United States of America v. Hernandez et al

Filing 110

ORDER ON POTENTIAL ADVERSE INFERENCES. Signed by Magistrate Judge Jonathan Goodman on 6/30/2023. See attached document for full details. (mkr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION
CASE NO. 18-20783-CIV-ALTONAGA/GOODMAN

UNITED STATES OF AMERICA,
Plaintiff,
v.
FRANCISCO HERNANDEZ and
HUGO GIMENEZ,
Defendants.

_________________________________/

ORDER ON POTENTIAL ADVERSE INFERENCES
“I’m really not up for answering any questions that start with how, when,
where, why or what.”

-

John Green, author of the best-selling “The Fault in Our Stars” (1977 - )

During an in-person evidentiary hearing on whether Defendants Francisco
Hernandez and Hugo Gimenez should be held in contempt for violating the October 31,
2018 Injunction [ECF No. 44], Gimenez asserted the Fifth Amendment to all substantive
questions about the facts underlying the requested contempt. The United States asks the

Court to reach a permissive adverse inference against both Gimenez and Hernandez,
based on Gimenez’s repeated invocation of the Fifth Amendment privilege. The
Undersigned required briefing. [ECF No. 95]. Gimenez, Hernandez, and the United States
(which submitted two briefs, one for each Defendant) all filed memoranda. [ECF Nos. 106;
105; 107; 108].
For the reasons outlined below, the Undersigned will apply an adverse inference
against Gimenez but will not do so against Hernandez. The adverse inference against
Gimenez will not by itself be sufficient to justify a recommendation of contempt for either
Defendant, as the United States must have additional, independent evidence to meet its
burden to establish a violation by clear and convincing evidence.
Hernandez 1
In his memorandum, Hernandez asserted many points, both fact-based and legalfocused: (1) adverse inferences must comply with the evidentiary rules, which means
they must be relevant; (2) an adverse inference against him because of Gimenez’s Fifth
Amendment assertion would be unavailable if Gimenez lacked personal knowledge of
the matters at issue in the questions; (3) any adverse inferences must not be unfairly
prejudicial, confusing, or cumulative; (4) an adverse inference cannot alone be the basis

Hernandez filed his memorandum first, a week before Gimenez filed his
memorandum. As a result, the United States’ first memorandum concerned Hernandez,
and its second memorandum, filed a week later, concerned Gimenez. Therefore, based
on the timing, the Undersigned will first discuss Hernandez.

1

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for a contempt finding; (5) the Court may draw an adverse inference only if the Court can
also identify independent evidence corroborating it; (6) the need to corroborate adverse
inferences in contempt cases is particularly acute because contempt must be established
by clear and convincing evidence; and (7) his counsel has not found any case in this
Circuit approving of an adverse inference drawn against a testifying defendant from a
non-testifying co-defendant. [ECF No. 105].
In addition to those arguments, Hernandez emphasized that: (8) the United States
did not ask Gimenez any questions about Hernandez; (9) no questions asked of Gimenez
had anything to do with the United States’ allegations against Hernandez concerning his
preparation of the Ackermans’ tax return and his failure to supervise Gimenez; (10) an
adverse inference against Hernandez would be unfairly prejudicial; (11) there is no record
evidence concerning Gimenez’s personal knowledge of Hernandez’s compliance with the
Injunction; (12) there is no corroborating evidence to support an adverse inference
because Gimenez did not ask questions about his relationship with Hernandez but
Hernandez testified that Gimenez is an independent contractor, owns no portion of the
company, is not a company manager or supervisor and that the two do not control each
other’s work; (13) he and Gimenez have different roles in the contempt proceeding and
their interests are not necessarily aligned; (14) Hernandez established that the
Ackermans’ tax return was in fact accurate, so the only evidence against him would be
an adverse inference, which is improper; and (15) the Injunction provides that the actions
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of Gimenez and Hernandez shell not be considered actions affecting the other if they
“decide to prepare tax returns independently from one another” -- and the evidence
showed that they do prepare returns independently from one another, which means an
adverse inference against Hernandez would improperly expand the Injunction beyond
its terms. Id.
The United States raised several points in response: (1) applying an adverse
inference to Hernandez is trustworthy here; (2) the Injunction provides that Gimenez’s
actions may be held against Hernandez unless they prepare tax returns independently;
(3) Defendants continued to prepare returns together at the tax preparation firm; (4) a
strong bond of loyalty exists between the two; (5) Hernandez has significant control over
Gimenez (and all his tax preparers); (6) their interests are aligned; and (7) they both
played a controlling role in the underlying facts. [ECF No. 107].
The United States raised additional points, as well: (8) Gimenez’s and Hernandez’s
careers as tax preparers are inextricably intertwined because of their long personal and
professional relationship; (9) as owner of Francisco Hernandez Tax Services, LLC
(“FHTS”), Hernandez could fire Gimenez; (10) Hernandez handled administrative tasks
and business concerns for Gimenez, such as collecting fees from Gimenez’s customers
and paying Gimenez after deducting his own 60% fee first (even from customers whose
returns he never prepared or reviewed); (11) given Hernandez’s control over FHTS, there
is a presumption that he knew that Gimenez’s conduct violated the injunction; and (12)
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Gimenez acted within the scope of his employment for Hernandez when he engaged in
the activities at issue. Id.
Gimenez
Gimenez’s memorandum raised several of the same points urged by Hernandez,
so the Undersigned’s summary of his positions will include only new points not raised
by Hernandez: (1) no negative inference can be drawn unless there is a substantial need
for the information and there is not another less-burdensome way of obtaining the
information; (2) the only inference from his Fifth Amendment assertion is that his
testimony would provide a link in the chain that could be used against him in a criminal
case, which he says falls far short of suggesting liability for civil contempt here; (3) the
United States itself created the need for Gimenez to invoke his Fifth Amendment
privilege by “far overstating” its case in its motion to show cause by “leveling allegations
of criminal conduct against him that are simply not true”; (4) the circumstances here are
not merely civil litigation between private parties -- it is a suit and motion pushed by the
Justice Department and a division (the Tax Division) which would be responsible for his
criminal prosecution; (5) unlike a conventional civil litigant, the United States could have
eliminated the basis for a Fifth Amendment assertion by immunizing Gimenez from
criminal liability derived from his testimony, but it did not offer such immunity, so the
need for Gimenez to invoke his privilege remained; and (6) an adverse inference based
upon invocation of the Fifth Amendment privilege is not a punishment -- it should not
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be used to an extent greater than needed to prevent unfair and unnecessary prejudice to
the United States. [ECF No. 106].
Gimenez raised additional points in his submission; (7) not much that is relevant
to the civil contempt issue can be inferred from Gimenez’s Fifth Amendment assertions;
(8) the clients whose returns are at issue all signed their returns under penalty of perjury,
confirming their accuracy; (9) the witnesses received copies of their returns, with
instructions to contact Gimenez about any questions or concerns; and (10) even if the
Court were to draw an adverse inference against Gimenez, the only inference is that his
testimony would have provided a link in the chain of evidence the United States would
need to successfully prosecute him on a tax fraud theory. Id.
In response, the United States raised several arguments, some of which it also
asserted in its response to Hernandez’s memorandum. The Undersigned will list those
new points which the United States did not also make in its response to Hernandez’s
memorandum, although the list here may in part overlap with some of the points made
in the Hernandez scenario.
The United States focused on the following points: (1) a court should grant an
adverse inference when the Fifth Amendment-based unavailability of a witness’s
testimony in a civil proceeding substantially prejudices the opposing party -- to ensure it
treats the opposing party equitably; (2) Gimenez elected to invoke the Fifth Amendment
only after the United States, in its reply memorandum, identified substantial problems
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with the supporting documents he submitted to the Court with his opposition; (3) he
cross-examined the Government’s witnesses, and he therefore was not confronted with
the dilemma of choosing between silence or putting on a defense; (4) Gimenez invoked
his Fifth Amendment right to silence on the advice of counsel, who had the ability to
advise him on the wisdom of not testifying at the evidentiary hearing; (5) the Government
should not be faulted for not immunizing him because it had no indication that he would
change course (from his decision to testify by submitting a declaration) and, from a
practical perspective, the United States’ ability to offer him immunity was constrained at
the hearing by the last minute choice to suddenly invoke his Fifth Amendment right to
silence. [ECF No. 108].
The Ruling
Hernandez
The Undersigned will not draw an adverse inference against Hernandez based on
Gimenez’s assertion of the Fifth Amendment during the evidentiary hearing. The
Undersigned recognizes that I may well have the discretion and legal authority to draw
an adverse inference, but I am exercising that discretion here by rejecting the United
States’ request to invoke the inference against a defendant who fully testified at the
hearing.
At bottom, the Undersigned finds, under a Federal Rule of Evidence analysis, that
the requested inference would be unfairly prejudicial to Hernandez. United States ex rel.
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DRC, Inc. v. Custer Battles, LLC, 415 F. Supp. 2d 628, 634 (E.D. Vir. 2006) (“any adverse
inferences must be relevant, reliable, and not unfairly prejudicial, confusing, or
cumulative”).
The United States’ direct allegations against Hernandez concern his preparation
of the Ackermans’ 2021 tax return. But it asked no questions of Gimenez about that return.
Moreover, the United States’ other allegation against Hernandez (that he failed to
supervise Gimenez) was also not a subject of questions the Government asked Gimenez.
So there are no adverse inferences on those topics which could be inferred directly from
Gimenez’s refusal to answer the questions (because none were asked).
An adverse inference is not automatic and a Rule 403 evaluation does not compel
the result the United States seeks. See, e.g., Roche Diagnostics Corp. v. Priority Healthcare
Corp., No. 18-CIV-01479, 2019 WL 8014475, *7 (N.D. Ala. Nov. 4, 2019) (“Courts employ
the Rule 403 balancing test to assess the propriety of imposing an adverse inference upon
a party based upon a nonparty’s invocation of the Fifth Amendment privilege . . . . The
fact-intensive analysis which Rule 403 and this [C]ircuit require precludes the notion that
adverse inferences will automatically attach to [the] [d]efendants if the former defendants
invoke their privilege.”).
Any assessment of whether to impose an adverse inference against Hernandez
must, in fairness, consider the reality that the contempt finding the United States seeks
against both defendants must be established by clear and convincing evidence. Me Tech.,
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Inc. v. Brownstein, No. 20-61508-CIV, 2020 WL 5803486, at *1 (S.D. Fla. Sept. 14, 2020),
report and recommendation adopted, No. 20-61508-CIV, 2020 WL 5800998 (S.D. Fla. Sept.
29, 2020) (recommending that the defendant not be found in contempt and explaining
that the movant “ha[d] been unable to point to evidence that proves by ‘clear and
convincing’ evidence that [the] [d]efendant was in control of the Instagram page after
the dates on which the TRO and [p]reliminary [i]njunction were entered or that he
remain[ed] in control currently” (emphasis supplied)).
The United States argues that Hernandez does in fact control Gimenez’s activities
as a tax preparer, while Hernandez argues that they prepare returns independently and
that neither controls the other. To be sure, there is some record evidence to confirm the
United States’ theory, but the Undersigned is not convinced for present purposes to
conclude that the Government has established the control factor by clear and convincing
evidence. See, generally, LiButti v. United States, 107 F.3d 110, 123-124 (2d Cir. 1997) (listing
non-exclusive factors to consider in guiding analysis of whether the assertion of the Fifth
Amendment privilege by a non-party witness should lead to an adverse inference). 2
During the evidentiary hearing, Hernandez introduced evidence and argument to
support his view that the Ackermans’ tax return was correctly prepared. Although the

The four factors are: (1) the nature of the relevant relationships; (2) the degree of
control of the party over the witness; (3) the compatibility of the interests of the defendant
and witness in the litigation; and (4) the role of the witness in the litigation. LiButti, 107
F.3d at 123-124) (emphasis added).
2

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Undersigned is not now conclusively determining whether the United States proved by
clear and convincing evidence that this one tax return was fraudulent, the factual analysis
is hardly a slam dunk in favor of the Government’s position. The United States did not
present any specific evidence to demonstrate the precise percentage of support which the
Ackermans provided to their relative.
Therefore, if an adverse inference were to be applied against Hernandez, then it
could be the only evidence against him on this allegation. If that were to occur, then it
would run afoul of the rule that a court should draw an adverse inference only if there is
independent evidence corroborating it. Me Tech., 2020 WL 5803486, at *3. And that would
also render the result unfairly prejudicial. Cf. Custer Battles, 415 F. Supp. 2d at 636
(granting in part and denying in part request for a jury instruction allowing permissible
adverse inferences but reducing number of adverse inferences to “those few that related
to the heart of the alleged fraud, and which have the most reliable basis”).
Finally, the Undersigned also deems significant the overall context in which the
requested adverse inference arises: in a scenario where Hernandez answered every
question asked of him and never asserted the Fifth Amendment. This suggest that his
interests and Gimenez’s interests may not be entirely aligned -- which relates to the
LiButti factors.

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The Undersigned will not invoke an adverse inference against Hernandez in the
Report and Recommendations concerning the requested contempt finding the United
States seeks for Defendant’s alleged violations of the Injunction.
Gimenez
The analysis concerning Gimenez, however, is substantially different. As outlined
below, the Undersigned will be recommending in the final Report and Recommendation
on the requested contempt finding that the Court draw an adverse inference against
Gimenez based on his wholesale refusal to answer any substantive questions through his
assertion of the Fifth Amendment. However, the recommendation will also be that the
Court not rely solely on the adverse inference as grounds to support the requested finding
of contempt. Several factors support the conclusion that an adverse inference against
Gimenez is permissible and applicable here.
First, the requested inference is being sought against the very person who
repeatedly invoked the Fifth Amendment and refused to answer any substantive
questions. Thus, as noted in LiButti, 107 F.3d at 124, the district court should be mindful
of Justice Brandeis’ classic admonition: “Silence is often evidence of the most persuasive
character.” United States ex rel. Bilokumsky v. Tod, 263 U.S. 149, 153–54, 44 S. Ct. 54, 56, 68
L.Ed. 221 (1923).

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Second, the purpose of an adverse inference is to limit the prejudice to the
examining party who was denied available evidence by a witness’s invocation of the
privilege. Willingham v. Cnty. of Albany, 593 F. Supp. 2d 446, 452 (N.D.N.Y 2006); see also
SEC v. Graystone Nash, Inc., 25 F.3d 187, 190 (3d Cir. 1994) (“In general, prejudice flowing
from a Fifth Amendment plea is borne by the party asserting the privilege.”). The United
States is the party who is prejudiced by Gimenez’s refusal to answer questions, and that
prejudice is aggravated by the fact that he previously submitted a declaration and
exhibits to oppose the United States’ effort to hold him in contempt. Graystone Nash, 25
F.3d at 191–93; Aim Recycling of Fla., LLC v. Metals USA, Inc., No. 18-cv-60292, 2020 WL
209860, at *8, 9 (S.D. Fla. Jan. 13, 2020) (explaining that courts should “measure [] the
relative weights of the parties’ competing interests”) (citing Wehling v. Columbia Broad.
Sys., 608 F.2d 1084, 1088 (5th Cir. 1979)).
Third, courts have held that declining to draw an adverse inference is especially
prejudicial to the opposing party when the invoking witness is represented by counsel.
See, e.g., Graystone Nash, 25 F.3d at 192–93. Although the consequences of invoking his
privilege should “not be too costly,” they must also not “be costless.” Id. at 191 (emphasis
added).
Fourth, the Undersigned rejects Gimenez’s argument that an adverse inference
here would lack “persuasive value.” [ECF No. 106, ¶ II.B]. This is unconvincing. Like any
evidence, the inference must be weighed against the other evidence to determine whether
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the United States meets its burden of proof. See, e.g., SEC v. Monterosso, 746 F. Supp. 2d
1253, 1263 (S.D. Fla. 2010) (explaining that an adverse inference may not result in
automatic summary judgment). And that is exactly what I will do when I evaluate the
Government’s contempt request and perform the analysis necessary to issue the Report
and Recommendations (assuming that the case does not get resolved through a
settlement).
The United States concedes that it would be improper to find Gimenez in contempt
based solely on his Fifth Amendment assertions. [ECF No. 108, p. 7]. It recognizes that an
adverse inference is available only when independent admissible evidence supports a
finding that he violated the Injunction. Naturally, the United States contends that there
is substantial evidence to support the alleged violations.
The United States’ memorandum provides a witness-by-witness outline of the
evidence it believes supports the alleged violations. Without reaching any final
conclusions about the ultimate sufficiency of the testimony, the Undersigned is satisfied
that it is sufficient to provide the independent evidence necessary to allow the adverse
inferences. Whether the inferences and the evidence combined is sufficient to satisfy the
Government’s burden to prove the alleged violations by clear and convincing evidence
is another question (and one left for the Report and Recommendations).
Fifth, Gimenez disputes the sufficiency of this evidence, arguing that the
signatures on the Customer Information Organizers alone absolve him of any duty to
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investigate inconsistencies between the clients and their supporting documentation. He
argues that he may rely on customer signatures as proof the return information is
accurate, even where that information is not logical. The Injunction imposes additional
duties on him to ensure the accuracy of that information and, subsequently, those returns.
[ECF No. 44 ¶ I, II, IV]. 3 Without an adverse inference, the United States would be
prejudiced because Gimenez’s Fifth Amendment assertions prevent the United States
from probing his role vis-à-vis his clients, even though he, in effect, seeks to shift blame
to them by pointing to their certifications of accuracy.
The Undersigned concludes that an adverse inference against Gimenez is
appropriate here in order to ameliorate the prejudice his Fifth Amendment assertions at
the evidentiary hearing generated against the United States.
Proposed Findings and Conclusions
As required by the Undersigned’s Post-Evidentiary Hearing Administrative Order
[ECF No. 95], the Parties will each, within three weeks of this Order, file on CM/ECF their
proposed report and recommendations containing findings of fact and conclusions of
law. By the same deadline, the Parties will also submit to the Undersigned’s e-file inbox
([e-mail]) courtesy copies of their submissions in Microsoft Word

For example, paragraph II(b)(i) provides that “[if the taxpayer is unable to provide
documentation with respect to a particular income or expense item enumerated in the
Schedule C Preparation Organizer, the Defendants are enjoined from including the
income or expense item on the taxpayer’s Schedule C.”
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format. The Undersigned will not provide any enlargements of time absent compelling
circumstances bordering on a bona fide emergency. 4
DONE AND ORDERED in Chambers, in Miami, Florida, June 30, 2023.

Copies furnished to:
The Honorable Cecilia M. Altonaga
All Counsel of Record

The Parties should immediately file a notice with the Court on CM/ECF if they
resolve the show cause/request-for-contempt issue. This reminder is particularly relevant
if a settlement is reached after the Parties submit their proposed reports and
recommendations but before I issue my Report and Recommendations. If a settlement
were to be reached in this de facto procedural “Twilight Zone”, then the Undersigned will
have spent a significant amount of time working on what would turn out to be an
ultimately unnecessary project. This practical point remains vital even if a settlement is
only partial or concerns only one of the two Defendants.
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