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United States v. Nickolas

United States District Court, D. Arizona

August 1, 2014

United States of America, Plaintiff,
v.
Debra Ann Nickolas, et al., Defendants.

ORDER

NEIL V. WAKE, District Judge.

Before the Court is Defendant David Rachel's Motion to Sever (Doc. 311) and the Government's Response (Doc. 327). For the following reasons, Defendant's Motion will be denied.

In counts 1-28 of the Superseding Indictment, the Government has charged all Defendants with conspiracy, wire fraud, and money laundering arising from an alleged scheme to defraud borrowers. In counts 29 and 30, respectively, it has also charged Defendant Nickolas with filing a false tax return and making a false statement to obtain a hardship deferment for a student loan. Both counts arise from underreporting income.

Defendant Nickolas and Defendants Cutulle and Brewer previously filed motions to sever. In Nickolas's motion (Doc. 154), she requested the tax and false statement charges be severed pursuant to Federal Rules of Criminal Procedure 8 and 14. She argued the indictment did not allege a connection between counts 1-28 and counts 29 and 30. Cutulle and Brewer moved to sever their trials from Nickolas (Doc. 187) under Rule 14, asserting their defenses were mutually antagonistic to hers. On January 27, 2014, the Court heard argument and denied the motions (Doc. 221). Rachel's pending motion largely tracks the arguments his codefendants made. Like Nickolas, he argues counts 29 and 30 are improperly joined with counts 1-28 under Rule 8. Like Brewer and Cutulle, he believes a joint trial will cause substantial prejudice justifying Rule 14 severance.

I. RULE 8

Rachel first argues counts 29 and 30 against Nickolas are improperly joined with counts 1-28. Rule 8 provides the following:

Joinder of Defendants. The indictment or information may charge 2 or more defendants if they are alleged to have participated in the same act or transaction, or in the same series of acts or transactions, constituting an offense or offenses. The defendants may be charged in one or more counts together or separately. All defendants need not be charged in each count.

Fed. R. Civ. P. 8(b). Whether conduct constitutes the "same series of acts or transactions" turns on finding a logical relationship between the transactions. United States v. Vasquez-Velasco, 15 F.3d 833, 843 (9th Cir. 1994). "A logical relationship is typically shown by the existence of a common plan, scheme, or conspiracy." Id. at 844 (quotation marks omitted). The necessary relationship is usually established "by showing that substantially the same facts must be adduced to prove each of the joined offenses." United States v. Satterfield, 548 F.2d 1341, 1344 (9th Cir. 1977); see also Vasquez-Velasco, 15 F.3d at 844 (9th Cir. 1994).

The logical relationship between the fraud charged against all Defendants and the false statements charged against Nickolas is apparent. The Government's theory is that Nickolas earned income from the fraud and then lied about it. This supports joinder. See United States v. Bibby, 752 F.2d 1116, 1121 (6th Cir. 1985) ("Failure to report the income from an illegal activity is an act which does arise directly out of the common enterprise because concealment of ill-gotten gain is an integral part of assuring the success of that illegal activity."); United States v. Midkiff, 614 F.3d 431, 439 (8th Cir. 2010) ("Tax charges may be joined with fraud charges if the unreported income arises solely and directly out of the fraudulent scheme. When the unreported income is derived from the charged conduct, the tax offense is based on the same act or transaction as the other offenses.") (citations omitted).

Moreover, the Government believes convicting Nickolas will depend on proving the fraud and her receipt of proceeds therefrom. Rachel's contention that proving the fraud is unnecessary to convict Nickolas on the separate counts is true in theory. The source of any concealed income is unnecessary to convict Nickolas of lying on her tax return and on her deferment request. Here, however, the Government intends to prove Nickolas earned unreported income through the fraudulent scheme. In this case, the proof will overlap. See Satterfield, 548 F.2d at 1344.

Joinder remains proper even though Rachel is not charged with the false statement counts. See United States v. Kenny, 645 F.2d 1323, 1344 (9th Cir. 1981) (upholding joinder of income tax evasion counts, which the government charged only against defendant Kenny and not his codefendants, with other fraud counts collectively charged "inasmuch as they arose directly and solely out of unreported income flowing from the illicit contracting activities. Proof of those activities indeed constituted a substantial portion of the proof of the joined (tax evasion) charges.") (quotation marks omitted); see also Bibby, 752 F.2d at 1121 ("It is appropriate to combine tax charges against one defendant with fraud charges against that same defendant and other codefendants if the tax evasion charges arise directly out of the common illicit enterprise.") (emphasis added). Given the logical relationship between the counts, Rachel's authority to the contrary is unpersuasive. See United States v. Eagleston, 417 F.2d 11, 14 (10th Cir. 1969) (finding misjoinder after limited analysis where government charged defendant with two counts in three-count indictment, did not charge a conspiracy, and charged codefendant alone with stealing a car that preceded the defendants' joint burglary by two weeks and which was not used to facilitate it).

II. RULE 14

Despite the "preference for joint trials where defendants have been jointly indicted, " United States v. Hernandez-Orellana, 539 F.3d 994, 1001 (9th Cir. 2008), Rule 14 permits severance to avoid substantial prejudice:

(a) Relief. If the joinder of offenses or defendants in an indictment, an information, or a consolidation for trial appears to prejudice a defendant or the government, the court may order separate trials of counts, sever the ...

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