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United States of America v. Nafeesah H. Hines (Individually and D/B/A Clear Vision Financial

July 20, 2012


The opinion of the court was delivered by: Marilyn Dolan GO United States Magistrate Judge


In this action, the United States seeks to enjoin defendants Nafeesah Hines and Rodney Chestnut from engaging in a fraudulent tax scheme. The government moves for leave to serve written discovery requests and notices of deposition on defendants. In opposition, the defendants contest the jurisdiction of this Court on various grounds.


On October 19, 2011, the United States filed a Complaint in this action alleging that defendants Nafeesah Hines and Rodney Chestnut implemented and promoted a tax fraud scheme known as "redemption" or "commercial redemption." The United States alleges that defendants prepared and/or submitted fraudulent tax returns claiming refunds based on phony Internal Revenue Service ("IRS") Forms 1099-OID and 1099-A. In its Complaint, the United States seeks to enjoin defendants from: 1) advising or assisting others to attempt to violate the internal revenue laws or unlawfully evade the assessment or collection of their federal tax liabilities; 2) preparing or filing federal tax returns or forms for anyone other than themselves; and 3) advising or assisting others with respect to federal tax matters or forms. Complaint at 1.

At a conference held on February 29, 2012, this Court ordered that discovery be completed by August 31, 2012 but limited discovery to discovery against third parties absent leave to serve discovery on defendants. See minute entry dated 2/29/12. Following a conference held on April 4, 2012, the government filed a letter in response to the Court's request confirming an ongoing criminal investigation of the defendants related to the alleged conduct giving rise to this action. See ct. doc. 11.


I. Jurisdiction

As a preliminary matter, this Court addresses several arguments that defendants raise in challenging the Court's jurisdiction. To the extent that their arguments are understandable, defendants contend that their names "lawfully and properly [are] spelled only in upper and lower case letters" as "Natural Person[s]," as opposed to "ARTIFICIAL PERSON[S]," and that they are thus "exempt from any and all identifications, treatments, and requirements as such pursuant to any process, law, code or statute or any color thereof." Defendants appear to be arguing that the spelling of their names in all capital letters in the caption of the complaint refers to an artificial entity rather than a natural person and somehow divests the Court of jurisdiction over them. Such arguments have long been rejected by several courts. See, e.g., Greathouse v. U.S., 2009 WL 3431391, at *9 (E.D. Tax. 2009); U.S. v. Mitchell, 405 F. Supp. 2d 602, 603-04 & n.4 (D. Md. 2005); Jaeger v. Dubuque Co., 880 F. Supp. 640, 643 (N.D. Iowa 1995). Obviously, the typeface used in the caption of the complaint does not affect the Court's jurisdiction.

Defendants also claim that jurisdiction over this case must be conferred under Article III, section 2 of the Constitution and that plaintiff has not established "lawful jurisdiction." Article III, section 2 expressly provides, inter alia, that the judicial power extends to any suit where the United States is a party. Congress has enacted statutes specifying that federal district courts have original jurisdiction over civil actions arising under the federal revenue laws, 28 U.S.C. § 1340, and civil actions commenced by the United States, 28 U.S.C. § 1345. In addition, sections 7402, 7407 and 7408 of Title 26 expressly authorize the United States to bring civil actions in the district where the defendant resides. To the extent that defendants' reference to Article III is intended to challenge a U.S. Magistrate Judge's authority to adjudicate this case, 28 U.S.C. § 636 permits magistrate judges to hear and determine any pretrial matter pending before the court.

Defendant Chestnut also argues that discovery is not warranted here because "[t]here is no evidence before the court" and that the statements by counsel for the government are not evidence. Of course, the right of a party to obtain discovery is not dependent on the evidence the party submits to the court. The Federal Rules of Civil Procedure provide for broad discovery "regarding any non-privileged matter that is relevant to any party's claim or defense." Fed. R. Civ. P. 26(b)(1).

II. Stay of Discovery

This Court initially stayed first-party discovery, pending discovery against third parties and determination of the status of a criminal investigation of the defendants.

"[T]he Constitution does not ordinarily require a stay of civil proceedings pending the outcome of criminal proceedings . . ." Kashi v. Gratsos, 790 F.2d 1050, 1057 (2d Cir. 1986); see Nosik v. Singe, 40 F.3d 592, 596 (2d Cir. 1994). Nevertheless, "a court may decide in its discretion to stay civil proceedings . . . when the interests of justice seem to require such action. . . ." Kashi, 790 F.2d at 1057. "Courts are afforded this discretion because the denial of a stay could impair a party's Fifth Amendment privilege against self-incrimination, extend criminal discovery beyond the limits set forth in Federal Rule of Criminal Procedure 16(b), expose the defense's theory to the prosecution in advance of trial, or otherwise prejudice the criminal case." Trustees of the Plumbers and Pipefitters Nat'l Pension Fund v. Transworld Mech., Inc., 886 F. Supp. 1134, 1138 (S.D.N.Y. 1995). However, a stay of a civil case is "an extraordinary remedy." SEC v. Constantin, 2012 WL 1195700, at *1 (S.D.N.Y. 2012); In re 650 Fifth Avenue, 2011 WL 3586169, at *3 (S.D.N.Y. 2011); Trustees of the Plumbers, 886 F. Supp. at 1139.

In particular, a stay can protect a civil defendant from having to make a difficult choice between invoking her Fifth Amendment privilege which may result in a jury drawing an adverse inference against her in the civil case or potentially making admissions of criminal conduct that will be used against her in the criminal investigation. See Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 97-98 (2d Cir. 2012). Yet, "what is at risk is not their constitutional rights - for they cannot be forced to testify . . . but ...

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