The opinion of the court was delivered by: Pisano, District Judge.
Presently before the Court is an omnibus pretrial motion by the defendants Mark Holzwanger ("Holzwanger"), Andrew Muhlstock ("Muhlstock") and Stephen Guthartz ("Guthartz" and, together with Holzwanger and Muhlstock, the "Moving Defendants"). Co-defendant Russell Speranza ("Speranza") joins in the motion. The United States of America (the "Government") opposes the motion. For the reasons set forth herein, the Moving Defendants' omnibus pretrial motion is denied.
The Moving Defendants and Speranza (together, the "Defendants") are charged by
Indictment No. 10-714 (the "Indictment") with wire fraud under 18 U.S.C. § 1343 (the "Wire Fraud Statute"). The Indictment charges the Defendants with engaging in a scheme to defraud the clients of Total Time Solutions LLC ("TTS"), a now-bankrupt payroll services company that the Defendants owned or operated between 2002 and 2005. The Indictment describes a scheme in which the Defendants fraudulently induced and caused clients of TTS to allow money to be withdrawn from their bank accounts purportedly to be paid over to the Internal Revenue Service (the "IRS") for the clients' payroll taxes, but instead used that money to pay the operating expenses of TTS. Indictment, ¶ 6.
According to the Indictment, clients of TTS were told that money withdrawn from their bank accounts would be used to pay those clients' payroll taxes when due. Indictment, ¶ 7(d). Instead, money withdrawn from TTS clients' bank accounts was used to pay the operating expenses of TTS and the payroll taxes of other TTS clients. Indictment, ¶¶ 6 and 7(e). It was part of the scheme that when a TTS client received notice from the IRS regarding the late payment or non-payment of payroll taxes, that client was not informed that the money withdrawn from its bank account had not been paid over to the IRS. Indictment, ¶ 7(i). The Indictment also alleges that the Defendants concealed the late payment and non-payment of payroll taxes by submitting false reports to clients of TTS and false payroll tax forms to the IRS. Indictment, ¶¶ 7(f) - (h). According to the Indictment, Holzwanger and Muhlstock also claimed losses on their personal tax returns when no actual losses existed. Indictment, ¶¶ 7(l) -- (o).
The Indictment further alleges that, in or about September 2005, Holzwanger, Muhlstock and Guthartz entered into an agreement to sell TTS (the "Agreement"). Indictment, ¶ 7(q). Attached to the Agreement was a balance sheet for TTS dated as of September 30, 2005 that stated that TTS had cash on hand of approximately $1.6 million and liabilities of over $5 million in unpaid client taxes. Indictment, ¶ 7(q). Holzwanger, Muhlstock and Guthartz later executed an amendment to the Agreement which listed approximately $127,000 in unpaid client payroll taxes as of the closing date of November 1, 2005. Indictment, ¶ 7(s). In fact, according to the Indictment, over $3 million in payroll taxes had not been paid over to the IRS at that time. Indictment, ¶ 7(t).
The Moving Defendants filed the instant motion on February 17, 2011. First, they argue that the Indictment should be dismissed for various reasons including that: (1) it does not sufficiently allege a crime, (2) the Wire Fraud Statute is unconstitutionally vague and was misapplied to the conduct in this case and (3) it improperly joins the offenses of wire fraud and tax fraud in a single count. The Moving Defendants also contend that, in the event the Indictment is not dismissed, the Court should strike certain material therefrom as irrelevant and prejudicial. They argue, further, that the Court should sever the Moving Defendants from the Indictment and try them separately from Speranza. The Moving Defendants also ask the Court to order the Government to disclose (1) its legal instructions to the grand jury, (2) all Brady material of which it is aware or that is in its possession and (3) the names of all informants and the contents of their communications with the Government, even if the Government will not call them as trial witnesses. Finally, the Moving Defendants argue that the Government should be required to file a bill of particulars.
A. Motion to Dismiss the Indictment.
The Moving Defendants make several arguments in support of their motion to dismiss the Indictment. First, the Moving Defendants claim that the Indictment should be dismissed because the conduct alleged therein was authorized by contract and, therefore, does not constitute a crime. Second, they argue that the Indictment fails to allege the intent required under the Wire Fraud Statute. Third, they contend that the Wire Fraud Statute is unconstitutionally vague as applied to the conduct in this case. Fourth, they claim that the Wire Fraud Statute was misapplied to the conduct alleged in the Indictment. Finally, the Moving Defendants argue that the Indictment improperly joins wire fraud and tax fraud in the same count.
On a motion to dismiss, the court must consider the entire Indictment. United States v. Panarella, 277 F.3d 678, 685 (3d Cir. 2002). A defendant may not use a pretrial motion to dismiss an indictment based upon a claim that there is insufficient evidence to support it. United States v. DeLaurentis, 230 F.3d 659, 660-661 (3d Cir. 2000). Instead, a court must assume that the allegations in the indictment are true. United States v. Besmajian, 910 F.2d 1153, 1154 (3d Cir. 1990).
1. Whether The Indictment Should Be Dismissed Because The Conduct Was Authorized By Contract.
The Moving Defendants argue that the Indictment should be dismissed because the conduct alleged therein is authorized by the standard TTS client contract (the "TTS Contract").*fn1
In support, the Moving Defendants focus on two particular allegations contained in the Indictment. First, they point to language in the Indictment stating that "TTS clients were falsely informed" that payroll taxes would be paid to the IRS "when due." Indictment, ¶ 7(d). They claim that this allegation is contradicted by language in the TTS Contract that explicitly addresses late payments by assigning liability for interest and penalties to TTS, so long as the delay is not the fault of the client. TTS Contract, ¶ 6. Second, the Moving Defendants point out that the Indictment alleges that it was "part of the scheme that money withdrawn from one TTS client's bank account for the payment of that client's payroll taxes was used to pay the payroll taxes of other TTS clients." Indictment, ¶ 7(e). The Moving Defendants claim that the TTS Contract explicitly allowed for this comingling. TTS Contract, ¶ 2 ("[c]lient acknowledges and agrees that TTS Payrolls may commingle Client funds with other Client funds in accounts maintained for the purpose.")
The Moving Defendants rely on United States v. Bryant, 556 F.Supp.2d 378 (D.N.J. 2008) in arguing that the Indictment should be dismissed based on these provisions of the TTS Contract. In Bryant, the indictment alleged that the defendant, the dean of a medical school, committed mail, wire and honest services fraud based on an alleged scheme to fraudulently award himself bonuses in violation of the terms of an agreement between the medical school administration and the school's faculty physicians. 556 F.Supp.2d at 439. The allegations contained in the indictment were dependent on the defendant's conduct having violated that contract. Id. at 440 - 441. The Court explained that "to sustain the weight of a conviction for mail and wire fraud that depends on a violation of the [contract], the [contract] must unambiguously prohibit [the defendant's] conduct, and the Indictment must so allege." Id. at 444. The Court found that "if a reasonable construction of the [contract] . . . could validate [the defendant's] actions, it follows that he could not have had constitutionally sufficient notice that his conduct constituted the 'scheme or artifice to defraud' alleged in the Indictment." Id. at 447.
Here, unlike in Bryant, the Moving Defendants' conviction for wire fraud does not depend on their violation of the TTS Contract. Instead, the Indictment alleges that the Moving Defendants and Speranza used the comingled client money to pay the operating expenses of TTS, instead of paying payroll taxes. The Indictment also alleges that the Moving Defendants and Speranza concealed the late payment of taxes by submitting false reports to clients and false payroll tax returns to the IRS and the clients. Because the scheme to defraud in this case is not premised on the commingling of funds or late payments, the Court finds that the Moving Defendants are not entitled to dismissal.
2. Whether The Indictment Should Be Dismissed Because It Fails To Allege The Requisite Intent.
The Moving Defendants also claim that the Indictment should be dismissed for failure to allege fraudulent intent. According to the Moving Defendants, "the gravamen of the Indictment is that TTS allegedly failed to pay certain payroll taxes as it had contracted to do." Moving Defendants' ("Mov. Def.") Brief at 9. They complain that the Indictment fails to allege that, at the time TTS entered into contracts with its clients, the Moving Defendants did not intend to pay those clients' payroll ...