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United States v. Mills

United States District Court, W.D. Pennsylvania

March 19, 2018

UNITED STATES OF AMERICA,
v.
GARY MILLS, Defendant,

          MEMORANDUM OPINION

          Nora Barry Fischer U.S. District Judge.

         I. INTRODUCTION

         In this criminal tax case, Defendant Gary Mills (“Defendant”) is charged with three counts of knowingly filing false tax returns for the 2012, 2013 and 2014 tax years, in violation of 26 U.S.C. § 7206(1). (Docket No. 1). Presently before the Court are a contested motion to compel filed by Defendant and cross-motions filed by Defendant and the Government concerning a proposed subpoena to be issued on Matthews International, Inc., (“Matthews”), which has joined the Government's motion to quash the subpoena. (Docket Nos. 21; 25; 36; 65). The motions have been extensively briefed by the parties and the Court held oral argument on the discovery motion on November 30, 2017 and on the subpoena motions on December 14, 2017. (Docket Nos. 61; 72; 76). The parties and Matthews also filed post-hearing briefs and the latest of such filings was a notice or status report submitted by the Government on March 5, 2018. (See Docket Nos. 64; 65; 69; 70; 74; 75; 77; 79; 81; 83). During this litigation, the parties have narrowed their discovery disputes considerably and the Government has produced numerous items to the defense and/or made certain materials available for inspection. (See Docket Nos. 75; 83). After careful consideration of the parties' positions and for the following reasons, Defendant's Motion to Compel and Motion for Rule 17(c)(1) Subpoena [21], [25] are denied and the Government's Motion to Quash [36], joined by Matthews, is granted.

         II. BACKGROUND

         Defendant and Cynthia Mills (“Cindy”) were married in 1994 and filed joint tax returns from 1994 until 2015. (Docket No. 21). Defendant worked as a driver for UPS from approximately 1999 to 2014, at which time he retired and started a fishing business. (Docket Nos. 21 at 2; 34 at 2; 76 at 52). From 1981 to May 2015, Cindy Mills worked for Matthews as a cashier and treasury specialist. (Docket Nos. 34; 44-1). Cindy Mills embezzled at least $12.9 million from Matthews between 1999 and 2015 and the couple did not report any of this income on their tax returns. (Id.). In 2008 or 2009, the IRS-CI opened a criminal investigation into the Mills' tax filings from 2003 through 2007 and closed it in 2010 due to insufficient evidence. (Id.). The matter was referred to a civil audit which was ultimately resolved in the summer of 2014 when the Mills paid approximately $225, 000 in additional taxes, civil penalties and interest for the 2003 to 2007 tax years. (Id.).

         The IRS-CI opened a second criminal investigation of the Mills' activities in 2015. (Docket No. 44-1). Cindy Mills met with investigators on several occasions, waived indictment and pled guilty on March 15, 2017 to an Information charging her with one count of mail fraud; three counts of wire fraud; one count of tax evasion; and one count of money laundering. See United States v. Cynthia Mills, Crim. No. 17-19. On September 28, 2017, Cindy Mills was sentenced to 100 months' incarceration, followed by three years supervised release and was ordered to pay a $600 special assessment and restitution in the amount of $12, 969, 774.42. (Crim. No. 17-19 at Docket No. 46). A substantial forfeiture of property was also ordered and included, among other things, a forfeiture money judgment in the same amount as the restitution, and numerous furs, an extensive jewelry collection, vehicles, boats, and bank account balances. (Id.).

         The grand jury returned the Indictment against Defendant on May 2, 2017, charging him with three counts of filing false tax returns in violation of 26 U.S.C. § 7206(1). (Docket No. 1). Count One charges that on April 15, 2015, he willfully filed a false tax return for the 2014 tax year wherein he knowingly stated that the “other income” on line 21 was $1, 517, 926; “total income” on line 22 of $1, 626, 545; and “taxable income” on line 43 of $104, 227, despite knowing that he and his wife had substantial additional “other income, ” “total income, ” and “taxable income” which were not reported. (Id.). Similarly, Count Two charges that on April 15, 2014, he willfully filed a false tax return for the 2013 tax year wherein he knowingly stated that the “other income” on line 21 was $606, 275; the “total income” on line 22 was $716, 360; and the “taxable income” on line 43 was $93, 931, despite knowing that he and his wife had substantial additional “other income, ” “total income, ” and “taxable income” which were not reported. (Id. at 2). In a slightly different theory, Count Three charges that on August 1, 2014, he willfully filed a false amended tax return for the 2012 tax year wherein he reported an “adjusted gross income” of $350, 485 and a “taxable income” of $108, 698, despite knowing that he and his wife had substantial additional “adjusted gross income” and “taxable income” which were not reported. (Id. at 3).

         The Government has made an extensive production of materials to the defense, as is evidenced by the 6 receipts of Local Criminal Rule 16 material filed in this case which are dated 6/15/17 (Rule 16); 7/21/17 (First Supplemental); 7/21/17 (Second Supplemental); 8/8/17 (Third Supplemental); 10/2/17 (Fourth Supplemental); and 12/14/17 (Fifth Supplemental). (Docket Nos. 16; 18; 19; 30; 51; 71). The parties exchanged correspondence regarding these discovery disputes dated June 26, 2017 (from defense counsel) and July 12, 2017 (from the prosecutor). (See Docket Nos. 21-4; 21-5; 21-6). The defense also reviewed certain other materials which were made available for inspection on July 21, 2017 and December 15, 2017. (See Docket Nos. 21; 74; 83).

         Defendant filed his motion to compel on July 27, 2017, (Docket No. 27), and the subpoena motion on August 1, 2017, [1] (Docket Nos. 25, 27). After receiving an extension of time, the Government filed its response on August 18, 2017, (Docket No. 34), and a corresponding motion to quash the subpoena on August 21, 2017, (Docket No. 36). Defendant submitted his joint response/reply addressing these motions on September 8, 2017. (Docket Nos. 39; 44). The Government countered with its sur-reply/reply as to the motions on September 29, 2017. (Docket No. 47). The defense then submitted a sur-reply on October 25, 2017. (Docket Nos. 53; 54).

         The Court ordered the parties to confer and file a chart outlining their discovery disputes and also directed the Government to file a notice of its suggested modifications to the subpoena and both were filed prior to the commencement of the November 30, 2017 hearing. (Docket Nos. 59; 60). The Court then heard oral argument on the discovery motion[2]and set a follow-up hearing on December 14, 2017 as to the subpoena issue, inviting Matthews to participate, which it did through counsel. (Docket Nos. 61; 72; 76). On the discovery issues, the Government filed a supplemental brief on December 6, 2017. (Docket No. 64). With respect to the cross-motions on the subpoena, Matthews filed a brief in support of the Government's motion to quash on December 12, 2017, (Docket No. 65), to which the defense submitted a response on December 14, 2017, (Docket No. 69), and the Government replied on the same day, (Docket No. 70). The Court then heard oral argument from counsel for the parties and Matthews on December 14, 2017.[3] (Docket No. 72).

         Post-hearing briefing was ordered by the Court as to Cindy Mills' employment file and the Matthews' production to the Government, with all of the following submissions having been made by the parties: the Government's notice of undisclosed documents on December 19, 2017, (Docket No. 74); Defendant's response to same on December 20, 2017, (Docket No. 75); Defendant's supplemental brief regarding the employment file on January 5, 2018, (Docket No. 77); the Government's supplemental brief on the employment file on January 21, 2018, (Docket No. 79); and, Matthews' supplemental brief as to the employment file on February 1, 2018, (Docket No. 81). Matthews declined to file a supplemental brief on the production issues by the Court's deadline of February 16, 2018. Finally, the Government provided a notice concerning the status of discovery on March 5, 2018. (Docket No. 83). As the motions have been exhaustively briefed, they are now ripe for disposition.

         III. CROSS-MOTIONS ON PROPOSED DEFENSE SUBPOENA TO MATTHEWS

         The Court first turns to the cross-motions on the proposed subpoena which Defendant would like to serve on Matthews. (Docket Nos. 25; 27; 36). The subpoena initially sought the following:

1. All Forms W-2, 1099s, etc. issued by Matthews International (or its subsidiaries) to Cynthia Mills and/or Gary Mills.
2. All communications between Matthews International (including legal counsel) and the U.S. Government about any illegal activities engaged in by Cynthia Mills.
3. All communications between Matthews International (including legal counsel) and the U.S. Government about any illegal activities engaged in by Gary Mills.
4. Any documents Matthews International (including legal counsel) furnished to the U.S. government as part of its investigation into the illegal activities of Cynthia Mills or Gary Mills.
5. A copy of Cynthia Mills's employment file.

(Docket No. 27-1). During pre-hearing briefing and argument, the parties slightly modified their positions as to these requests. (Docket Nos. 25; 27; 36; 39; 47; 53; 58). After Matthews joined and opposed the issuance of a subpoena in its entirety, the Government returned to its initial position. (Docket Nos. 65; 69; 70; 72; 74; 77; 79; 81). Matthews also confirmed that it spent in excess of $100, 000 producing over 38, 000 pages of information to the Government which included its forensic accounting and banking records relating to the entire period of the embezzlement from 1999-2015 and Cindy Mills' employment file consisting of 57 pages labeled MATW0025086-MATW00025142. (Docket No. 81). The parties agree that the Government has, in turn, produced the forensic accounting and banking records for the years of 2012-2014 to ...


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