United States of America v. Clark et al

Filing 22

ORDER granting 15 Motion to Dismiss for Lack of Jurisdiction; granting 17 Motion for Judgment on the Pleadings. A Permanent Injunction is entered against Defendant as set forth in the order. The United States Marshals Service shall personally serve this Order and Permanent Injunction. Signed by Chief Judge Frank D. Whitney on 3/7/17. (Attachments: # 1 USM 285) (Pro se litigant served by US Mail.)(mga)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
DOCKET NO. 3:16-cv-794-FDW-DCK
UNITED STATES OF AMERICA,
Plaintiff,
vs.
DANIEL HEGGINS (a/k/a Tebnu El Bey),
Defendant.

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ORDER

THIS MATTER is before the Court on the United States’ Motion to Dismiss Heggins’
Claims (Doc. No. 15) for lack of subject matter jurisdiction and the United States’ Motion for
Judgment on the Pleadings (Doc. No. 17). Because Defendant appears pro se, the Court issued
Roseboro notices (Doc. Nos. 16 and 18) informing Defendant of the burden he carries in
responding to the Government’s motions. Defendant responded (Doc. Nos. 19 and 20), and this
matter is now ripe for review. For the following reasons, the Court GRANTS the Government’s
Motion to Dismiss and Motion for Judgment on the Pleadings and enters a Permanent Injunction
against Defendant.
I.

BACKGROUND

This case arises out of a 2015 criminal case in which Defendant pled guilty to conspiracy
to defraud the United States. In the Factual Basis supporting Defendant’s guilty plea, he admits
to promoting and implementing a tax fraud scheme based on filing fake IRS forms. See United
States v. Heggins, 3:15-cr-127-MOC-DCK (W.D.N.C.) (Doc. No. 58). The scheme derives from
“Redemption” theory, which, as the Third Circuit has explained:

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“propounds that a person has a split personality: a real person and a
fictional person called the “strawman.” . . . Redemptionists claim
that government has power only over the strawman and not over the
live person . . . . Individuals can free themselves by filing UCC
financing statements, thereby acquiring an interest in their
strawman. Thereafter, the real person can demand that government
officials pay enormous sums of money to use the strawman's name.
Monroe v. Beard, 536 F.3d 198, 203 n.4 (3d Cir.2008). Redemptionists further claim that
“[w]henever a person's name is written in total capitals . . . , only the strawman is referenced, and
the flesh and blood person is not involved.” McLaughlin v. CitiMortgage, Inc., 726 F. Supp. 2d
201, 210 (D. Conn. 2010) (citation omitted).
Defendant is currently incarcerated and is scheduled for release from prison in 2018.
Based on his admitted criminal conduct and guilty plea, the Government initiated this civil action
under 26 U.S.C. (“I.R.C.”) §§ 7402(a), 7407, and 7408, seeking to enjoin Defendant from, inter
alia, engaging in and profiting from the promotion of future tax fraud schemes as well as preparing
tax returns for others.1
In his Answer to the Government’s Complaint, which Defendant titles “Affidavit of
Treason, Criminal Trespass and Claim” (Doc. No. 13), and his other filings, Defendant insists that
he is not subject to the laws of the United States based on his nationality in the “Moorish Science
Temple of America” and “Washitaw Nation of Muurs.” He also presents other tax defier
arguments based on Redemption theory, including that the Complaint is defective as it only
encompasses his “artificial being,” that the Uniform Commercial Code (“U.C.C.”) bars this action
for injunctive relief, and that the Government failed to produce facts and evidence proving its case
against Defendant.

Defendant appears to assert counterclaims and a purported third party

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Two other Defendants pled guilty to assisting Defendant Heggins in the tax fraud scheme and have agreed
to consent injunctions, which the Court entered on November 21, 2016. (Doc. Nos. 5 and 7).

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complaint for $300 million against the United States, its agencies, and this Court for “criminal
trespass,” “treason to the federal Constitution,” and various other Constitutional and “statutory
felonies.”2
II.

ANALYSIS

A. Government’s Motion to Dismiss
The Government filed a Motion to Dismiss Defendant’s claims for lack of subject matter
jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1) based on the doctrine of sovereign immunity.
“The existence of subject matter jurisdiction is a threshold issue, which the court must address
before considering the merits of [the case].” Jones v. Am. Postal Workers Union, 192 F.3d 417,
422 (4th Cir. 1999). The party seeking to invoke the jurisdiction of the court has the burden of
establishing the existence of jurisdiction. Id.
“A suit to recover damages against the United States without its consent is barred by the
doctrine of sovereign immunity,” Hall-El v. United States, No. 1:11CV1037, 2013 WL 1346621,
at *4 (M.D.N.C. Apr. 3, 2013) (citing United States v. Mitchell, 463 U.S. 206, 212 (1983), and a
waiver of immunity must be “unequivocally expressed” in an act of Congress, United States v.
Mitchell, 445 U.S. 535, 538 (1980). Absent a clear waiver, the Court lacks jurisdiction over the
claims against the Government and its employees. Id.; see also Kentucky v. Graham, 473 U.S.
159, 166 (1985) (explaining that a suit against an official of the government in the officer’s official
capacity is considered a suit against the government).

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It is unclear whether Defendant is demanding $300 million or threatening to seek this amount should the
Government and Court fail to rebut the factual statements in his pleading. Defendant’s claim fails either way. In
addition, to the extent Defendant seeks damages for “misprision” as a result of his conviction, or claims that he signed
his plea agreement “under threat, duress, and coercion” (Doc. No. 19), this action is the incorrect proceeding to do so.
See, e.g., United States v. Dolentz, 2011 U.S. Dist. LEXIS 105747, *9-10 (N.D. Tex. Jun. 16, 2011).

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Here, Defendant has not demonstrated that the United States has waived its sovereign
immunity and consented to jurisdiction over his counterclaims. Likewise, to the extent Defendant
asserts a third-party complaint against this Court, his claims are barred by judicial immunity. See
Mireles v. Waco, 502 U.S. 9, 11 (1991). Accordingly, the Court lacks subject matter jurisdiction
over Defendant’s counterclaims and purported third-party complaint, and the Government’s
Motion to Dismiss is granted.
B. Government’s Motion for Judgment on the Pleadings
The Government has also moved for judgment on the pleadings pursuant to Fed. R. Civ. P.
12(c) and entry of a permanent injunction against Defendant pursuant to I.R.C. §§ 7402, 7407, and
7408.
1. Standard of Review
Rule 12(c) provides that “[a]fter the pleadings are closed-but early enough not to delay
trial—a party may move for judgment on the pleadings.” 3 In resolving a motion for judgment on
the pleadings, a court must accept the nonmovant's allegations as true and view the facts in the
light most favorable to the nonmoving party. Bradley v. Ramsey, 329 F. Supp. 2d 617, 622
(W.D.N.C. 2004). The court, however, need not “accept the legal conclusions drawn from the
facts,” nor “accept as true unwarranted inferences, unreasonable conclusions, or arguments.”
Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). Ultimately, judgment on the pleadings
should be granted “if the movant is entitled to judgment as a matter of law.” Id. “[T]he court is
to consider the answer as well as the complaint,” id., and may also take judicial notice of and rely

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The Court’s granting of the Government’s Motion to Dismiss in this Order closes the pleadings.

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upon public records, including documents from a related criminal case, Massey v. Ojaniit, 759
F.3d 343, 353 (4th Cir. 2014).
2. Collateral Estoppel
Factual findings from a related criminal case may collaterally estop a litigant from
contesting facts in a related civil proceeding. Emich Motors Corp. v. Gen. Motors Corp., 340 U.S.
558, 568 (1951) (“It is well established that a prior criminal conviction may work an estoppel in
favor of the Government in a subsequent civil proceeding.” (citations omitted)). Specifically, “a
defendant is precluded from retrying issues necessary to his plea agreement in a later civil suit.”
United States v. Wight, 839 F.2d 193, 196 (4th Cir. 1987).
Here, not only does Defendant fail to deny the factual allegations against him, he is
collaterally estopped from doing so because he admitted to those facts in his criminal plea
agreement.4 The allegations in this civil complaint arise from the same conduct and mirror the
facts that formed the basis of his guilty plea in 2015. Compare Factual Basis in Criminal Case
(Docket No. 3:15-cr-127-MOC-DCK, Doc. No. 58) with Complaint in Civil Case (Docket No.
3:16-cv-794-FDW-DCK, Doc. No. 1). Moreover, Defendant had the opportunity to litigate and
dispute these facts in his criminal case, and the facts were necessary both to his criminal conviction
and as the basis for a civil judgment in this case. Accordingly, because defendant is collaterally
estopped from contesting the facts alleged against him here, judgment on the pleadings is
appropriate.
The majority of Defendant’s defenses and arguments in opposition revolve around his
claim that he is not subject to the laws of the United States based on his status as a Moorish

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The Court takes judicial notice of the record in Defendant’s criminal case, Docket Number 3:15-cr-127-MOC-DCK.

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American or member of the Washitaw Nation. Courts, however, have repeatedly rejected similar
arguments as baseless and frivolous. See, e.g., United States v. Burris, 231 F. App’x 281, 282 (4th
Cir. 2007) (describing the defendant’s claim that “the court lacks jurisdiction because of his status
as a Moorish American National” as “patently frivolous”); Caldwell v. Wood, 3:07cv41–RJC,
2010 WL 5441670 at *17 (W.D.N.C. Dec. 28, 2010) (“The suggestion that Petitioner is entitled to
ignore the laws of the State of North Carolina by claiming membership in the ‘Moorish–American’
nation is ludicrous.”); Sanders–Bey v. United States, 267 F. App'x 464, 466 (7th Cir. 2008)
(finding that the Washitaw Nation “is not recognized by the United States government”).
Defendant’s other Redemptionist theory arguments, including that the Complaint is
defective because it misspells his name or that the U.C.C. bars this action for injunctive relief, are
also baseless. Ferguson-El v. Virginia, No. 3:10CV577, 2011 WL 3652327, at *3 (E.D. Va. Aug.
18, 2011); United States v. Majhor, No. 10-544-MO, 2010 WL 3522382, at *1 (D. Or. Sept. 3,
2010) (rejecting the defendant’s argument that she was not the “fictitious Entity” identified in the
complaint); Bullock v. IRS, No. 1:12-CV-2266, 2014 U.S. Dist. LEXIS 54251, at *22 (M.D. Pa.
Jan. 3, 2014) (rejecting the “idiosyncratic view that the Internal Revenue Service must comply
with the provisions of the [U.C.C.] before attempting to collect a tax debt”). Likewise, Defendant’s
argument that the Government has failed to produce facts and evidence to support its allegations
is misplaced because the Government is not required to present admissible evidence with its
Complaint or prove facts alleged in its initial pleading. See Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007).
3. Permanent Injunction

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To prevent Defendant from blatantly violating tax laws, the Government seeks to
permanently enjoin Defendant from preparing tax returns and engaging in other specified conduct
pursuant to I.R.C. §§ 7402, 7407, and 7408.
i. I.R.C. § 7407
Section 7407 of the I.R.C. vests the Court with authority to enjoin a “tax return preparer
from . . . further acting as a tax return preparer” if: (1) he has “engaged in any conduct subject to
penalty under section 6694 or 6695, or subject to any criminal penalty provided by [Title 26],”
“misrepresented his experience or education as a tax return preparer,” or “engaged in any other
fraudulent or deceptive conduct which substantially interferes with the proper administration of
the Internal Revenue laws; (2) “injunctive relief is appropriate to prevent the recurrence of such
conduct”; and (3) he has “continually or repeatedly engaged in [the proscribed conduct],” and a
more limited injunction would not be sufficient to prevent his interference with the proper
administration of the internal revenue laws. Id. § 7407.
The first issue is whether Defendant is a “tax return preparer,” which the I.R.C. defines as
“any person who prepares for compensation, or who employs one or more persons to prepare for
compensation, any return of tax imposed by this title or any claim for refund of tax imposed by
this title.” Id. § 7701(a)(36)(A). “[T]he preparation of a substantial portion of a return or claim
for refund shall be treated as if it were the preparation of such return or claim for refund.” Id. This
definition is broad in order to encompass “the person who makes the decisions and calculations
involved in preparing a particular return . . . even if that person ‘does not actually place the figures
on the lines of the taxpayer's final tax return.’” Goulding v. United States, 957 F.2d 1420, 1424–

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25 (7th Cir.1992) (quoting H.R.Rep. No. 658, 94th Cong., 2d Sess. 275, reprinted in 1976
U.S.C.C.A.N. 3171).
Here, the Government has demonstrated that Defendant is a tax return preparer. Defendant
admitted in his criminal case that he recruited others to assist him with preparation and filing of
fraudulent IRS Forms and tax returns, helped devise and implement the tax fraud scheme, and
charged clients fees for preparation of fraudulent tax returns and participation in the scheme.
(Factual Basis, 3:15-cr-127-MOC-DCK (W.D.N.C.) (Doc. No. 58)). He also founded and acted
as the president and sole officer of the Guarantor Manufacturer Inc., the entity through which he
operated the scheme. (Id.)
The Government has further demonstrated that Defendant is subject to the injunction under
Section 7407. As more fully described in the Government’s brief in this case (Doc. No. 17-1) and
Defendant’s Factual Basis in his criminal case, Defendant repeatedly engaged in enjoinable
conduct described in Section 7407. Moreover, injunctive relief that completely bars Defendant
from preparing tax returns is appropriate to prevent the recurrence of this egregious conduct.
Defendant admitted to theft of millions of dollars from the U.S. Treasury by repeatedly claiming
entirely fraudulent refunds on federal tax returns, he has a prior felony conviction for uttering and
possessing forged and fraudulently made securities, and he is set to be released from federal prison
in 2018. A narrower injunction enjoining specific forms of misconduct would not suffice to
prevent his continued interference with the proper administration of the internal revenue laws. His
insistence in this case that he is not bound by the laws of the United States, as well as his frivolous
accusations against the Government and Court further demonstrate that an injunction completely
barring Defendant from preparing tax returns is appropriate.
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ii. I.R.C. § 7408
Under Section 7408, if the Court determines that (1) a person has engaged in conduct
subject to penalty under Sections 6700 or 6701, and (2) “injunctive relief is appropriate to prevent
recurrence of such conduct,” the Court “may enjoin such person from engaging in such conduct or
in any other activity subject to penalty under this title.” I.R.C. § 7408.
Section 6700 “pertains to the promotion of abusive tax shelters and subjects to penalty any
person who makes false or fraudulent statements regarding the tax benefits of such a tax-avoidance
scheme.” United States v. Elsass, 978 F. Supp. 2d 901, 934 (S.D. Ohio 2013), aff'd, 769 F.3d 390
(6th Cir. 2014). To prove a violation of Section 6700, the Government must show:
(1) the defendant[] organized or sold, or participated in the
organization or sale of, an entity, plan, or arrangement; (2) [he]
made or caused to be made, false or fraudulent statements
concerning the tax benefits to be derived from the entity, plan, or
arrangement; (3) [he] knew or had reason to know that the
statements were false or fraudulent; [and] (4) the false or fraudulent
statements pertained to a material matter.
United States v. Estate Pres. Servs., 202 F.3d 1093, 1098 (9th Cir. 2000).
Section 6701 penalizes any person who (1) aids, assists, or advises with respect to the
preparation of any portion of a document, (2) “knows (or has reason to believe), that such portion
will be used in connection with any material matter arising under the internal revenue laws,” and
(3) “knows that such portion (if so used) would result in an understatement of the liability for tax
of another person.” I.R.C. § 6701. Here, as more fully described in the Government’s brief (Doc.
No. 17-1), Defendant admitted in his guilty plea to the elements needed to show that he engaged
in conduct subject to penalty under Sections 6700 and 6701. He is, therefore, collaterally estopped
from contesting those facts here.
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Injunctive relief is also appropriate to prevent recurrence of Defendant’s misconduct.
When making a determination about whether permanent injunctive relief is appropriate, courts
consider:
(1) the gravity of the harm caused by the offense; (2) the extent of
the defendant's participation and his degree of scienter; (3) the
isolated or recurrent nature of the infraction and the likelihood that
the defendant's customary business activities might again involve
him in such transactions; (4) the defendant's recognition of his own
culpability; and (5) the sincerity of his assurances against future
violations.
Abdo v. U.S. I.R.S., 234 F. Supp. 2d 553, 565 (M.D.N.C. 2002), aff'd, 63 F. App'x 163 (4th Cir.
2003) (citation and quotation marks omitted). Consideration of these factors here establishes that
an injunction is necessary. Defendant’s tax fraud scheme is among the most egregious forms of
tax fraud, and Defendant sought fraudulent refunds exceeding $4 million. He personally organized
and implemented the scheme, was the founder and president of the corporation used to implement
it, and admitted to the scienter requirements for a criminal conviction. In this case, Defendant has
failed to acknowledge his own culpability and continues to assert frivolous tax defier arguments
and baseless claims for millions of dollars while refusing to recognize the authority of the courts
and federal law. Given these facts, Defendant’s criminal history, and his scheduled release from
prison in 2018, an injunction under Section 7408 is necessary to prevent recurrence of Defendant’s
fraud.
iii. I.R.C. § 7402
In addition to its powers under Sections 7407 and 7408, Section 7402 grants the Court
broad authority to ensure effective operation of the tax laws by “render[ing] such judgments and
decrees as may be necessary or appropriate for the enforcement of the internal revenue laws. . . in
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addition to and not exclusive of any and all other remedies of the United States . . . to enforce such
laws.” I.R.C. § 7402(a). The language of Section 7402(a) “manifest[s] a congressional intention
to provide the district courts with a full arsenal of powers to compel compliance with the internal
revenue laws.” Brody v. United States, 243 F.2d 378, 384 (1st Cir. 1957). Section 7402(a) “has
been used to enjoin interference with tax enforcement even when such interference does not violate
any particular tax statute.” United States v. Ernst & Whinney, 735 F.2d 1296, 1300 (11th Cir.
1984).
Defendant’s criminal convictions, admissions of guilt, and continued rejection of the
authority of the laws of the United States show that the Government’s requested injunction is
necessary or appropriate to enforce his compliance with the internal revenue laws under Section
7402. Defendant fabricated, and instructed others to fabricate, information on federal income tax
returns in order to steal from the U.S. Treasury for his own personal enrichment. Further, his
conduct during this case shows that, despite his guilty plea, he does not believe that he is under
any obligation to comply with federal law. Defendant cannot be trusted to engage in the kind of
voluntary compliance that the tax system anticipates from law-abiding taxpayers.
IT IS THEREFORE ORDERED that, pursuant to I.R.C. §§ 7402, 7407, and 7408,
Defendant Daniel Heggins (a/k/a/ Tebnu El Bey and Daniel Frank Heggins), and his
representatives, agents, servants, employees, attorneys, and those persons in active concert or
participation with him, are hereby permanently enjoined from directly or indirectly:
A.

Acting as a federal tax return preparer, preparing or filing federal tax returns,
amended returns, and other related tax documents and forms for any entity or
person other than himself;
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B.

Managing, supervising, or assisting others in the preparation or filing of
federal tax returns, amended returns, and other related tax documents and
forms for any entity or person other than himself;

C.

Practicing before the Internal Revenue Service, as that term is defined in 31
C.F.R. 10.2(a)(4);

D.

Representing any person or entity before the IRS other than himself;

E.

Attempting to obtain or use an IRS preparer identification number (PTIN) or
IRS electronic filing identification number (EFIN) for any purpose; and

F.

Having any direct or indirect ownership interest in, profiting from, or working
or volunteering for any business that prepares tax returns for others or
represents taxpayers before the IRS.
IT IS FURTHER ORDERED, that pursuant to I.R.C. §§ 7402 and 7408, Heggins is

permanently barred from assisting or advising anyone in connection with any tax matter for
compensation or any promise of compensation.
IT IS FURTHER ORDERED, that pursuant to I.R.C. §§ 7402 and 7408, Heggins is
permanently barred from directly or indirectly organizing, promoting, marketing, selling, or
participating in any plan or arrangement that advises or assists taxpayers to violate the internal
revenue laws or unlawfully evade the assessment or collection of their federal tax liabilities
based on false claims that:
A.

Taxpayers can overstate federal income tax withholding, including by misuse
of IRS Forms 1099-OID and Forms 1099-A;

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B.

Taxpayers can draw on the United States Treasury to pay debts, including tax
debts, using Forms 1099-OID, Forms 1099-A, or other documents and filing
false federal tax returns;

C.

Taxpayers can issue false Forms 1099-OID to a creditor and report the amount
of the false Forms 1099-OID as taxes withheld on their behalf;

D.

Taxpayers have a secret account with the Treasury Department, which they
can use to pay their debts or which they can draw on for tax refunds.
IT IS FURTHER ORDERED, that the United States may conduct post-judgment

discovery to monitor Heggins’ compliance with the terms of this injunction.
III.

CONCLUSION

IT IS, THEREFORE, ORDERED, that for the reasons explained above:
1. The United States’ Motion to Dismiss (Doc. No. 15) is GRANTED;
2. The United States’ Motion for Judgment on the Pleadings (Doc. No. 17) is GRANTED;
3. A Permanent Injunction is entered against Defendant as set forth above; and
4. The United States Marshals Service shall personally serve this Order and Permanent
Injunction by hand-delivery to Defendant Heggins and shall, thereafter, provide proof of
service to the Court.
The Clerk is respectfully directed to close this matter.
IT IS SO ORDERED.
Signed: March 7, 2017

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