Opinion ID: 2982652
Heading Depth: 2
Heading Rank: 5

Heading: Consideration of Irrelevant Factors

Text: Appellants’ second major claim of error is that the district court “gave weight to various matters that were irrelevant to the statutory determination before it.” In particular, Appellants complain that it was irrelevant that they willfully failed to pay employment withholding taxes, 7 Appellants base their vagueness and overbreadth objections to the permanent injunction on the injunction’s first provision, which enjoins them from directly or indirectly, by use of any means, operating, or being involved with in any way, any work or business relating in any way to preparation of tax returns, and orders them to cease operating. Order of Permanent Injunction, 2013 WL 6421916, at . The permanent injunction contains other provisions. Those provisions provide that Appellants are enjoined from directly or indirectly: acting as tax return preparers; acting or operating as a franchisor of businesses relating in any way to preparation of tax returns; supervising or managing or assisting tax return preparers; owning, operating, or engaging in work or a business relating in any way to preparation of tax returns; assisting with or directing the preparation or filing of tax returns, amended returns, claims for refund, or other related documents; representing before the IRS any person or organization whose tax liabilities are under examination or investigation by the IRS; organizing, promoting, providing, advising, or selling any business or work of tax services; engaging in conduct subject to penalty under any provision of the Internal Revenue Code; and engaging in any other conduct that substantially interferes with the proper administration and enforcement of the internal revenue laws. Id. at – 2. Although these other provisions effectively preclude Appellants from directly or indirectly working in, or operating, a business related to federal tax return preparation, Appellants do not challenge these provisions. - 19 - Case No. 13-4341 United States v. ITS Financial, LLC, et al. caused an employee to forge customers’ names on duplicate loan checks and used those funds to pay ITS Financial’s operating expenses, falsely advertised loan products that did not exist, deceived creditors about corporate assets, charged excessive and deceptive fees to customers, and violated the Truth in Lending Act, the Equal Credit Opportunity Act, and Indiana’s lenderlicensing laws. They argue that the district court created new law by holding that “conduct that constitutes ‘fraudulent and misleading commercial practices’ is also subject to permanent enjoinment’ under § 7402.” Section 7402(a) authorizes district courts to issue injunctions “as may be necessary or appropriate for the enforcement of the internal revenue laws.” As we have previously held regarding § 7408, because the statute expressly authorizes the issuance of an injunction, the traditional requirements for equitable relief need not be satisfied. See Gleason, 432 F.3d at 682; see also First Nat’l City Bank, 379 U.S. at 383. As noted above, the district court cited many cases in which an injunction was issued under § 7402 as well as § 7407. These cases contain little or no discussion of the standard to be used to determine whether an injunction is “necessary or appropriate” under § 7402(a). The standard the district court applied in this case was whether Appellants were “reasonably likely to violate the federal tax laws again.” Decision, 2013 WL 5947222, at . To predict the likelihood of future violations, the district court continued, a court must assess “the totality of the circumstances surrounding the defendant and his violations” by considering such factors as “(1) the gravity of harm caused by the offense; (2) the extent of the defendant’s participation and the defendant’s degree of scienter; (3) the isolated or recurrent nature of the infraction and the likelihood that the defendant’s customary business activities might again - 20 - Case No. 13-4341 United States v. ITS Financial, LLC, et al. involve the defendant in such transaction; (4) the defendant’s recognition of his or her own culpability; and (5) the sincerity of the defendant’s assurances against future violations.” Id. This standard is often used to determine whether an injunction is appropriate under §§ 6700 and 7408, to prevent recurrence of specified conduct in violation of the tax laws. See Gleason, 432 F.3d at 683. It has also been applied to determine whether an injunction is appropriate under § 7407. See, e.g., Abdo v. I.R.S., 234 F. Supp. 2d 553, 565 (M.D.N.C. 2002) (applying the standard to issue an injunction under both § 7407 and § 7408), summarily aff’d, 63 F. App’x 163 (4th Cir. 2003); Buddhu, 2009 WL 1346607, at  (quoting S.E.C. v. Softpoint, Inc., 958 F. Supp. 846, 867 (S.D.N.Y. 1997)); Littrice, 2011 U.S. Dist. LEXIS 89553, at  (borrowing the standard from United States v. Raymond, 228 F.3d 804, 813 (7th Cir. 2000), which affirmed an injunction issued under § 7408). To support its use of this standard, the district court primarily relied on a case in which a federal district court in California entered a permanent injunction under § 7402(a) requiring an individual “to withhold and pay over federal employment and unemployment taxes, and to file all required federal returns.” United States v. Thompson, 395 F. Supp. 2d 941, 942, 945–46 (E.D. Cal. 2005). The Thompson court cited SEC v. Murphy, 626 F.2d 633 (9th Cir. 1980). There, the “reasonable likelihood of future violations standard” was applied to determine whether a permanent injunction was warranted against a defendant who violated securities laws. See Murphy, 626 F.3d at 655. The Murphy court said that “[i]n predicting the likelihood of future violations, a court must assess the totality of the circumstances surrounding the defendant and his violations,” and identified a similar (though not identical) non-exhaustive list of factors to be considered: “the degree of scienter involved; the isolated or recurrent nature of the infraction; the defendant’s recognition of the wrongful nature of his conduct; the likelihood, because of - 21 - Case No. 13-4341 United States v. ITS Financial, LLC, et al. defendant’s professional occupation, that future violations might occur; and the sincerity of his assurances against future violations.” Id. In its turn, the Murphy court relied upon an antitrust case, United States v. W. T. Grant Co., 345 U.S. 629 (1953). There the Supreme Court said: The purpose of an injunction is to prevent future violations and, of course, it can be utilized even without a showing of past wrongs. But the moving party must satisfy the court that relief is needed. The necessary determination is that there exists some cognizable danger of recurrent violation, something more than the mere possibility which serves to keep the case alive. The chancellor’s decision is based on all the circumstances; his discretion is necessarily broad and a strong showing of abuse must be made to reverse it. To be considered are the bona fides of the expressed intent to comply, the effectiveness of the discontinuance and, in some cases, the character of the past violations. Id. at 633 (internal citation omitted). The standard the district court used is generally applicable where an injunction is entered to prevent future violations. It was appropriately used here. And its reach is broad, emphasizing all the circumstances and taking into consideration multiple factors not directly related to the violations themselves. See Gleason, 432 F.3d at 683 (noting defendant’s “flagrantly false” statements about his education and experience supported the district court’s finding, in issuing a permanent injunction under § 7408, that defendant made false statements about tax liability). As Appellees point out, “The court had to consider not only appellants’ tax-related misconduct, but also Ogbazion’s credibility and the nature of the ITS business model to determine the likelihood of recurrence of that misconduct.” The district court did not abuse its discretion by considering all of Appellants’ wrongful behavior, including “fraudulent and misleading commercial practices” and violations of other statutes, to determine whether Appellants were likely to violate the federal tax laws again if the requested injunction was not entered. - 22 - Case No. 13-4341 United States v. ITS Financial, LLC, et al.