude that the Government acted unreasonably or that the additional charges and enhanced penalties were intended to punish Defendant.

         Regardless, the issue of prejudice, while insufficient to warrant dismissal of the Superseding Indictment, raises other concerns that this Court must address.

         1. Reasonableness of the Government's Response

         Defendant alleges that the Superseding Indictment is the Government's vindictive response to the Court's prior dismissal of Count 1. Defendant argues that:

The Superseding Indictment … repackages and re-labels Count 1 of the Original Indictment (the “guts” of the government's case against [Defendant], previously dismissed by the Court) and re-charges it as Count 24. Indeed, save a few minor tweaks (all of which vindictively expand the extent of [Defendant's] potential criminal liability), Count 24 of the Superseding Indictment is a literal cut-and-paste of the dismissed Count 1 of the Original Indictment.
Frustrated by the Court's dismissal of the “guts” of its criminal case against [Defendant] (Count 1 of the Original Indictment) and unable to secure even internal approval to challenge such dismissal by way of proper appeal, the government simply decided to take matters into its own hands and effect a naked end-run of the Court's prior order. Quite literally, the government in the Superseding Indictment purports to re-plead criminal charges previously dismissed by this Court (and from which no appeal was ultimately taken).

(Doc. 84 at 11). The Court fully agrees that Count 24 is-and was undoubtedly intended to be-a revival of Count 1. However, the Court finds nothing unreasonable about the Government's charging decision.

         To be clear, the Court previously dismissed Count 1 in the Indictment, finding that the Indictment failed to sufficiently allege each of the essential elements (recognized in the Sixth Circuit) of the 26 U.S.C. § 7212(a) offense and was therefore legally deficient. (Doc. 66 at 33-40). The Court further stated that “[s]uch deficiencies cannot be remedied by amending the indictment or ordering the Government to provide a bill of particulars.” (Id. at 33).

         Relying heavily on the Court's statement, Defendant now argues that Count 24 of the Superseding Indictment is an impermissible amendment of Count 1, in violation of the Court's instruction. However, Defendant's argument misconstrues the Court's admonition regarding amendments.

         “[I]ndictments ‘may not be amended because doing so would substitute the prosecutor's judgment for that of the constitutional body, the Grand Jury, in framing the charge against a defendant.'” United States v. Prince, 214 F.3d 740, 756 (6th Cir. 2000) (internal quotation marks and citations omitted). Thus, an indictment may be amended only by the Grand Jury, unless “‘the change is merely a matter of form' … [such as] corrections of clerical or typographical errors.” United States v. Rosenbaum, 628 F. App'x 923, 929 (6th Cir. 2015) (quoting Russell v. United States, 369 U.S. 749, 770 (1962)).[5]

         As the Court made clear in its prior Order, an indictment must set forth each of the elements of the offense charged, not only to provide adequate notice to Defendant, but also to ensure that Defendant is only answering to charges properly returned by the Grand Jury. (Doc. 66 at 39-40). And, as to Count 1, the Court found that “the Indictment [was] devoid of any indication that either the Government or the Grand Jury was even aware that a charge under 26 U.S.C. § 7212(a)'s omnibus clause requires the defendant to have been aware of a pending IRS action.” (Id. at 40). Thus, in stating that the Government could not simply amend the Indictment to correct the deficiency, the Court was emphasizing that the error was not “merely a matter of form, ” and therefore could not be remedied by the prosecutor's clarifications. (Id.) As the Court stated, “the Government's ‘he knows what we meant' argument does not satisfy the requirement that the indictment clearly set forth all elements of the offense charged.” (Id.) However, nothing in the Court's Order was intended to imply that the Government could not correct its error by obtaining a superseding indictment from the Grand Jury.

         The Court finds that the Government's decision to charge Count 24 was a reasonable and permissible response, in light of the dismissal of Count 1. Indeed, as Defendant notes, and as the Government would likely agree, Count 1 constituted the ‘guts' of the prosecution's case. The Court sees nothing unreasonable about, and is certainly not offended by, the Government's attempt to remedy its own error.

         As the Government's decision here was not unreasonable, the Court declines to presume that the Government acted vindictively in its decision to charge Count 24.

         2. Punishment for Exercising a Constitutionally Protected Right

         Additionally, Defendant argues that the Government is attempting to punish him for exercising a protected right, evidenced by the additional charges and enhanced penalties under the Superseding Indictment.

         The Government responds that the additional charges “are based on evidence newly acquired since presentment of the initial Indictment, some of which pre-dates the Court's dismissal of Count One.” (Doc. 85 at 11).

Particularly, evidence obtained in or about October 2016 during a related criminal trial in the Western District of Missouri, United States v. Semere Tsehaye, 4:16cr69- CDP. See Exhibit A - Judgement Order. Tsehaye was convicted on two counts of tax evasion, in violation of 26 U.S.C. § 7201, relating to his failure to report and pay federal income taxes on income earned, in large part, from his operation of ITS franchises in St. Louis and Kansas City in 2010 and 2011. During the Tsehaye trial, ITS's former comptroller, Peter Samborsky testified under a grant of statutory immunity pursuant to 18 U.S.C. § 6001 et seq. On September 27, 2016 the Court in Tsehaye entered an Order compelling Samborsky to testify. See Exhibit B. As part of Samborsky's Compulsion Order, the Government interviewed Samborsky on October 25, 2016 and again on January 12, 2017. See Exhibits C and D. It was during these interviews that the Government first identified the specific financial institutions Defendant used to receive and disburse ITS's tax return preparation fees in 2012 and 2013 - which in turn form the basis of Counts Twenty-Five through Thirty-Two, and a significant part of Count Twenty-Four, of the Superseding Indictment returned on January 24, 2017.

(Id. at 3-4). Additionally, the Government argues that it “was actively pursuing this [new] evidence prior to the Court's dismissal of Count One, and is likely to have brought the[] [additional] charges regardless of how the Court ruled on Defendant's First motion to Dismiss.” (Id. at 11) (emphasis added).

         In Defendant's reply, he argues that the “newly acquired” evidence was actually known by, or at the very least, was readily available to the Government at the time of the first Indictment. (Doc. 86 at 8). Specifically, Defendant asserts that, “the government's assertion that it only recently learned of the specific financial institutions used by the Defendant and his businesses is patently false, ” and that the information has been within the Government's possession since February 2012. (Id.). Thus, Defendant argues that the Government's decision to expand ...


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