United States v. John Rankin

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 16a0585n.06
No. 16-3047
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
UNITED STATES OF AMERICA, ) FILED
) Oct 31, 2016
Plaintiff-Appellee, ) DEBORAH S. HUNT, Clerk
)
v. ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
JOHN ANDERSON RANKIN, ) COURT FOR THE SOUTHERN
) DISTRICT OF OHIO
Defendant-Appellant. )
)
)
Before: CLAY, KETHLEDGE, and DONALD, Circuit Judges.
KETHLEDGE, Circuit Judge. A grand jury charged John Rankin with seventeen counts
of violating federal tax laws. Rankin moved to dismiss, arguing that this prosecution violated the
Double Jeopardy Clause. Rankin also moved for discovery in support of his double-jeopardy
claim. The district court denied both motions. We affirm.
I.
In 2001, Rankin became the majority shareholder and president of a closely held software
corporation, Connectivity Systems, Incorporated. Rankin also owned several hospitality
businesses—including bars, restaurants, and movie theaters—that consistently lost money.
Rankin began transferring hundreds of thousands of dollars from Connectivity to his failing
hospitality businesses each year. Soon Connectivity began having trouble paying its employees
and creditors. Under Rankin’s control, Connectivity eventually stopped generating financial
statements and filing corporate tax returns.
No. 16-3047, United States v. Rankin
Edward Franks, a minority shareholder of Connectivity, sued Rankin in state court.
Franks argued that Rankin had breached his fiduciary duties by self-dealing and failing to keep
accurate accounts. The state trial court agreed and issued a preliminary injunction to “keep a bad
situation from becoming fatal to the business.” As part of the order, the court prohibited Rankin
from receiving any pay, but required him to continue serving as Connectivity’s president.
Rankin appealed the injunction. The Ohio Court of Appeals held that requiring Rankin to serve
as president without pay violated the Thirteenth Amendment’s prohibition on involuntary
servitude. Franks v. Rankin, Nos. 11AP-934, 11AP-962, 2012 WL 1531031, at *14-15 (Ohio Ct.
App. May 1, 2012).
More than three years later, a grand jury indicted Rankin for failing to withhold taxes in
violation of 26 U.S.C. § 7202, willfully making false declarations on federal income tax returns
in violation of 26 U.S.C. § 7206(1), and willfully misleading and obstructing IRS agents in
violation of 26 U.S.C. § 7212(a). Rankin filed a motion to dismiss on double-jeopardy grounds,
arguing that the alleged imposition of involuntary servitude in Franks itself amounted to criminal
jeopardy and thus precluded this prosecution. He also moved for discovery in support of his
motion to dismiss. The district court denied both motions. This appeal followed.
II.
We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. See Abney v. United
States, 431 U.S. 651, 658-63 (1977).
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A.
We review de novo the district court’s denial of Rankin’s motion to dismiss this case on
double-jeopardy grounds. United States v. Mardis, 600 F.3d 693, 696 (6th Cir. 2010).
Rankin argues that this federal tax prosecution violates the Double Jeopardy Clause
because it involves the “same offense” as Franks, a state civil case; and, in Rankin’s view,
Franks already punished him criminally for that offense. The Double Jeopardy Clause prohibits
the government from putting a person “in jeopardy of life or limb” twice for the “same offense.”
U.S. Const. amend. V. Offenses are not the same when, looking at their statutory elements, they
each “require[] proof of a fact which the other does not.” Jackson v. Smith, 745 F.3d 206, 211
(6th Cir. 2014) (quoting Blockburger v. United States, 284 U.S. 299, 304 (1932)); United States
v. Evans, 951 F.2d 729, 732-33 (6th Cir. 1991). Although here we could affirm the district court
on multiple grounds, the simplest is that the federal tax charges in this prosecution are not the
“same” as the state fiduciary-duty claims in Franks.
In Ohio, a fiduciary-duty claim has three basic elements: the existence of a fiduciary
duty, the breach of that duty, and harm to the plaintiff. Wells Fargo Bank, N.A. v. Sessley,
935 N.E.2d 70, 83 (Ohio Ct. App. 2010). A minority shareholder in a closely held corporation,
like the plaintiff in Franks, must show specifically that a controlling shareholder misused
corporate power for personal benefit at the minority’s expense. See Crosby v. Beam, 548 N.E.2d
217, 220-21 (Ohio 1989).
The charges in this prosecution are completely different. The grand jury charged Rankin
with tax crimes under three provisions of the Internal Revenue Code, and the government must
prove each beyond a reasonable doubt. First, on the charge of failing to withhold taxes, the
government must prove that Rankin willfully failed “to collect or truthfully account for and pay
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over” taxes imposed by the Internal Revenue Code. 26 U.S.C. § 7202. Second, on the charge of
falsifying tax returns, the government must prove that Rankin willfully made false and material
statements on federal income tax returns that he signed under penalty of perjury. 26 U.S.C.
§ 7206(1). Third, on the charge of obstructing the IRS, the government must prove that Rankin
intimidated or impeded the IRS “corruptly or by force or threats of force.” 26 U.S.C. § 7212(a).
The plaintiff in Franks did not need to prove any of these elements. And the government here
does not need to prove that Rankin was a majority shareholder of a closely held corporation or
that he violated his fiduciary duties. The “offenses” in Franks and this prosecution are not the
“same” because each has elements the other does not. See Jackson, 745 F.3d at 211. Thus, this
prosecution does not violate the Double Jeopardy Clause. The district court properly denied
Rankin’s motion to dismiss.
B.
Rankin also argues that the district court erred by denying his motion for limited
discovery in support of his double-jeopardy claim. We review the denial of a discovery request
for abuse of discretion. See In re Bayer Healthcare & Merial Ltd. Flea Control Prods. Mktg.
& Sales Practices Litig., 752 F.3d 1065, 1074 (6th Cir. 2014). “A district court does not abuse
its discretion in denying discovery when the discovery requested would be irrelevant[.]” United
States v. Dairy Farmers of Am., Inc., 426 F.3d 850, 862 (6th Cir. 2005) (citation omitted). Here,
Rankin asked to review grand-jury testimony, see IRS notes and reports, and depose ten people.
But nothing Rankin seeks could save his double-jeopardy claim. The fiduciary-duty claims in
Franks did not involve the “same offense[s]” as those charged in this prosecution, so the Double
Jeopardy Clause does not apply. See U.S. Const. amend. V. Any discovery would be pointless.
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Thus, the district court did not abuse its discretion in denying Rankin’s motion. See Dairy
Farmers of Am., Inc., 426 F.3d at 862.
The district court’s judgment is affirmed.
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No. 16-3047, United States v. Rankin
CLAY, Circuit Judge, concurring. I agree with the majority that the district court’s
order denying Defendant John Rankin’s motion to dismiss must be affirmed. I write separately
to address two issues that were raised on appeal by Defendant which could benefit from further
explanation not provided by the majority’s opinion. The first issue is whether the
unconstitutional involuntary servitude provision in the state trial court’s order turned the state
civil action into a criminal one; and the second issue is whether the dual sovereignty doctrine
applies to bar the instant federal prosecution.
With regard to the first issue, Defendant argues that the involuntary servitude provision in
the state trial court order constituted a criminal punishment which precludes the instant federal
tax prosecution.
The Thirteenth Amendment states, in pertinent part, as follows:
Neither slavery nor involuntary servitude, except as a punishment
for crime whereof the party shall have been duly convicted, shall
exist within the United States, or any place subject to their
jurisdiction.
U.S. Const. amend. XIII.
It should first be mentioned that “it will not be possible to determine whether the Double
Jeopardy Clause is violated until a defendant has proceeded through a trial to judgment” because
“a court must also look at the ‘sanction actually imposed’ to determine whether the Double
Jeopardy Clause is implicated.” Hudson v. United States, 522 U.S. 93, 102 (1997). Defendant
was not required to serve as president of CSI without pay because the provision of the trial court
order at issue was held unconstitutional. Therefore, the involuntary servitude sanction was not
actually imposed. Even if it was imposed, the Double Jeopardy Clause has yet to be implicated
because Defendant has not gone to trial in the federal tax prosecution action, and his punishment
in the federal case has yet to be determined.
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No. 16-3047, United States v. Rankin
It should next be noted that “[u]nless th[e] sanction was intended as punishment, so that
the proceeding is essentially criminal, the double jeopardy clause provided for the defendant in
criminal prosecutions is not applicable.” Helvering v. Mitchell, 303 U.S. 391, 398-99 (1938).
The preliminary injunction order states in pertinent part that “CSI . . . shall pay no further salary
. . . to [Defendant]” and Defendant “shall remain corporate President and may advise the interim
Board on business matters before them as he and they see fit.” (R. 19, Preliminary Injunction
Order, Sealed Ex. H, PageID# 739-40.) Plaintiff asserts that the trial court judge did not intend
to punish Defendant; rather, he attempted to maintain the status quo by recognizing the
precarious financial situation CSI was in and acknowledging the benefits Defendant’s advice
would have on the new CSI board if he remained president. Plaintiff is correct in arguing that
the provision of the order requiring Defendant to work without pay was not meant as a criminal
punishment. Defendant cites Hudson v. United States, 522 U.S. 93 (1997), Kennedy v. Mendoza-
Martinez, 372 U.S. 144 (1963), and United States v. Kozminski, 487 U.S. 931 (1988) to illustrate
that the state trial court order imposed involuntary servitude, and by extension, a criminal
punishment, which implicates the Double Jeopardy Clause and prohibits the instant tax
prosecution. These cases do not support Defendant’s contention.
In Hudson, defendant bank officers challenged an indictment charging them with
misapplication of bank funds, for which monetary penalties and occupational debarment had
previously been administratively imposed by the Office of Comptroller of Currency (“OCC”) for
essentially the same conduct. 522 U.S. at 95. The Hudson Court stated that “[w]hether a
particular punishment is criminal or civil is, at least initially, a matter of statutory construction.”
Id. at 99 (citation omitted). A court must first ask whether the legislature, “in establishing the
penalizing mechanism, indicated either expressly or impliedly a preference for one label or the
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other.” Id. (citation and internal quotation marks omitted). The Supreme Court ultimately held,
among other things, that the Double Jeopardy Clause protects only against the imposition of
multiple criminal punishments for the same offense, and that the administrative penalties
imposed by the OCC were intended to be civil penalties by the legislature and were not so
punitive in effect as to render them criminal for double jeopardy purposes. Id. at 99-104.
Defendant’s “punishment” was arguably civil in nature as it was contained in a
preliminary injunction order meant to preserve the status quo pending final determination of the
state matter. See Davis v. Widman, 184 Ohio App. 3d 705, 2009-Ohio-5430, 922 N.E.2d 272,
284 (Ohio App. 2009) (noting how the purpose of a preliminary injunction is to preserve the
status quo of the parties pending a decision on the merits) (citation and internal quotation marks
omitted). Defendant argues that the provision did not maintain the status quo because it removed
his ability to obtain income from CSI and forbade him from finding work elsewhere. I am not
persuaded by Defendant’s argument because (1) the order preserved what funds CSI had left
after Defendant had fraudulently transferred millions of dollars out of the CSI fund to cover
losses in his other businesses, and (2) the order did not forbid Defendant from seeking
employment elsewhere inasmuch as it ordered that he “shall” remain president and “may” advise
on business matters. It did not forbid him from working elsewhere. Similar to the Supreme
Court’s holding in Hudson, the punishment here was not criminal.
In Mendoza-Martinez, the Supreme Court was not faced with a double jeopardy issue.
Rather, the issue was whether federal statutes that divested a person of United States citizenship
if he or she left the country during a time of war as punishment were unconstitutional without
affording that person procedural safeguards guaranteed by the Fifth and Sixth Amendments.
372 U.S. at 146-48. Thus, that case is inapposite to the matter at hand. In Kozminksi, the
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defendants were challenging their criminal convictions for conspiracy to hold, and actually
holding, mentally challenged victims in involuntary servitude. The defendants forced, by
physical and mental coercion, the victims to work seven days a week, for up to 17 hours per day,
for little or no pay while forcing them to live in squalid conditions without adequate nutrition,
housing, clothing, or medical care. 487 U.S. at 934-36. The issue in Kozminksi was whether
involuntary servitude required the use of physical or legal coercion, and the Supreme Court held
that it did. Id. at 943-44.
The cases Defendant cites do not support his contention that the unconstitutional
provision in the state trial court order converted the state civil action between private parties into
a criminal prosecution by the State of Ohio. While it is arguable that the state trial court order
was a form of legal coercion, and by extension, involuntary servitude, this by itself does not save
Defendant’s Double Jeopardy claim.
With regard to the second issue, Defendant contends that the dual sovereignty doctrine is
inapplicable and that the government is barred from bringing the federal tax prosecution because
the state court trial judge and the federal government both derive their authority to punish
Defendant from the Thirteenth Amendment.
“The dual sovereignty doctrine is founded on the common-law conception of crime as an
offense against the sovereignty of the government.” Heath v. Alabama, 474 U.S. 82, 88 (1985).
Thus, “[w]hen a defendant in a single act violates the ‘peace and dignity’ of two sovereigns by
breaking the laws of each, he has committed two distinct ‘offences.’” Heath, 474 U.S. at 88
(quoting United States v. Lanza, 260 U.S. 377, 382 (1922)). The imperative determination in
applying the dual sovereignty doctrine is “whether the two entities that seek successively to
prosecute a defendant for the same course of conduct can be termed separate sovereigns,” which
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“turns on whether the two entities draw their authority to punish from distinct sources of power.”
Heath, 474 U.S. at 88 (citations omitted). “In those instances where the Court has found the dual
sovereignty doctrine inapplicable, it has done so because the two prosecuting entities did not
derive their powers to prosecute from independent sources of authority.” Id. at 90. With regard
to the states and the federal government, the Supreme Court has held that “an act denounced as a
crime by both national and state sovereignties is an offense against the peace and dignity of both
and may be punished by each.” Lanza, 260 U.S. at 382.
Defendant’s dual-sovereignty argument fails for two reasons. First, as discussed above,
the preliminary injunction order arguably did not impose a criminal punishment because that
provision, and the order as a whole, was arguably equitable in nature and intended to preserve
the status quo. Second, even if Defendant can show that the provision turned the private civil
action into a state-sponsored criminal prosecution and that both government actors derive their
authority from the Thirteenth Amendment, Defendant does not make the requisite showing as to
why the state court proceeding was a sham prosecution, as required by Bartkus v. Illinois,
359 U.S. 121 (1959). Bartkus stands for the proposition that a state or federal government
cannot sidestep the constraints of the Double Jeopardy Clause through a “sham” prosecution by
an ostensibly different sovereign. 359 U.S. at 122-24. The record clearly demonstrates that
Defendant “has not made the startling showing” that the state court civil action between two non-
governmental parties was “merely a tool” of the State of Ohio in undertaking this prosecution,
“somehow ceding its sovereign authority to prosecute and acting only because the State told it to
do so.” United States v. Djoumessi, 538 F.3d 547, 550 (6th Cir. 2008) (citing Bartkus, 359 U.S.
at 123).
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The Supreme Court and this Court have expressly held that cooperation between state
and federal authorities for prosecutions of the same defendant for similar conduct does not
offend the Double Jeopardy Clause. Djoumessi, 538 F.3d at 550-51 (quoting Bartkus, 359 U.S.
at 123-24 (explaining that, although the record “establishes . . . that federal officials acted in
cooperation with state authorities, as is the conventional practice between the two sets of
prosecutors throughout the country, . . . [i]t does not sustain a conclusion that the state
prosecution was a sham and a cover for a federal prosecution”)). Furthermore, the Bartkus
sham-prosecution exception is a narrow one, and it is fair to wonder whether Bartkus is
effectively limited to its facts. Djoumessi, 538 F.3d at 550 (noting that since Bartkus was
decided in 1959, this Circuit has never ruled that a prosecution violated double jeopardy
protections under Bartkus’ sham prosecution theory) (citations and internal quotation marks
omitted).
I therefore agree with the majority that the district court’s order denying Defendant’s
motion to dismiss must be affirmed.
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