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Marten v. Swain

United States District Court, S.D. Indiana, Indianapolis Division

March 16, 2017




         This matter is before the Court on a Motion for Summary Judgment filed pursuant to Federal Rule of Civil Procedure 56 by Defendants Andrew Swain (“Swain”) and Rick Albrecht (“Albrecht”) (Filing No. 105). In addition, Plaintiffs' Motion for Leave to Withdraw an Exhibit (Filing No. 165) is pending. Following a tax audit of J.S. Marten, Inc., a jewelry business owned and operated by Plaintiff Janice S. Marten (“Ms. Marten”), a civil enforcement action ensued as well as criminal proceedings against Ms. Marten and her husband, Plaintiff Christopher Marten (“Mr. Marten”) (collectively, “the Martens”). The criminal cases against the Martens were eventually dismissed with prejudice based on discovery abuses by the State of Indiana. Following dismissal of their criminal cases, the Martens initiated this action for malicious prosecution and other claims against Swain, a deputy attorney with the Indiana Attorney General's Office, and Albrecht, an auditor for the Indiana Department of Revenue (“IDOR”). After motions to dismiss, an appeal, and remand and mandate from the Seventh Circuit, Swain and Albrecht filed this Motion for Summary Judgment, asserting immunity and that the malicious prosecution claim is not supported by the evidence. For the following reasons, the Court grants in part and denies in part the Motion for Summary Judgment.

         I. BACKGROUND

         The following facts are not necessarily objectively true, but, as required by Federal Rule of Civil Procedure 56, the facts are presented in the light most favorable to the Martens as the non-moving party. See Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir. 2009); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

         Ms. Marten owned and operated a jewelry store through a corporate entity named J.S. Marten, Inc. from the mid-1990s until 2009 when the company was dissolved and the store closed. Ms. Marten was the president of J.S. Marten, Inc. throughout the entire duration of the company's existence, and her husband, Mr. Marten, was the company's vice president for a period of time. As the owner, Ms. Marten was the sole shareholder of the company. J.S. Marten, Inc. sold jewelry at its brick and mortar store located in Carmel, Indiana as well as through email, its website, and by telephone sales. The company also provided services such as jewelry repairs and appraisals (Filing No. 79 at 3; Filing No. 107-1 at 3-4; Filing No. 153-1 at 19).

         The Martens used two computer software programs in the operation of the jewelry business: Edge, a point-of-sale system that tracked inventory and sales, and Quicken, a form of accounting software. The Martens used the information generated by these software programs to report the sales tax owed to the State of Indiana (Filing No. 153-1 at 41; Filing No. 153-2 at 30; Filing No. 153-3 at 11).

         By letter dated December 1, 2006, IDOR received an anonymous tip from someone identifying themselves as “Sales staff” of J.S. Marten, Inc., indicating that the company was “committing fraud, the owners are hiding sales, cash sales are not reported, cost of jewelry will show large purchases and no sales for the same jewelry, this is in the millions of dollars hidden from the state in sales.” (Filing No. 107-3 at 9.)

         Albrecht was employed as an auditor with IDOR for thirty-one years, beginning in 1980. In response to the anonymous letter received from “Sales staff, ” in December 2006, Albrecht was assigned to complete an audit and investigation of J.S. Marten, Inc. The purpose of the investigation was to determine whether the company had properly reported sales tax and tax-exempt sales (Filing No. 153-4 at 9, 12, 14). On December 29, 2006, Albrecht mailed an audit engagement letter to J.S. Marten, Inc. to the attention of Janice Marten. The letter provided notice that IDOR was going to conduct an audit of J.S. Marten, Inc. for the years 2003, 2004, 2005, and 2006 and requested that the company provide records, including “federal tax returns, general ledger, sales journal, purchase journal, sales invoices, purchase invoices, bank statements, payroll documents to include forms W-2, Wh-1, UC-5, and payroll ledger.” (Filing No. 107-4 at 10.) The letter also asked Ms. Marten to contact Albrecht to arrange a start date for the audit. Id.

         Albrecht and Ms. Marten first spoke about the audit and investigation in January 2007, and Albrecht told Ms. Marten what kind of records he needed to see. Ms. Marten provided Albrecht with her general ledger and sales tax financials (Filing No. 153-4 at 13). Ms. Marten also gave Albrecht a copy of a disk containing electronic records for the company, which Ms. Marten believed contained all the records Albrecht was requesting for the audit (Filing No. 153-1 at 58, 61-62, 63).

         After reviewing the general ledger and sales tax financial documents initially provided, Albrecht noticed discrepancies between the sales reported on the general ledger and the other documents. He also noticed that gross sales, including tax-exempt sales, were not matching up with the IDOR records for the company. His initial investigation disclosed preliminary findings that J.S. Marten, Inc. reported almost 80% of all its sales were tax-exempt (Filing No. 107-4 at 2).

         On April 25, 2007, Albrecht met with Ms. Marten to discuss the need for additional records-sales invoices and bank notes-to complete the sales tax audit. Albrecht told Ms. Marten that IDOR would need J.S. Marten's sales invoices to determine if J.S. Marten actually had out-of-state sales that would qualify for the sales tax exemptions that it reported. Ms. Marten advised that additional records were in the basement of her house (Filing No. 153-4 at 14; Filing No. 107-4 at 11). Albrecht also informed Ms. Marten that he was having trouble opening the disk that contained electronic records of the company, so Ms. Marten helped him with the disk (Filing No. 153-1 at 59-60). Albrecht requested additional records and followed up with Ms. Marten via letter on June 11, 2007. In the follow-up letter, Albrecht informed the Martens if additional records cannot be available by July 2, 2007, he would complete the audit report with the information that he currently had in his possession (Filing No. 107-4 at 11).

         When Albrecht and Ms. Marten met in April, she discussed with him several family challenges that she was having at that time, which made it difficult to manage the affairs of the company. Her daughter had been diagnosed with cancer, so Ms. Marten was traveling back and forth to California to help her daughter. Ms. Marten also was taking care of her mother who had Alzheimer's disease (Filing No. 153-1 at 63-65). Albrecht has no recollection of Ms. Marten telling him about her family health challenges (Filing No. 153-4 at 14).

         Because no additional documents were provided after the June 11, 2007 letter, Albrecht went to the Carmel store on July 13, 2007, to follow up with Ms. Marten. She was not at the store when Albrecht visited, so Albrecht left his business card with a request that Ms. Marten call him. Ms. Marten did not contact Albrecht, so he sent another follow-up letter to her on August 28, 2007 (Filing No. 107-4 at 3). In the letter, Albrecht informed Ms. Marten that he would be completing the audit by September 15, 2007, and if she did not provide sales invoices to support the claim for tax-exempt sales, he would disallow those exemptions in the audit (Filing No. 107-4 at 12). These additional documents were not provided to Albrecht.

         Throughout Albrecht's investigation, the Martens were in frequent contact with another employee of IDOR, Iva Newsom, a tax analyst with whom the Martens had a previous relationship through volunteering at a food pantry. Iva Newsom told the Martens that she understood the effort it takes to get all the requested information together and frequently told Mr. Marten that she would “take care of the matter” and help the Martens with the tax matter. (Filing No. 153-2 at 37-54).

         On September 18, 2007, Albrecht completed his investigation and audit of J.S. Marten, Inc. and delivered his audit report to IDOR (Filing No. 153-5; Filing No. 153-4 at 15). After Albrecht completed the audit, IDOR officials continued to seek additional records from the Martens. IDOR deputy director Steven Lasher sent a letter to Ms. Marten on December 28, 2007, requesting sales invoices, but Ms. Marten did not respond to his letter. IDOR investigator Larry Harshman served an administrative subpoena on Ms. Marten on January 28, 2008, requesting records, including sales invoices, to be produced to IDOR by February 22, 2008. However, on February 21, 2008, Ms. Marten called Albrecht to ask for a one-week extension to provide the requested records. Albrecht told Ms. Marten that a one-week extension would be provided, and he offered to pick up the records if she did not want to ship them or bring them to IDOR's office (Filing No. 107-4 at 4).

         Ms. Marten assembled several records of J.S. Marten, Inc. and packed them into a large box to be produced to IDOR. On February 25, 2008, Mr. Marten delivered the box of company records to IDOR's office. He gave the box of records to two individuals at IDOR and asked that they give the box to Iva Newsom since he had been communicating with her about the tax matter (Filing No. 153-2 at 47-54).

         It appears that the Martens' delivery of the box of records to IDOR was not communicated to Albrecht or Harshman because, on February 29, 2008, Albrecht went to the jewelry store with Investigator Harshman to collect records and sales invoices from Ms. Marten. Ms. Marten was not at the store at the time, so Albrecht left his business card with an employee and requested that Ms. Marten contact him before the end of the day. Later that day, at 5:10 p.m., Mr. Marten left a voicemail message for Albrecht, indicating that Ms. Marten was serving jury duty (Filing No. 107-4 at 4).

         On March 28, 2008, Defendant Swain (then chief counsel for the tax litigation division of the Indiana Attorney General's Office) filed a verified petition in the Hamilton Superior Court to enforce the administrative subpoena to obtain records (Filing No. 107-5 at 2). Three days later, on March 31, 2008, Swain sent an email to others in the Indiana Attorney General's Office, indicating that IDOR was taking the case against the Martens seriously and that it “might go criminal.” (Filing No. 153-8.)

         On April 14, 2008, a hearing on Swain's verified petition was held. A Hamilton County judge entered an order directing the Martens to produce documents requested by the administrative subpoena. Both Swain and Albrecht were at the hearing, and Albrecht recalls the Martens producing six boxes of records to the Indiana Attorney General's Office at the hearing. Albrecht recalls the Attorney General's Office taking the boxes after the hearing, but he did not know what happened with the boxes after that and he never saw them after they were taken from the courthouse. According to Albrecht, the boxes should have been given to IDOR for agent review; however, after leaving the courthouse, Albrecht never saw the boxes again. (Filing No. 153-4 at 21). Albrecht did not personally request the boxes for review because management “would scream at you and didn't want to hear anything.” Id. Swain recalls that the boxes were transported back to the Attorney General's Office, and the records were reviewed by himself and other attorneys working on the Martens' case. On January 29, 2010, during the criminal suppression hearing, Swain testified that his office determined the records were not responsive to the subpoena because there were no sales tax records, sales invoices, shipping records, sales tax returns, or other relevant documents (Filing No. 168-13 at 9).

         At the request of Swain, on May 2, 2008, Albrecht prepared two subpoenas to be delivered to the Martens for them to be deposed (Filing No. 153-4 at 22). Because of various personal reasons, Ms. Marten's deposition was continued twice and Mr. Marten's deposition was continued once. However, when Ms. Marten asked to continue Mr. Marten's deposition a second time so that he could take her to a doctor's appointment at the Mayo Clinic, Swain refused to continue the deposition. Mr. Marten apologized in an email for any inconvenience rescheduling would cause and stated that “after twenty-seven years of marriage, my wife and her health must come first.” (Filing No. 153-10). Mr. Marten did not appear for his deposition on May 22, 2008, and in response, Swain emailed other IDOR officials, stating, “We need to meet asap to discuss our next step. Can we issue a je[opardy] assessment and shut the bus[iness] down. I think we can file criminal charges now.” (Filing No. 153-10).

         IDOR contacted the Hamilton County Prosecutor's Office to discuss pursuing a search warrant and possible criminal charges against the Martens. (Filing No. 153-9 at 38). Then Swain and Albrecht met with the Hamilton County Prosecutor's Office regarding criminal charges against the Martens on May 30, 2008 (Filing No. 153-4 at 30). Swain informed the Hamilton County Prosecutor's Office that he was going to be taking the civil depositions of the Martens. Then on June 3, 2008, Swain emailed other individuals working on the Martens' case, explaining, “[a]s we discussed, the Hamilton Co. prosecutor is going to pursue criminal tax charges against these guys.” (Filing No. 153-14.) He also explained that “[t]he prosecutor asked me to see if I could locate all the properties that they own. They are going to execute search warrants to seize business records.” Id. On June 4, 2008, Swain emailed the Hamilton County Prosecutor's Office to explain that Ms. Marten was going to appear for her deposition later that week, that she was not represented by an attorney, and that he would let them know how things went at the deposition (Filing No. 153-15).

         With an understanding that the criminal process was underway, Swain deposed Ms. Marten on June 6, 2008. Ms. Marten did not have an attorney, and Swain did not inform her of her right to have an attorney or that a criminal investigation had begun. Albrecht was present at Ms. Marten's deposition. Swain elicited testimony from Ms. Marten wherein he believed she admitted to several felonies. Swain emailed others at IDOR three days after the deposition, asserting that he “deposed the prospective defendant, ” that she “admitted to several felonies, ” and that he was going to give the deposition to the prosecutor (Filing No. 153-17). On June 11, 2008, Swain took the deposition of Mr. Marten. Soon thereafter, Swain provided the two depositions to the Hamilton County Prosecutor's Office (Filing No. 153-11).

         Following the Martens' depositions, at which Albrecht was present, Albrecht signed a probable cause affidavit to support petitions for search warrants of the Martens' residence and business. Albrecht's probable cause affidavit was based on his understanding that the Martens failed to produce sales invoice records to IDOR pursuant to the Hamilton County court's order and a failure to permit the examination of such records (Filing No. 107-4 at 5). On July 2, 2008, search warrants were issued for the Martens' residence and business. Id. at 25-28.

         The search warrants were executed at the Martens' residence and business on July 10, 2008. Both Albrecht and Swain were present during the search. Swain oversaw the execution of the warrants and the seizure of evidence (Filing No. 153-22 at 8). Swain's responsibility during the search was to label and package evidence, help identify which materials should be seized, and generally oversee the search (Id.; Filing No. 153-20; Filing No. 153-21 at 198-99). During the search, Albrecht served Ms. Marten with jeopardy warrants, which notified her of the amount IDOR claimed she owed and allowed IDOR to “seize our money” before she could move it out of state (Filing No. 153-4 at 5).

         After the search and seizure of records, IDOR auditors examined the records seized and drafted a case report dated October 9, 2008. The case report noted that invoices existed for sales transactions that did not charge sales tax or alternatively provide an explanation for a sales tax exemption. The case report also noted that sales tax collected was greater than the amount of tax reported to IDOR (Filing No. 107-7).

         On October 16, 2008, Swain sent an email to IDOR officials stating he had just finalized and signed a probable cause affidavit in support of arrest warrants for the Martens (Filing No. 153-28). Swain noted that they might want to discuss a press release and whether they wanted an IDOR or Attorney General official present when the arrests were made. Id. In his probable cause affidavit, Swain noted that he was assigned the responsibility of coordinating and conducting the tax investigation of J.S. Marten, Inc. and the Martens (Filing No. 153-22). Swain averred that the Martens failed to produce subpoenaed documents by February 29, 2008. His probable cause affidavit also included incriminating information obtained from the Martens when he deposed them four months earlier. Id.

         The same day that Swain signed the probable cause affidavit, Swain learned via email that IDOR had reached an agreement with the Martens to resolve the dispute concerning their sales tax liability. The Martens were to pay an initial deposit of $100, 000.00 with additional payments to be made to satisfy the balance. Swain responded to the email by explaining that he could not “keep pulling the prosecutor on and off” and that “[m]oney does not make the underlying crimes go away.” Swain insisted that the criminal prosecution needed to continue (Filing No. 153-28).

         After Swain signed the probable cause affidavit, the Hamilton County Prosecutor's Office filed criminal charges against the Martens. The Hamilton County Superior Court issued arrest warrants for the Martens based on Swain's probable cause affidavit, and the Martens were arrested on October 23, 2008.

         Joshua Kocher (“Kocher”), an attorney with the Hamilton County Prosecutor's Office, prosecuted the criminal case against the Martens. He described Swain's role in the criminal proceedings as the “State's witness, ” the “victim, ” and a liaison between the Hamilton County Prosecutor's Office and the State agencies. Swain facilitated meetings when Kocher wanted to examine the evidence. When the Martens requested discovery in the criminal case, Kocher forwarded the requests to Swain to obtain the responsive material (Filing No. 153-33 at 24, 28, 37, 38).

         Various discovery disputes arose during the course of the criminal case against the Martens. The Martens were having difficulty obtaining materials from Kocher, IDOR, and the Attorney General's Office. The Martens sought court intervention with the discovery issues, and the court ordered the State to give the Martens' attorneys “unfettered access to the Department of Revenue's records related to the Martens.” (Filing No. 153-33 at 38.)

         Carole Buchholz (“Buchholz”) was the IDOR auditor assigned to work on the Martens' file during the criminal proceedings. Swain asked Buchholz to work on various matters connected with the criminal case. On August 5, 2009, Swain instructed Buchholz to assist the Martens' attorneys with locating records in IDOR's evidence room. The Martens' attorneys asked for information regarding the civil audit assessment prepared by Albrecht, and Swain instructed Buchholz not to provide this information to the attorneys despite the court's order to provide “unfettered access to the Department of Revenue's records related to the Martens.” (Filing No. 153-37.)

         In her criminal case, Ms. Marten filed a motion to compel on August 21, 2009, and after a hearing on the motion, the court granted the request to compel discovery on September 14, 2009. The court noted that “this is about the fifth time we've had an extensive discovery discussion on this case . . . on an automatic discovery rule that requires complete discovery within thirty days [] after [defense counsel enters his appearance].” (Filing No. 153-40 at 1-2 (brackets and ellipsis in original).) The court's order also warned that dismissal of the criminal case was a possible sanction for any unjustified failure to comply with the discovery order. Id. at 2.

         The court held another hearing on discovery issues on November 5, 2009, and the court warned that the criminal case would be dismissed if discovery revealed that “even one document that already should have been disclosed to Marten” had been withheld. Id. at 3. The court explained that, if documents finally were produced that the Martens had not been given and that were favorable to their case, the court would dismiss the criminal case and “more ...

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