United States District Court, W.D. Pennsylvania
Barry Fischer U.S. District Judge.
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 ,
 are denied and the Government's Motion to Quash
, joined by Matthews, is granted.
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.).
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.
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).
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).
filed his motion to compel on July 27, 2017, (Docket No. 27),
and the subpoena motion on August 1, 2017,  (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).
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
motionand 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. (Docket No. 72).
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
CROSS-MOTIONS ON PROPOSED DEFENSE SUBPOENA TO MATTHEWS
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
1. All Forms W-2, 1099s, etc. issued by Matthews
International (or its subsidiaries) to Cynthia Mills and/or
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
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