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United States v. Maddux

United States Court of Appeals, Sixth Circuit

February 26, 2019

United States of America, Plaintiff-Appellee,
v.
John Maddux, Jr.; Christina Carman; Julie Coscia; Michael E. Smith, Defendants-Appellants.

          Argued: May 3, 2018

          Appeal from the United States District Court for the Eastern District of Kentucky at Ashland. No. 0:14-cr-00020-David L. Bunning, District Judge.

         ARGUED:

          Kent Wicker, DRESSMAN BENZINGER LA VELLE, Louisville, Kentucky, for Appellant.

          Nicole S. Elver, DRESSMAN BENZINGER LA VELLE, Louisville, Kentucky, for Appellant.

          Gregory A. Napolitano, LAUFMAN & NAPOLITANO, LLC, Cincinnati, Ohio, for Appellant.

          John M. Pellettieri, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

         ON BRIEF:

          Kent Wicker, DRESSMAN BENZINGER LA VELLE, Louisville, Kentucky, for Appellant.

          Nicole S. Elver, DRESSMAN BENZINGER LA VELLE, Louisville, Kentucky, for Appellant.

          Gregory A. Napolitano, LAUFMAN & NAPOLITANO, LLC, Cincinnati, Ohio, for Appellant.

          John M. Pellettieri, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., Laura K. Voorhees, UNITED STATES ATTORNEY'S OFFICE, Lexington, Kentucky, for Appellee.

          Gary W. Lanker, LAW OFFICE OF GARY W. LANKER, Memphis, Tennessee, for Appellant.

          Steven D. Jaeger, THE JAEGER FIRM, PLLC, Erlanger, Kentucky, Candace Crouse, PINALES, STACHLER, YOUNG, BURRELL, & CROUSE CO. LPA, Cincinnati, Ohio, for Amicus Curiae

          Before: SUHRHEINRICH, GIBBONS, and KETHLEDGE, Circuit Judges.

          OPINION

          KETHLEDGE, CIRCUIT JUDGE

         The defendants here took part in a decade-long scheme surreptitiously to sell tax-free cigarettes, thereby defrauding federal, state, and local governments of more than $45 million in tax revenue. The federal government eventually uncovered the scheme and charged them with 34 counts of various crimes, including conspiracy to commit mail or wire fraud in violation of 18 U.S.C. § 1349, conspiracy to launder money in violation of 18 U.S.C. § 1956(h), and conspiracy against the United States in violation of 18 U.S.C. § 371. One of the defendants, John Maddux, pleaded guilty to 29 counts. The other three-Christina Carman, Julie Coscia, and Michael Smith-all went to trial, where a jury convicted each of them on various counts. These three now challenge their convictions on several grounds. Maddux, Carman, and Coscia also challenge their sentences, arguing that the district court erred when calculating their recommended sentences under the Sentencing Guidelines. We reject all these arguments and affirm.

         I.

         Cigarettes are heavily taxed. Federal, state, and local governments each add their own layer of taxation, which increases the price dramatically from factory to shelf. In some places, a pack sells for $13 even though manufacturers sell it for around $5. Beginning in 2003, John Maddux, his wife Christina Carman, and their now-deceased business partner, Glenn Herndon, began selling cigarettes directly to consumers, bypassing governmental taxing authorities. This plan enabled them to sell untaxed cigarettes at a steep discount.

         The group took several steps to conceal their sales from the federal, state, and local governments. Many if not most of their customers used credit cards to pay for the cigarettes; and Maddux told the company that processed those sales that he and Carman ran a business called "DSL Ever-Ready Specialty Glass," which sold "glass for homes and auto." In fact, their companies did business under the names of "Your Kentucky Tobacco Resource" and "ESR II." Maddux also told his employees to use email addresses with domain names that disguised the nature of the company's business, like "@asrhomedecor.com." And Maddux arranged for a hotel employee to tip him off whenever officials from the Kentucky Department of Revenue came to town, so that he and Carman could avoid inspections.

         Maddux and Carman also failed to report their sales to state authorities as required by federal law. The Jenkins Act, 15 U.S.C. § 376(a) (2006), required cigarette sellers, like Maddux and Carman, to file a monthly report detailing (among other things) the names and addresses of any customers who had purchased untaxed cigarettes. This report would enable state and local governments to collect the taxes owed by each customer. If a seller failed to report his sales, the Act imposed a strict-liability misdemeanor punishable by six months' imprisonment. See 15 U.S.C. § 377 (2006). Maddux and Carman never filed these reports, and made sure their customers knew as much. Their customers in turn stayed silent about their purchase of untaxed cigarettes; and so the taxing authorities never knew about them. Through this plan, Maddux and Carman converted monies that should have been revenue for the taxing governments into profits for themselves.

         Soon Maddux and Carman recruited two other cigarette sellers, Julie Coscia and Michael Smith. Coscia ran "Cigarette Girl," a company she incorporated as "ASC Properties" to stay-as she put it-"under the radar." Like Maddux and Carman, she gave a phony description of her business to the company that processed her transactions, stating that she sold mail-order gifts. Similarly, Smith ran "Payless Cigs," which he incorporated as "Payless Enterprises." He likewise told his credit-card processing company that he sold gifts, novelties, and souvenirs. Neither Coscia nor Smith reported their sales as required by the Jenkins Act.

         In 2010, Congress passed the Prevent All Cigarette Trafficking Act, which imposed further restrictions on the sale of untaxed cigarettes. See Pub. L. 111-154, 124 Stat. 1087. The Trafficking Act prohibits shipment of cigarettes through the United States Postal Service, requires packages containing cigarettes to be labeled as such, and directs "delivery sellers"-i.e., sellers who take orders directly from consumers or ship cigarettes by common carrier-to comply with the tax laws in the state or locality where the cigarettes are shipped. See 15 U.S.C. § 376a(a)(3). The Act also makes it a felony, punishable by three years' imprisonment, knowingly to refuse to report cigarette sales. See 15 U.S.C. § 377(a).

         Maddux, Carman, Coscia, and Smith recognized that the Trafficking Act made their scheme more difficult to run within the United States, so they converted it to an offshore operation. Rather than ship cigarettes through Tobacco Resource, they began shipping through Maddux and Carman's other company, ESR II, which used suppliers in Ukraine, Israel, and Kyrgyzstan, among other places. The defendants relayed orders of cigarettes to these suppliers, who shipped them directly to customers. To pay the suppliers, Coscia and Smith wired money to Maddux and Herndon, who then wired money to several foreign ...


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