Don't Survive the Economic Slump Misusing Sales Tax.

From time to time, competent criminal defense lawyers recognize the need of providing business advice to business clients as a critical component to a successful defense of a criminal tax case.  For instances, small business that experienced relative success as the macro-economy experienced success, will suffer disproportionate losses when the economy turns sour.  Even a short down spell in the greater economy will highlight to small businesses a certain lack of skill in business planning and operation.  Add to this downward slide, an inability or refusal to recognize the need to cut costs – and personnel – and the results are devastating.

Too often, a small business spiraling out of control makes paying income and sales tax as a low priority.  Most, justify that they can make good on the delinquency when the economy rebounds, but nonetheless make no business adjustments to account for the down trend and to recover with any rebound in the economy.  Sales tax payments are often the first thing to go.  We have actually seen clients whose only “profit” was sales tax the company failed to remit.  We saw the failure to remit grow from tens of thousands, to hundreds, to multiples of millions of dollars.  (Always giving credit to co-counsel, we successfully resolved an in excess of $4,000,000.00 Ohio sales tax dispute with no prosecution and an Ohio Sales Tax Resolution Agreement.)

Because criminal enforcement of nonpayment of sales tax can be sporadic and is often less publicized, some in the small business community have the mistaken impression that criminal prosecution is a lesser priority.  Tax prosecutions continue to be a priority.  In fact, in 2002, the Ohio Department of Taxation praised itself as being the first tax department in the nation to have an accredited law enforcement unit.  The IRS Treasury Inspector General for Tax Administration  reported an increase in investigation, prosecution and sentencing for tax crimes since both 2004 and 2008. http://www.treasury.gov/tigta/auditreports/2010reports/201030074fr.pdf (January 31, 2011.)

Failure to pay sales tax can amount to a number of criminal offenses.  For instance, the failure to remit sales tax can be a straight theft per R.C. 2913.02.  The danger, of course, is when the value exceeds $5,000.00 its now a felony of the fourth degree and the over $100,000.00 it is a felony of the third degree.  And, most small business will pass the $100,000.00 threshold in a blink.  Then are the tax specific Ohio Revised Code provisions; one of the most common is the failure to collect or remit sales tax per R.C. 5739.12 which is a felony of the fourth degree per R.C. 5739.99(E). And, R.C. 5739.33 imposes personal financial liability on an employee or officer having control or responsibility for filing the returns or making the payments.  What might start innocently enough as a cash flow budgeting decision in response to challenging business climate, will quickly become a series of very serious felony criminal offenses that in addition to fines and prison incarceration, can include the loss of the right to have a future vendors license.

Criminal defense lawyers confronted with these circumstances will immediately recognize that forensic accounting is necessary to understand the true realities of the misdeed.  That said, in that process, the underlying cause for the company’s condition may also materialize.  Even if the misdeeds are obvious, a business evaluation may be a useful tool in the defense of a criminal tax case.  (Of course, provided the consultant is appropriately secured to protect the insights as privileged attorney work product.)  Take advantage of this opportunity to understand and correct the business systems.  Not only will this benefit the underlying business, but it will enhance the criminal defense lawyer’s understanding of how and why the condition and misdeeds occurred.  With this deeper understanding, certain defenses and mitigation evidence will develop.

Often even more important, the company will be able to demonstrate to the Ohio Department of Taxation or local county prosecutor the business deficiencies and the corrective measures.  This will also be important and also critical information in negotiating an Ohio Sales Tax Resolution Agreement and avoiding criminal prosecution.   With the business in the process of being righted, the Ohio Department of Taxation can have confidence that the client will meet its payment obligations in the resolution agreement.  This is one of those times criminal defense attorneys can be a “counselor” in a richer sense.

You Can't Beg Yourself to a Better Sentence.

Too often overlooked by defense lawyers is the client’s right to effective assistance of counsel at the sentencing stage.  Too many defense lawyers also fail to recognize how an evaluation of sentencing is an essential component of effective assistance during the pretrial and plea negotiations.  See U.S. v. Pinkney, 551 F.2d 1241, 1248 (1976).  The Pinkney opinion explained that “the first step toward assuring proper protection for the rights to which defendants are entitled at sentencing is recognition by defense counsel that this may well be the most import part of the entire proceeding.”  Id. at 1249.

The performance and effectiveness of attorneys in criminal cases will often be judged against the American Bar Association Standards for the Defense Function.  The commentary to Standard 18-5.17 speaks to the measures of an appropriate sentencing.  Of significance, the commentary points out the obvious: “Contested proceedings as to guilt occur in a fraction of criminal prosecutions, but sentencing is an issue in every case.”  Id.  Standard 4-4.1 directs that defense counsel be prepared to address sentencing mitigation at the plea negotiation stage.  The reasoning of the commentary is quite compelling:

                “The lawyer has a substantial and important role in to perform in raising mitigating factors both to the prosecutor initially and to the court at sentencing.  This cannot effectively be done on the basis of broad general emotional appeals or on the strength of the statements made to the lawyer by the defendant.  Information concerning the defendant’s background, education, employment record, mental and emotional stability, family relationships, and the like, will be relevant, as will mitigating circumstances surrounding the commission of the offense itself.”

The point being, that too many lawyers overlook sentencing preparation entirely.  And, where a client needs to be protected by negotiating a plea arrangement, the defense attorney needs to be preparing for sentencing from the outset of the case.  As the ABA commentary indicates, too many lawyers rely on nothing more than “general emotional appeals.”  Simply stated, you can’t beg your client to a better sentence.  And, the right to effective assistance of counsel applies to sentencing hearings, and hence, not preparing appropriately for sentencing as well as trial may lead to ineffective assistance of counsel claims.

Include a Defense Investigator in an “Ideal Defense.”

Any conversation with a client about a lawsuit will ultimately include a discussion about the expenses associated with the case.  With a civil case, that conversation can be simply a matter of a business analysis for the client, i.e. is it worth the investment in the litigation against the risk.  In the criminal context, the consequences are generally too significant to ask a client to make such a “business analysis” weighing risk against investment.

In my practice, I typically talk with criminal defense clients about what I describe as an “ideal defense.”  The client and I then discuss together what constitutes an “ideal defense” and, of course, what is the investment related to the various tools of an “ideal defense.”  Mind you, quite often we cannot have all the tools the client and I would prefer and still get remarkable results.  But, as an ethical matter, I make it a point to explain to the client all the options and tools that are available to investigate and prepare a defense.

One tool I insist on in serious felony cases is including a budget to invest in a private investigator for the defense.  Without fail, the cases I’ve defended with an investigator on the defense team have seen better results than they would have had we not had that tool.  In fact, I can tell you about an alleged “he said she said” rape that was on its way to indictment before our investigator uncovered critical images from the hotel surveillance cameras showing the complainant and our client in various “passionate embraces” throughout the night.  In that same case, our defense investigator found witnesses whom hinted to the various “companions” the complainant had been with during the previous night.  Try as I might, it is highly unlikely that I would have ever acquired the same evidence had I tried to hit the pavement myself.

Simply stated, a great defense investigator will have a skill set to organize his investigation and to acquire and document the evidence and testimony from witnesses.  Moreover, an investigator with police training will be able to give the attorney insight into the police interviews of witnesses and the defendant.  An investigator trained in police tactics will always have a better insight into police thinking, assumptions, and tactics.

Maybe even more important, an attorney may be ethically barred from interviewing the witnesses himself.  An attorney interviewing a witness is immediately placed in jeopardy of becoming a witness in the matter.  Rule 3.7(a) of the Ohio Rules of Professional Conduct specifically prohibits an attorney from taking on a role as a witness.  It reads “[a] lawyer shall not act as an advocate at a trial in which the lawyers is likely to be a necessary witness unless” one of exceptions apply.  Suffice it to say, there is no such exception for a criminal defense attorney defending his client where a witness changed her story.  The comments to the Rule make it clear that an attorney taking on the role as a witness “can prejudice the tribunal and the opposing party.” 

Imagine that a witness gives testimony at trial that is different from the statement given to the attorney previously.  The attorney is forced to then pursue a line of questioning on the point of the prior interview with the witness – this questioning alone may not be admissible, leaving the jury with no other testimony other than the witness’ new version.  Having an investigator on the defense team, will eliminate that risk and give the defense tools which better match the prosecution.  This creates a more “ideal defense.”

Think Twice Before You Waive Your Preliminary Hearing, Then...Don't.

If there is one powerful tool in the defense of a criminal case that is more often overlooked than any other, it is the preliminary hearing.  Too often defense lawyers advise their clients to waive their right to a preliminary hearing because they estimate the likelihood of success on the merits to be low.   That should not be the deciding factor.  Admittedly, the standard of proof at a preliminary hearing is a mere probable cause, i.e. whether it is "more likely than not" that the offense was committed.  Nonetheless, in Ohio, Rule of Criminal Procedure 5(B) provides for the right to a preliminary hearing.  Although the Ohio Rules of Evidence do not except preliminary hearings from the evidentiary rules and Crim.R. (5)(B)(2) references "the rules of evidence prevailing in criminal trials generally," the rules of evidence tend to be rather fluid during a preliminary hearing.  But see, State v. Mitchell (1975), 42 Ohio St.2d 447. Still, the rule provides the defendant the full right of cross-examination.  The burden of proof remains, however, only "probable cause."

Even with the revisions to the discovery procedures in Ohio Rule of Criminal Procedure 16 to provide more open discovery, there is no substitute for the opportunity to hear the investigating officers or possibly a victim testify live and subject to cross-examination early in the matter.  Unlike some states, Ohio does not allow discovery depostions in criminal cases.  That is to say, a criminal defendant does not have the opportunity to take the sworn deposition testimony of an officer or other witness in preparation for trial. 

Heck, no witness - especially the police officer - is obligated to talk with the defense.  And, candidly, they will typically be advised by the prosecutor or the prosecutor's victim advocate department not to speak with defense representatives.  This is all the more reason an opportunity for a preliminary hearing mustn't be squandered.  I personally can recall a number of criminal defense matters we handled which ended in an acquittal or conviction of a much less significant offense only - and I mean only - because we took the prelminary hearing.  For instance, I can recall an officer testifying to a rape theory that was simply not supported under Ohio law leading to dismissal.  Or a matter wherein an officer had previously testified at the preliminary hearing to what the victim had described during the investigation only to hear the victim testify differently at trial and the officer claiming he didn't recall either way.  With the officer's preliminary hearing testimony, not only was the officer impeached, but so was the victim - only because we took the time to actually take the preliminary hearing.

Mind you, some court's make an effort to discourage the preliminary hearing due to the delays it might cause in a court's schedule.  That said, absent a substantive reason for waiving the hearing, defense attorneys that advise clients to waive preliminary hearings are doing so at the client's peril.  Unfortunately, if they don't take the preliminary hearing, they will never know how the client ultimately suffered.  That might be the larger tragedy.

Can an Indigent Get an Effective Defense Even With Retained Counsel?

A principal often overlooked by private criminal defense attorneys, is a defendant’s right to court appointed assistance where the defendant is himself indigent - despite the assistance of family and friends in retaining counsel.  Too often privately retained attorneys advise their clients that they will need private funds to retain necessary investigators and expert witnesses despite the fact the client is himself indigent.  Such an error can have the effect of denying the defendant an adequate defense and wrongfully accused persons find themselves convicted.

Every defense attorney will understand that there is no longer any “doubt that an effective defense sometimes requires the assistance of an expert witness.  This observation needs little elaboration. *** Moreover, provision for experts reasonable necessary to assist indigents is now considered essential to the operation of a just judicial system.”  Williams v. J.R. Martin (1980), 618 F.2d 1021, 1025.  This basic principle is now outlined in the American Bar Association standards on defense services.  The ABA standards require that indigent defense be provided “investigatory, expert and other services necessary to an adequate defense.”  ABA Standards, Providing Defense Services, 22-23 (1968).  The notes to the standards make the point clear; the “quality of representation at trial may be excellent and yet valueless to the defendant if his defense requires ... the services of a(n)...expert and no such services are available.”  Id.

But, many defense attorneys fail to recognize that there is a right to state funds even where counsel is privately retained but the defendant remains indigent.  This is rather common occurrence where family and friends expend all their precious funds to retain private counsel, but reserve no monies to retain the appropriate defense experts.  Where the accused remains indigent, he continues to be entitled to government funds.  Indigence “is not an absolute concept *** For example, a defendant’s resources may be drained by the expenditure of obtaining private counsel.  Thus while a defendant can afford private counsel, he or she may not be able to afford other costs of the case such as an investigator or expert witnesses.”  State v. Pasqualone (March 31, 1999), Ashtabula App. No. 97-A-0034, unreported.