Opinion
G054972
06-07-2018
THE PEOPLE, Plaintiff and Respondent, v. GRACE SUHUI HAN, Defendant and Appellant.
Richard Power, under appointment by the Court of Appeal, for Defendant and Appellant. Xavier Becerra, Attorney General, Gerald A. Engler, Chief Assistant Attorney General, Julie L. Garland, Assistant Attorney General, Felicity Senoski, Deputy Attorney General, for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 14CF0900) OPINION Appeal from a judgment of the Superior Court of Orange County, David A. Hoffer, Judge. Affirmed. Richard Power, under appointment by the Court of Appeal, for Defendant and Appellant. Xavier Becerra, Attorney General, Gerald A. Engler, Chief Assistant Attorney General, Julie L. Garland, Assistant Attorney General, Felicity Senoski, Deputy Attorney General, for Plaintiff and Respondent.
Defendant and appellant Grace Suhui Han appeals from her conviction of 20 felony counts of willful failure to withhold and/or remit, to the State of California (the state), funds taken out of the wages of her dental office's employees. (Unemp. Ins. Code, § 2118.5.) Following her conviction, the court suspended execution of sentence, and placed defendant on probation for five years, subject to several terms and conditions. The conduct underlying her challenged convictions involves one count for each quarterly period from 2009 until 2013, spanning five years, where defendant misappropriated and/or failed to collect wages and taxes that should have been withheld and paid to the state.
All further statutory references are to the Unemployment Insurance Code unless otherwise stated.
Defendant was also convicted on a misdemeanor count of simple battery (Pen. Code, § 242), acquitted on another separate battery count, and convicted on a single misdemeanor count of failure to obtain workers' compensation insurance (Lab. Code, § 3700.5, subd. (a)). Defendant does not contest these two misdemeanor convictions in her appeal, and we do not discuss them further.
Defendant's sole ground for appeal is that the court prejudicially erred by failing to instruct the jury on the necessarily lesser included offense of misdemeanor failure to pay taxes (§ 2118). The Attorney General concedes this failure to pay taxes charge is indeed a lesser included offense of a willful failure to pay taxes charge. Nonetheless, he argues the failure to instruct was not error based on the evidence presented in this case. Alternatively, even if it was error, he maintains defendant was not prejudiced, and any instructional error was harmless within the meaning of People v. Watson (1956) 42 Cal.2d 818 (Watson).
We affirm the judgment.
FACTS
The Employment Development Department (EDD) is the state agency responsible for collecting four types of taxes from employers on behalf of their employees. These include personal income tax, disability, employment training, and unemployment insurance. Employers are required to deduct these taxes from employee paychecks, and account for and pay over these withholdings to the EDD. Quarterly wage and withholding forms are also required of employers. These quarterly forms must be submitted even in quarters in which no wages are paid. In 2005, defendant registered with the EDD as the sole corporate officer of two dentistry practices, and was assigned an employer tax identification number.
Defendant employed Seyedeh Asidtaher as a dental assistant from December 2011 to October 2012. She was paid hourly and was required to use an employee time clock. Initially, defendant did not withhold any taxes from Asidtaher's paychecks, but later told Asidtaher she had to start withholding taxes because the Internal Revenue Service (IRS) was auditing her. Defendant did not use payroll software or break down individual deductions on a paystub, and instead simply hand wrote a gross pay amount in the memo portion of Asidtaher's paychecks. Asidtaher believed she had not been paid for overtime, and suspected her withholdings were not done correctly. In addition, several of her paychecks were returned due to insufficient funds in defendant's checking account. Asidtaher ultimately quit because of these payroll issues.
During the relevant five-year period, several other employees quit for similar reasons. Like Asidtaher, some started as independent contractors with no withholding taken, but then filled out W-4 forms and their subsequent paychecks reflected deductions. Some were given pay-stubs, some not. All of defendant's employees were required to clock-in and clock-out with timecards, and defendant then used the timecards to carefully determine paycheck amounts, sometimes calculating down to the minute.
In November 2012, Asidtaher filed claims regarding her owed wages as well as a disability claim with EDD, triggering an investigation that ultimately led to the charges in this case. In reviewing Asidtaher's claims, EDD discovered defendant had failed to report any contributions on behalf of Asidtaher, thus creating an "obstructed claim," which required further investigation, including an audit. The investigation revealed that from the first quarter of 2009 through and including the fourth quarter of 2013, defendant either had not reported or untimely reported, with the exception of the fourth quarter of 2012.
Because defendant had paid wages to Asidtaher, and withholdings were made but never reported or sent to the department, EDD began sending defendant compliance demand letters, to which defendant never responded. In late 2012 or early 2013, EDD placed levies on defendant's accounts receivable and on defendant's Delta Dental insurance account. On January 18, 2013, defendant contacted EDD asking why her accounts were being levied. EDD informed her it was because she had failed to file her quarterly reports as required, and the levies would continue until she complied. EDD received all the missing quarterly reports the very next day. Subsequently, defendant filled out and returned an audit questionnaire, indicating she was the in-house accountant and bookkeeper for her dental practice.
In March 2013, deputies from the California Division of Labor Standards Enforcement made an unannounced visit at defendant's dental office for a routine Labor Code compliance inspection. Specifically, they were there to confirm whether defendant had employees and, if so, whether she had workers' compensation insurance. They had been notified by the Bureau of Workers' Compensation of a possible issue, and were also aware of wage complaints filed by some of defendant's former employees.
The lead deputy, Laily Maleki, entered defendant's dental office, approached the front desk and saw defendant and an assistant. Maleki introduced herself, and defendant was immediately uncooperative and confrontational. She told Maleki she needed an "order" to be present, which Maleki interpreted to mean a warrant or subpoena. Defendant demanded the names and contact information for Maleki's supervisor and for the Labor Commissioner, speaking in a raised voice and appearing agitated. Maleki asked more than once for proof of workers' compensation insurance, but defendant was nonresponsive. When Maleki tried to explain what she needed and why, defendant became more upset and raised her voice, and stated, "The government can't be in here."
Maleki walked over to where defendant's business license was hanging on the wall and started writing down information for her report. Defendant physically contacted Maleki, telling her she could not write that information down, and became very upset. Defendant then forcibly grabbed Maleki's arm, and pushed her towards and out the door, slamming and locking it behind her.
After summoning assistance from the City of Irvine Police Department, Maleki was able to re-enter, where she again asked defendant for proof of workers' compensation insurance, but defendant was unable or unwilling to provide it. Maleki issued a stop order and a notice to discontinue labor law violations, which would be lifted upon proof of insurance or the absence of employees. Defendant refused to sign the notice to discontinue business. Defendant later sent an e-mail to Maleki disagreeing with the stop order, which the EDD deemed an appeal. At a March hearing on the "appeal," defendant still had no workers' compensation insurance in effect and a second notice to discontinue business was issued; one that defendant signed. Defendant's bank records showed the presence of paid employees, and dental board records revealed the names of employees who should have had withholdings taken out of their wages.
In May 2013, an EDD tax auditor set up an appointment with defendant at her office to meet and review documents relating to the audit. Defendant was 20 minutes late, and professed not to remember the appointment. Once inside, defendant expressed concern whether the auditor was really a spy sent by another dentist in the building, because both the auditor and the dentist had the same surname.
By this time the matter had become a criminal investigation, so a different EDD auditor was assigned. The auditor examined records from January 2009 through December 2013, including the detailed handwritten notes in the memo section of some of the paychecks defendant had issued to her employees. The auditor concluded defendant had failed to pay over and/or account for unemployment insurance taxes, employee training taxes, disability taxes, and state personal income tax withholdings during each of the relevant quarterly time periods.
The jury returned verdicts on all 23 charged counts after deliberating for an hour and four minutes, and asked no questions of the court.
DISCUSSION
Defendant contends the court prejudicially erred by failing to instruct the jury on the necessarily lesser included offense of misdemeanor failure to pay taxes (§ 2118). We disagree. There is no substantial evidence that only the lesser crime was committed.
Background
Section 2118.5 provides, "Any person required by this code to collect, account for, and pay over any tax or amount required to be withheld who willfully fails to collect or truthfully account for and pay over the tax or amount shall . . . be guilty of a felony . . . ." (Italics added.) On the other hand, section 2118 describes a slightly different crime: "Any person or employer who, with or without intent to evade, fails to withhold . . . or fails to pay over any tax withheld, is guilty of a" misdemeanor. (Italics added.)
On its own motion, the trial court instructed the jury with a modified version of CALCRIM No. 2826 as follows:
Normally CALCRIM No. 2826 is given in an income tax context (Rev. & Tax. Code, § 19701, subd. (c)), but here the court modified the instruction to match the statutory language of the Unemployment Insurance Code. There is nothing in the record indicating either party objected to this instruction.
"The defendant is charged in counts 1 through 20 with willful failure to pay tax. [¶] To prove that the defendant is guilty of this crime, the People must prove that:
"1. The defendant was required to collect, truthfully account for, and pay over taxes to the Employment Development Department;
"2. The defendant failed to collect or truthfully account for and pay over the taxes by the dates they were due; AND
"3. The defendant voluntarily chose not to collect or truthfully account for and pay over taxes with the intent to violate a legal duty known to her.
"The term collect means to withhold the amount of workers' contributions from their wages at the time the wages are paid.
"The term account for and pay over taxes means to file a withholding report, a quarterly return, and a report of wages in a form prescribed by the Employment Development Department and to pay over the required taxes."
In addition, to supplement paragraph 3 of the modified CALCRIM No. 2826, the trial court also instructed the jury on specific intent: "The crime of willful failure to pay tax, as charged in counts 1 through 20, requires a specific intent and mental state. For you to find a person guilty of this crime, that person must not only intentionally commit the prohibited act, but must do so with a specific intent and mental state. The act and the specific intent and mental state required are explained in the instruction for this crime."
"The definition of a lesser necessarily included offense is technical and relatively clear. Under California law, a lesser offense is necessarily included in a greater offense if either the statutory elements of the greater offense, or the facts actually alleged in the accusatory pleading, include all the elements of the lesser offense, such that the greater cannot be committed without also committing the lesser." (People v. Birks (1998) 19 Cal.4th 108, 117.) "California law has long provided that even absent a request, and over any party's objection, a trial court must instruct a criminal jury on any lesser offense 'necessarily included' in the charged offense, if there is substantial evidence that only the lesser crime was committed." (Id. at p. 112, italics added.) "On the other hand, the court is not obliged to instruct on theories that have no such evidentiary support." (People v. Breverman (1998) 19 Cal.4th 142, 162 (Breverman).) "Substantial evidence" in this context is evidence from which a reasonable jury could conclude the lesser offense, but not the greater, was committed. (People v. Manriquez (2005) 37 Cal.4th 547, 584.) "In deciding whether there is substantial evidence of a lesser offense, courts should not evaluate the credibility of witnesses, a task for the jury." (Breverman, at p. 162.)
"An appellate court applies the independent or de novo standard of review to the failure by a trial court to instruct on an uncharged offense that was assertedly lesser than, and included, in a charged offense. Whether or not to give any particular instruction in any particular case entails the resolution of a mixed question of law and fact that, we believe, is however predominantly legal. As such, it should be examined without deference." (People v. Waidla (2000) 22 Cal.4th 690, 733.) "[I]n doing so we view the evidence in the light most favorable to the defendant." (People v. Millbrook (2014) 222 Cal.App.4th 1122, 1137.)
"[T]he failure to instruct sua sponte on a lesser included offense in a noncapital case is, at most, an error of California law alone, and is thus subject only to state standards of reversibility. We further determine . . . that such misdirection of the jury is not subject to reversal unless an examination of the entire record establishes a reasonable probability that the error affected the outcome." (Breverman, supra, 19 Cal.4th at p. 165.)
The Court did not Err in Failing to Instruct on the Lesser Included Offense
In People v. Hagen (1998) 19 Cal.4th 652 (Hagen), our Supreme Court considered a situation similar to that under review here. In Hagen, the defendant was charged with former Revenue and Tax Code section 19405, subdivision (a)(1), willfully making and subscribing an income tax return without belief in its material truth, a felony. (Hagen, at p. 656.) Among other claims, the defendant insisted the trial court erred by failing to instruct sua sponte on an asserted lesser included offense, the misdemeanor tax offense defined in former Revenue and Taxation Code section 19401, subdivision (a). (Hagen, at p. 656.)
Similar to the Unemployment Insurance Code sections in our case, former Revenue and Tax Code Section 19405, subdivision (a)(1) punished as a felon any person who "[w]illfully makes and subscribes any return, statement, or other document, that contains or is verified by a written declaration that it is made under the penalties of perjury, and that he or she does not believe to be true and correct as to every material matter." (Hagen, supra, 19 Cal.4th at pp. 658-659.) The misdemeanor charge made it a crime "for any person who, '[w]ith or without intent to evade [the state income tax laws], fails to file any return or to supply any information required under this part, or who, with or without such intent, makes, renders, signs, or verifies any false or fraudulent return or statement, or supplies any false or fraudulent information.'" (Id. at p. 666.)
The Supreme Court pointed out that "the filing of a California personal income tax return is an act demanded by law of most California residents. By virtue of this and other reporting requirements, millions of Californians are subject to, and must attempt to conform to, a myriad of state laws and regulations (in addition to the many federal laws incorporated into state law). Most taxpayers cannot be expected to have special expertise in the area of tax law, and that many taxpayers, without intending to disobey the law, will occasionally err out of ignorance or a good faith misunderstanding of the law's requirements is inevitable. California law, like its federal model, provides a graduated scheme of civil penalties and misdemeanor and felony punishment to deter both honest mistakes and willful fraud. [Citations.] . . . [W]e think it likely the Legislature . . . intended to use these graduated penalties to 'separate the purposeful tax violator from the well-meaning, but easily confused, mass of taxpayers.'" (Hagen, supra, 19 Cal.4th at p. 662.)
While perhaps not as arcane a body of law as income taxation, similar observations apply in the context of employee tax withholdings and, as relevant here, to sections 2118 and 2118.5 in particular. Like the Revenue and Taxation Code sections in Hagen, supra, 19 Cal.4th 652, the key difference between the misdemeanor lesser included section 2118 offense and the greater felony section 2118.5 offense is the "willfulness" element described in paragraph 3 of CALCRIM No. 2826 discussed above, an element that may well "'separate the purposeful tax violator from the well-meaning, but easily confused, mass of taxpayers.'" (Hagen, supra, at p. 662.) On appeal, defendant suggests she is merely one of the latter, and therefore an instruction on the lesser included section 2118 should have been given to the jury.
The Hagen court found the misdemeanor income tax violation was a lesser included offense of the felony charge, but concluded it was not error for the trial court to have failed to instruct the jury on the misdemeanor offense. (Hagen, supra, 19 Cal.4th at p. 672.) "Instructions on a lesser included offense are not required whenever there is 'any [supporting] evidence, no matter how weak, . . . but only when the evidence is substantial enough to merit consideration by the jury.' [Citation.] Instructions are therefore required sua sponte only if the proof at trial includes substantial evidence that the lesser offense, but not the greater, was committed; such evidence is 'substantial' only if a reasonable jury could find it persuasive." (Ibid.)
The record here contains no substantial evidence of the lesser offense to the exclusion of the greater. To find defendant violated section 2118, but not former section 2118.5, the jury would have had to conclude, beyond a reasonable doubt, that she failed to withhold and/or pay over anything withheld from her employees' paychecks. At the same time, however, the jury would also have needed to entertain a reasonable doubt as to whether she voluntarily did so, and whether she willfully did so with the specific intent to avoid her withholding obligations. (See Hagen, supra, 19 Cal.4th at p. 672.)
Here, the evidence provided no basis for a reasonable doubt as to willfulness. Nothing in the record supports a theory of good faith mistake or ignorance as to defendant's legal duty to withhold and pay over the amounts withheld. Nor was there substantial evidence from which the jury could have concluded defendant believed she had complied with her obligations. Conversely, the resulting strong inferences she knew of the unreported and unpaid withholding was uncontradicted by any direct or circumstantial evidence she lacked such knowledge. Defendant had been in business and registered with the EDD since 2005. She knew about federal income tax forms W-2 and W-4, and mentioned the IRS had audited her. Defendant had withheld amounts from her employees' paychecks on occasion, but she never paid it over to EDD. Most telling, of course, and the key piece of evidence in our view, is that when EDD levied her accounts receivable and her Delta Dental insurance account, she was able to submit all her delinquent quarterly reports by the following day.
A reasonable jury could not have concluded, based on this record, that defendant failed to properly withhold, and to pay over those monies she did withhold, but did so nonwillfully or in the belief she had no obligation to do so. One might perhaps speculate that she did not fully understand her legal obligations under the Unemployment Insurance Code. "Speculation, however, is not enough." (Waidla, supra, 22 Cal.4th at p. 738; People v. Wilson (1992) 3 Cal.4th 926, 941 ["Speculation is an insufficient basis upon which to require the giving of an instruction on a lesser offense"].)
Appellate counsel refers us to People v. Johnson (2016) 6 Cal.App.5th 505, disapproved in People v. Hicks (2017) 4 Cal.5th 203, 214, footnote 3. In Johnson, the defendant was convicted of gross vehicular manslaughter while intoxicated in his first trial, but the jury did not reach a unanimous verdict on the other charged count, second degree murder. The court granted a mistrial with respect to that count. (Johnson, supra, at p. 507.) On retrial of the murder charge, Johnson held the trial court erred by failing to instruct the jury that the defendant had been convicted of manslaughter in his first trial. (Johnson, supra, at pp. 510-511.) In Hicks, the Supreme Court disagreed with the Johnson holding and disapproved the decision. (Hicks, supra, 4 Cal.5th at p. 214, & fn. 3.) Moreover, in our case, defendant was not being retried on charges related to an earlier conviction, so Johnson's disapproved holding has no application to these facts.
On appeal, counsel insists there was "plenty of evidence concerning [defendant's] questionable mental status," describing her at-times odd behavior during Maleki's visit, and states it "could indicate a serious personality disorder." Counsel hyperbolically insists the Attorney General has overlooked "the mountain of evidence concerning [defendant's] mental status that was displayed to the jury." We disagree.
There was no evidence to link defendant's behavior during Maleki's visit to an underlying mental disorder, and it is completely speculative to posit such a causal connection without some supporting evidence. Counsel claims defendant simply could not handle her bookkeeping duties but, again, there is no evidence to indicate she was unable, as opposed to simply unwilling, to do so; incompetence and willfulness are not mutually exclusive. And, of course, within one day of having her accounts levied, defendant was able to comply quite quickly with her reporting obligations, suggesting unwilling is the more likely candidate.
In her brief, defendant references the probation and sentencing report, and the trial court's terms and conditions of probation as evidence of her "mental issues." Of course, none of this "evidence" was before the jury, so it is not germane to our analysis here.
Assuming Error, the Failure to Instruct was not Prejudicial
But even assuming it was error for the court to fail to instruct the jury on the misdemeanor lesser included offense, the question would still remain whether such error was harmless under the Watson test (Watson, supra, 46 Cal.2d at p. 836), made applicable to instructional errors of this sort by Breverman, supra, 19 Cal.4th at pages 177-178. We conclude that even if it was error to fail to instruct on the lesser included offense, on this record any such error was harmless, as it is not reasonably probable defendant would have obtained a more favorable outcome had the jury been so instructed. (Id. at p. 178.)
"As was explained in Breverman, supra, 19 Cal.4th 142, 'the sua sponte duty to instruct on a lesser included offense arises if there is substantial evidence the defendant is guilty of the lesser offense, but not the charged offense. [Citation.] This standard requires instructions on a lesser included offense whenever "'a jury composed of reasonable [persons] could . . . conclude[]'" that the lesser, but not the greater, offense was committed. [Citations.] In deciding whether evidence is "substantial" in this context, a [trial] court determines only its bare legal sufficiency, not its weight." (People v. Moye (2009) 47 Cal.4th 537, 556.) But that is not the end of the inquiry.
"'Appellate review under Watson, on the other hand, takes an entirely different view of the evidence. Such posttrial review focuses not on what a reasonable jury could do, but what such a jury is likely to have done in the absence of the error under consideration. In making that evaluation, an appellate court may consider, among other things, whether the evidence supporting the existing judgment is so relatively strong, and the evidence supporting a different outcome is so comparatively weak, that there is no reasonable probability the error of which the defendant complains affected the result. Accordingly, a determination that a duty arose to give instructions on a lesser included offense, and that the omission of such instructions in whole or in part was error, does not resolve the question whether the error was prejudicial. Application of the Watson standard of appellate review may disclose that, though error occurred, it was harmless." (People v. Moye, supra, 47 Cal.4th at p. 556.)
The defense offered no evidence of its own below. In argument, her counsel insisted defendant was just a dentist, not an accountant, and was merely a poor businesswoman who misunderstood or forgot her duties with regard to withholding. Therefore, she did not "willfully" violate the law. On appeal, she repeats these same arguments to bolster her claim for the necessity of the lesser included instruction. In addition, as discussed above, based on some of defendant's unusual conduct during her encounter with Maleki and the City of Irvine police, appellate counsel now argues defendant suffered from mental issues that could also have negated the willfulness of her conduct. However, there was no medical evidence presented to support this claim, even assuming it would have been admissible under Penal Code section 28's limitations on certain mental state evidence.
Arguments of counsel are of course not evidence (People v. Barajas (1983) 145 Cal.App.3d 804, 809-810), and the jury was specifically instructed on this point. We presume the jury understood and followed the court's instructions. (People v. Sanchez (2001) 26 Cal.4th 834, 852.)
In any event, the fundamental problem with these arguments is there is no real evidence in this case supporting these conclusions; they are all speculative. Whether defendant's odd behavior around Maleki and later the auditor is because of an unsupported claim of a "serious personality disorder" is complete conjecture.
"On the evidence in this case, this would have been pure speculation, in which a reasonable juror would have no cause to engage. In any event, on these facts such a jury finding, even if possible, was certainly not reasonably probable; for that reason, any error in failing to instruct on the lesser offense was harmless." (Hagen, supra, 19 Cal.4th at p. 673, fn. 11.) So too here. Upon examining the entire cause, including the evidence (Cal. Const., art. VI, § 13), we conclude it is not "reasonably probable" defendant would have obtained a more favorable outcome at trial had the lesser included instruction been given. (Watson, supra, 46 Cal.2d at p. 836.)
DISPOSITION
The judgment is affirmed.
IKOLA, J. WE CONCUR: O'LEARY, P. J. FYBEL, J.