Opinion
No. 3:21-cr-00176
04-13-2023
UNITED STATES of America v. Chieu K. TRAN
Stephanie N. Toussaint, Kathryn W. Booth, Assistant U.S. Attorneys, U.S. Attorney's Office, Nashville, TN, Isaiah Boyd, III, Assistant U.S. Attorney, U.S. Department of Justice, Tax Division, Washington, DC, for United States of America. Edward M. Yarbrough, Bone, McAllester & Norton, PLLC, Nashville, TN, Jonathan P. Farmer, Spencer Fane LLP, Nashville, TN, for Chieu K. Tran.
Stephanie N. Toussaint, Kathryn W. Booth, Assistant U.S. Attorneys, U.S. Attorney's Office, Nashville, TN, Isaiah Boyd, III, Assistant U.S. Attorney, U.S. Department of Justice, Tax Division, Washington, DC, for United States of America. Edward M. Yarbrough, Bone, McAllester & Norton, PLLC, Nashville, TN, Jonathan P. Farmer, Spencer Fane LLP, Nashville, TN, for Chieu K. Tran. MEMORANDUM OPINION AND ORDER WAVERLY D. CRENSHAW, JR., CHIEF UNITED STATES DISTRICT JUDGE
On July 26, 2021, a federal grand jury returned a nine-count Indictment against Chieu K. Tran alleging tax evasion that assumed that he employed persons as "employees." Specifically, Counts One through Four alleged that Tran failed to pay his employee's share of FICA taxes and failed to withhold employee income taxes in violation of 26 U.S.C. § 7202. Counts Five through Eight alleged violations of 26 U.S.C. § 7201, charging that Tran "wilfully attempted to evade and defeat income tax" due the United States by, among other things, paying employees half in cash and half by check; providing false information to his tax return preparer; instructing the preparer to issue Form 1099s instead of Form W2s to disguise wages as nonemployee compensation; causing the preparer to issue false 1099s, reporting only half of the wages employees received; filing false Wage and Labor reports with the state of Tennessee; and instructing his employees to lie to the Internal Revenue Service. Finally, Count Nine separately charged that Tran allegedly told his employees to lie to the IRS during the investigation in violation of 26 U.S.C. § 7212(a).
A little over a year later, on August 15, 2022, an eleven-count Superseding Indictment was returned, alleging new and different criminal behavior, that assumed that Tran engaged persons as "independent contractors." This time, the first ten counts allege that Tran aided and assisted in the preparation of false income tax returns in violation of 26 U.S.C. § 7206(2). Each of those counts relates to a specific taxpayer, who worked for Tran, with the Government's theory being that Tran assisted his workers in only reporting half of the money they had received from work. The Superseding Indictment also includes the same allegation that Tran told his workers to lie to the IRS about receiving no cash payments.
Common to both Indictments are the following allegations:
1. CHIEU K. TRAN was a resident of Nashville, Tennessee, in the Middle District of Tennessee. TRAN was the owner and operator of Signature Nails Spa ("SNS") in Nashville, Tennessee. SNS was a nail salon which provided manicure, pedicure, and waxing services. SNS employed approximately 25 to 50 nail technicians in any given year.(Doc. Nos. 1, 32 ¶¶ 1-3). Beyond that, the Indictments take different avenues in alleging how Tran allegedly violated the tax laws.
2. CHIEU K. TRAN owned and operated SNS. Among other things, TRAN handled the finances of SNS, set the prices for the services SNS charged, paid the nail technicians, and was in charge of hiring and firing SNS nail technicians.
3. CHIEU K. TRAN paid SNS nail technicians wages based on a commission of 60% of the services they provided while working at SNS. TRAN paid those wages by a combination of 50% cash and 50% check. For tax years 2014 through 2018, SNS paid nail technicians approximately $10.5 million in wages.
Most relevant to the different approaches is paragraph 13 of the initial Indictment. It reads:
13. CHIEU K. TRAN knew the nail technicians at SNS were properly classified as "employees" because TRAN retained the right to control and direct how the services were performed. The workers provided their services during regular business hours, which TRAM established. TRAN set the prices charged for the services and collected the payments from the clients. TRAN directed the nail technicians on how to perform the services and handled complaints by customers. TRAN was responsible for hiring and firing employees. Nail technicians were not able to hire, recruit, or bring their own help into SNS to assist with completing services. TRAN paid the nail technicians based upon a commission for their services (60% of the price of the service), which TRAN set. Nail technicians did not have an ownership stake in the business, nor did they invoice SNS for their services. SNS provided the location for the work and most necessary tools, such as booths, chairs, tables, warming equipment, and nail polishes. Nail technicians provided their own nail grooming tools. SNS required nail technicians to wear a black uniform and nail technicians were not permitted to advertise their own services at SNS.(Doc. No. 1 ¶ 13). This paragraph does not appear in the Superseding Indictment.
With paragraph 13 as the main underlying premise, the Government alleged in the initial Indictment that Tran improperly classified the nail technicians as independent contractors when they were actually employees. In contrast, in the Superseding Indictment, the Government alleges that Tran assisted the nail technicians in underreporting independent contractor wages. Tran correctly characterizes these differences as follows:
[T]he Government's first theory was that Tran should have paid the technicians as employees, and thus Tran should have withheld taxes accordingly. By failing to do so, Tran violated criminal tax law. The Government's second theory is that Tran should have paid the technicians as independent contractors, but his error was in assisting the technicians with underreporting their payments.(Doc. No. 57 at 3). Tran insists that this change in the Government's theory of guilt warrants dismissal of the Superseding Indictment, either on the grounds of judicial estoppel or as a violation of due process. In doing so, Tran makes a primitive mistake. Just because a grand jury believes that there is probable cause that a fact is true, is far from gospel. After all, an indictment is nothing more than an assertion based upon a one-sided view of events without any rigorous testing of the assertion. So, whether a person is or is not an "employee" or an "independent contractor" is a fact for the true judges of the facts, the women and men who will make up the trial jury, to resolve. With this context, his arguments are without merit because Tran could do both - fail to file Form W2s for employees and assist his workers in filing incorrect Form 1099s.
I. Judicial Estoppel
Sparingly granted in civil cases, judicial estoppel in criminal cases (if even available) is rarer still. See United States v. Levasseur, 846 F.2d 786, 795 (1st Cir. 1988) (leaving open the question of whether judicial estoppel "may ever be invoked against the government in a criminal case"); United States v. Lehman, 756 F.2d 725, 728 (9th Cir. 1985) (same). This is hardly surprising as the Sixth Circuit "ha[s] often remarked that judicial estoppel should be applied with caution to 'avoid impinging on the truth-seeking function of the court.' " White v. Wyndham Vacation Ownership, Inc., 617 F.3d 472, 485 (6th Cir. 2010) (citation omitted, collecting cases).
Judicial estoppel " 'generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase.' " New Hampshire v. Maine, 532 U.S. 742, 749, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001) (quoting Pegram v. Herdrich, 530 U.S. 211, 227, n. 8, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000)). "[A]lthough there is 'no set formula for assessing when judicial estoppel should apply,' . . . it is well-established that at a minimum, 'a party's later position must be 'clearly inconsistent' with its earlier position[.]' " Lorillard Tobacco Co. v. Chester, Willcox & Saxbe, 546 F.3d 752, 757 (6th Cir. 2008) (citations omitted). It is an "equitable doctrine that preserves the integrity of the courts by preventing a party from abusing the judicial process through cynical gamesmanship, achieving success on one position, then arguing the opposite to suit an exigency of the moment." Teledyne Indus., Inc. v. NLRB, 911 F.2d 1214, 1218 (6th Cir. 1990).
Notably, "[j]udicial estoppel . . . does not usually apply to shifting legal arguments; it typically applies to shifting factual arguments." Law Office of John H. Eggertsen P.C. v. Comm'r, 800 F.3d 758, 766 (6th Cir. 2015). Furthermore, "there is a high bar to estopping the federal government from enforcing the correct interpretation of a law because doing so 'undermine[s] the interest of the citizenry as a whole in obedience to the rule of law.' " Id. (quoting United States v. Williams, 612 F.3d 500, 511 (6th Cir. 2010)).
Tran's judicial estoppel argument fails from the outset because his complaint is with the Government, who persuaded the grand jury to change the legal theory for criminal liability against Tran. Repeatedly throughout his initial Memorandum and Reply, Tran references the Government's change in "theory" but that change is a change in legal as opposed to factual theory.
Critical alleged facts presented to both grand juries were that (1) technicians were paid on commission (60% of the price of the service); (2) technicians were paid half by check and half in cash; (3) false information was provided by Tran to his tax preparers that resulted in technicians receiving Forms 1099 that reported only half of the wages he paid them; and (4) Tran instructed nail technicians to lie to the IRS about cash payments. (Compare Doc. No. 1, Indictment ¶¶ 13, 24 a, b, d & 26, with Doc. No. 32 ¶¶ 3, 6-8). Whether Tran was also right or wrong as a legal matter in claiming that the nail technicians were "independent contractors" as opposed to "employees" does not detract from the mere allegations in both Indictments that Tran caused false 1099 Forms to be filed for the nail technicians and instructed them to lie. The additional assertion by the Government that Tran mischaracterized the employment status of his nail technicians is not inconsistent with these allegations, nor does the change in legal theories suggest cynical gamesmanship that would impact the integrity of the Court or the grand jury process.
II. Due Process
The Fifth Amendment to the United States Constitution provides in pertinent part that no person shall "be deprived of life, liberty, or property, without due process of law[.]" U.S. Const. amend. V. Tran argues due process demands dismissal of the Superseding Indictment because of the allegedly inconsistent theories of liability presented to two different grand juries. In support, he cites the Sixth Circuit decision United States v. Collins, for the proposition that "inconsistent prosecutorial theories can, in certain circumstances, violate due process rights," 799 F.3d 554, 581 (6th Cir. 2015). He also relies upon the following passage from the district court decision in United States v. Hazelwood:
[T]he Court of Appeals for the Sixth Circuit emphasized that if inconsistent prosecutorial theories could ever amount to a violation of due process, they could only do so if the prosecutor relied upon inconsistent facts to convict defendants of the same crime in separate proceedings (whether by trial or guilty plea), if the trier of fact had no opportunity to know of both theories of the inconsistent facts, and the facts were ones that were material to the defendant's conviction.No. 3:16-CR-20, 2017 WL 9517465, at *5 (E.D. Tenn. Feb. 24, 2017).
As the Government correctly points out, Tran's reliance on both cases is misplaced because those cases involved inconsistent theories asserted in different cases against different defendants for the same crime. (Doc. No. 71 at 7). In his reply, Tran cites no cases involving a single defendant being indicted for separate crimes by different grand juries in the same case. Instead he doubles-down on his argument that the focus should be "on the requirement of the presentation of separate inconsistent facts to a separate body." (Doc. No. 81 at 4) (emphasis in original).
In a case of first impression, the Sixth Circuit in Stumpf v. Mitchell joined other "circuits in finding that the use of inconsistent, irreconcilable theories to convict two defendants for the same crime is a due process violation." 367 F.3d 594, 611 (6th Cir. 2004). Leaving aside that a grand jury does not decide guilt or innocence or even finds facts when it concludes there is probable cause, whether the Sixth Circuit would do the same where one defendant is indicted for different crimes based on separate theories is an open question. Accepting as a theoretical matter that due process prohibits a prosecution from presenting inconsistent theories in the same case against the same defendant as Tran argues, he still is not entitled to relief.
"The due process challenge to the use of inconsistent theories is based on the notion of fundamental fairness." Id. at 613. The concern is with the use of "fundamentally inconsistent theories," Nguyen v. Lindsey, 232 F.3d 1236, 1240 (9th Cir. 2000); "fundamentally opposite positions," United States v. Presbitero, 569 F.3d 691, 702 (7th Cir. 2009); "totally inconsistent theories," Drake v. Kemp, 762 F.2d 1449, 1470 (11th Cir. 1985) (en banc) (Clark, J., concurring); or "inherently factually contradictory theories" that are "at the core of the prosecutor's case." Smith v. Groose, 205 F.3d 1045, 1052 (8th Cir. 2000). The Government's theories in this case do not rise to that level, assuming they are inconsistent at all. Both grand juries were presented with the same relevant core allegations, to wit, Tran paid his nail technicians in cash in an effort to dupe the IRS and avoid paying taxes. They then concluded that there was probable cause to believe that Tran violated certain criminal statutes. The legal theories relied upon by the two grand juries were different, but the theories were not clearly inconsistent. Tran has not shown a due process violation.
III. Conclusion
On the basis of the foregoing, Tran's Motion to Dismiss (Doc. No. 56) is DENIED.
IT IS SO ORDERED.