State of Maine v. John Kendall

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2016 ME 147
Docket: Cum-15-304
Argued: June 8, 2016
Decided: October 4, 2016

Panel: SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, HJELM, and HUMPHREY, JJ.

STATE OF MAINE

v.

JOHN KENDALL

HJELM, J.

[¶1] John Kendall appeals from a judgment of conviction for three

counts of theft by misapplication of property (Class B), 17-A M.R.S.

§ 358(B)(4) (2015); one count of conspiracy to commit intentional evasion of

tax (Class D), 17-A M.R.S. § 151(1)(D) (2015) and 36 M.R.S. § 184-A(2) (2015);

and three counts of failure to collect, account for, or pay over withholding tax

(Class D), 36 M.R.S. § 184 (2015), entered in the Unified Criminal Docket

(Cumberland County, Warren, J.) after a jury trial. Kendall contends that on

the charges of theft by misapplication and failing to collect, account for, or pay

over withholding taxes, the evidence is insufficient to support the convictions

and the court instructed the jury incorrectly; and that the court abused its

discretion by admitting evidence of country club memberships purchased by a
2

company he owned and used exclusively by his wife and him.1 We affirm the

judgment.

I. BACKGROUND

[¶2] When the evidence is viewed in the light most favorable to the

State, the jury was entitled to find the following facts beyond a reasonable

doubt. See State v. Dorweiler, 2016 ME 73, ¶ 2, --- A.3d ---.

[¶3] Kendall was the president and owner of Chipco International, Inc.,

a poker chip manufacturing business, from 1987 to 2013. In those capacities,

Kendall oversaw and was integrally involved in Chipco’s business operations,

including payroll; controlling and managing Chipco’s finances, including the

business’s taxes; and communicating and negotiating with the Maine Revenue

Services (MRS). Under Maine law, Chipco was required to withhold income

tax from employee wages and, on a quarterly basis, pay over those

withholdings to the State Tax Assessor. Kendall signed Chipco’s employee

withholding tax returns when they were filed with the State, and he directed

another member of Chipco’s management team to file the returns without

submitting the required payment. On multiple occasions from 2007 to 2012,

1 Kendall also argues that the evidence was insufficient to support the jury’s guilty verdict on

the charge of conspiracy to commit tax evasion. That argument is unpersuasive, see State v.
Dorweiler, 2016 ME 73, ¶ 6, --- A.3d --- (stating the standard of review when the sufficiency of the
evidence is challenged), and we do not address it further.
 3

Chipco failed to pay the Assessor required withholding taxes totaling more

than $150,000 as those payments became due.2

[¶4] During that period, Kendall directed Chipco employees to pay

some of Chipco’s business expenses with the employee tax withholdings. He

also directed that Chipco money be used to pay for some of his personal

expenses such as mortgage payments and legal fees arising from a personal

bankruptcy proceeding. Further, at Kendall’s direction, Chipco purchased

corporate country club memberships used only by Kendall and his wife.

[¶5] In 2009, Kendall instructed members of Chipco’s management

team to apply for unemployment compensation benefits. Four of those

employees—all of whom later pleaded guilty to charges of theft by deception

and tax evasion—received unemployment benefits while continuing to work

for Chipco. Kendall directed Chipco’s finance manager to pay those employees

“off the books,” meaning that Chipco did not identify them as employees and

did not turn over withholding taxes for them to the State Tax Assessor, even

though they continued to work for Chipco, which paid them the same net

amount they earned previously. Kendall also attempted to evade the MRS’s

collection efforts by withdrawing funds immediately after they were

2 A portion of that arrearage was paid later as a result of the MRS’s collection efforts, leaving

approximately $51,000 due as of the date Kendall was sentenced.
4

deposited into Chipco’s accounts, and by transferring Chipco funds into bank

accounts owned by another Chipco employee, by his wife, and by other

corporations.

[¶6] Because of Chipco’s failure to pay over its employee withholding

taxes, Kendall received many communications from the MRS. On behalf of

Chipco, he was in regular contact with the MRS for roughly five years, never

challenged the MRS’s tax assessments, and entered into payment plans, which

Chipco did not fulfill. As he directed the use of withholding funds for other

business obligations and the use of corporate money for his own expenses, he

advised the MRS that Chipco did not have enough money to pay the overdue

withholding amounts but promised to satisfy the debt as soon as possible.

[¶7] In August 2013, Kendall was indicted for three counts of theft by

misapplication of property (Class B), 17-A M.R.S. § 358(B)(4) (Counts 1-3);

one count of conspiracy to commit intentional evasion of tax (Class D),

17-A M.R.S. § 151(1)(D) and 36 M.R.S. § 184-A(2) (Count 4); three counts of

failure to collect, account for, or pay over withholding tax (Class D), 36 M.R.S.

§ 184 (Counts 5-7); and one count of making and subscribing a false statement

in a Maine income tax return (Class D), 36 M.R.S. § 5333 (2015) (Count 8). He

entered pleas of not guilty.
 5

[¶8] The court held a seven-day jury trial in March 2015. In a motion in

limine, Kendall requested that the court exclude evidence about the country

club memberships that Chipco paid for and that he and his wife used

exclusively, arguing that evidence of affluence was unfairly prejudicial.

See M.R. Evid. 403. The court denied the motion and ruled that, subject to

limitations, the State could present such evidence.

[¶9] The jury returned guilty verdicts on all counts. Having moved

unsuccessfully at trial for a judgment of acquittal, Kendall filed a renewed,

post-trial motion for a judgment of acquittal. The court denied the motion as

to Counts 1-7, but granted it as to Count 8. The court then imposed the

following concurrent sentences: on the three charges of theft by

misapplication, forty-two months to the Department of Corrections, all but ten

months suspended, three years of probation, and restitution of $51,663

payable to the MRS;3 on the charge of conspiracy to commit tax evasion,

six months of incarceration; and on the three charges of failure to collect,

truthfully account, and pay over tax, three months of incarceration. Kendall’s

appeal followed.

3
This was the amount that remained due to the State Tax Assessor after a portion of the
withholding taxes that were the subject of this prosecution was paid.
6

II. DISCUSSION

[¶10] Kendall challenges the convictions for theft by misapplication of

property (Counts 1-3), asserting that 17-A M.R.S. § 358(1)(A) (2015) does not

apply to the failure to pay over employee withholding taxes to the State Tax

Assessor. Kendall next argues that he cannot properly be convicted for failing

to collect, truthfully account for, and pay over withholding taxes pursuant to

36 M.R.S. § 184 because he was not subject to a statutory duty to do so.4

Finally, Kendall contends that the court erred by admitting certain “lifestyle”

evidence over his objection. We consider these arguments in turn.

A. 17-A M.R.S. § 358(1)(A): Theft by Misapplication

[¶11] Kendall contends that the crime of theft by misapplication does

not encompass his alleged conduct because the withholding taxes were not

payable to a “3rd person” as section 358(1)(A) provides, and therefore the

convictions for Counts 1-3 are erroneous.

[¶12] Although Kendall frames this contention in several ways,

including challenges to the court’s “jurisdiction” and the adequacy of the

indictment, it is essentially an argument that the evidence is insufficient to

4 Kendall also argues that for the same reasons that his alleged conduct is not encompassed

within 17-A M.R.S. § 358 (2015) and 36 M.R.S. § 184, the court’s jury instructions on those charges
were erroneous. Because we conclude that those statutes apply to Kendall’s actions, the court’s
instructions to the jury were not erroneous, and we do not separately address his arguments as
framed in terms of the instructions.
 7

support the guilty verdicts on Counts 1-3. Kendall did not make this argument

below,5 but we nonetheless consider his contention under the standard of

review applicable to preserved error. See State v. Van Sickle, 434 A.2d 31,

34-35 (Me. 1981). As we have explained, even where an accused fails to move

for entry of judgment of acquittal based on insufficiency of the evidence, the

trial court has an independent duty pursuant to M.R.U. Crim. P. 29(a) to assess

the sufficiency of the evidence at the close of both the State’s case-in-chief and

the accused’s case.6 Id. at 34. Therefore, the sufficiency of the evidence to

support a guilty verdict is before the court, irrespective of whether the

defendant articulates it. We thus address Kendall’s argument rooted in the

sufficiency of the evidence under the familiar standard of “whether a trier of

fact rationally could find beyond a reasonable doubt every element of the

offense charged.” Dorweiler, 2016 ME 73, ¶ 6, --- A.3d --- (quotation marks

omitted).

5 Although Kendall did argue at trial that the legal obligation to pay the taxes was Chipco’s and

not his, and for that reason he could not be found guilty of theft under section 358, he does not
advance this argument on appeal but rather pursues the different argument addressed in the text.

6 In pertinent part, M.R.U. Crim. P. 29(a) provides,

The court on motion of a defendant or on its own motion shall order the entry of
judgment of acquittal of one or more crimes charged in the indictment, information,
or complaint after the evidence on either side is closed if the evidence is insufficient
to sustain a conviction of such crime or crimes.
8

[¶13] We reiterate, however, that the level of appellate scrutiny

brought to bear on a sufficiency argument is not consequential: no matter

what standard of review we apply, if the evidence is not sufficient to allow a

fact-finder to rationally find the defendant’s guilt beyond a reasonable doubt,

then the resulting conviction cannot be deemed free of reversible error.

Van Sickle, 434 A.2d at 34 n.4.7

[¶14] Kendall’s argument requires us to construe section 358.

“The interpretation of a statute is a legal issue we review de novo.” State v.

Jones, 2012 ME 88, ¶ 6, 46 A.3d 1125. When interpreting a statute, “we seek

to effectuate the intent of the Legislature, which is ordinarily gleaned from the

plain language of the statute.” Id. (quotation marks omitted). “We will not

look beyond the plain language of the statute if it is unambiguous.” State v.

Knight, 2016 ME 123, ¶ 9, --- A.3d ---. We examine statutory language in the

context of the entire statutory scheme, see Jones, 2012 ME 88, ¶ 6, 46 A.3d

1125, and seek to arrive at a construction that avoids absurd or illogical

results, see State v. Burby, 2003 ME 95, ¶ 6, 828 A.2d 796.

7 As we also stated in Van Sickle, however, “in the interest of sound appellate and trial practice,

defense counsel should move for acquittal or for a new trial when, in the judgment of counsel,
sufficiency of the evidence is questionable,” in order to call particular claimed deficiencies to the
trial court’s attention and to create a more focused presentation for any appeal. Id. at 35.
 9

[¶15] Pursuant to 17-A M.R.S. § 358(1)(A),

[a] person is guilty of theft [by misapplication of property]
if . . . [t]he person obtains property from anyone or personal
services from an employee upon agreement, or subject to a known
legal obligation, to make a specified payment or other disposition
to a 3rd person or to a fund administered by that person . . . if that
person intentionally or recklessly fails to make the required
payment or disposition and deals with the property obtained or
withheld as that person’s own.

(Emphasis added.)

[¶16] A “person” is statutorily defined, in part, as a “human being.”

17-A M.R.S. § 2(20) (2015). Kendall’s “legal obligation” in the context of

section 358(1)(A) is established in 36 M.R.S. § 177(1) (2015): “all taxes

collected by a person . . . constitute a special fund in trust for the State Tax

Assessor.” (Emphasis added.) Kendall, as the person collecting withholding

taxes on behalf of Chipco, thus owed the legal obligation to pay those taxes to

a “3rd person,” namely, the State Tax Assessor.

[¶17] Kendall asserts that the State Tax Assessor cannot be considered

a “person” within the meaning of 17-A M.R.S. § 358(1)(A) because the State

Tax Assessor is also a “public servant” as that phrase is used in the Criminal

Code. See 17-A M.R.S. § 2(21) (2015) (defining “public servant” as “any official

officer or employee of any branch of government”). Kendall argues that these

definitions are mutually exclusive and that therefore the State Tax Assessor
10

cannot be a “person.” This argument is undermined by the statutory

definition of “person,” which by its plain terms includes an individual state

employee, even though that person may also fall within other definitional

categories.

[¶18] Kendall also asserts that an employee’s tax withholdings are, in

reality, held for Maine Revenue Services rather than for the Assessor, and that

because section 358 criminalizes the failure to make a specified payment “to a

3rd person,” he cannot be guilty of charges brought under that statute. This

argument fails because employee tax withholdings are held in trust for a

person, the “State Tax Assessor,” not for Maine Revenue Services. 36 M.R.S.

§ 177(1); see also State v. Hopkins, 526 A.2d 945, 949-50 (Me. 1987) (holding

that the definition of “person” in section 2(21) “does not exclude . . . the State

of Maine.”).8

[¶19] Accordingly, the evidence supports the guilty verdicts on

Counts 1-3, and the resulting convictions for those crimes are not affected by

error.

8 The State does not argue that withholding taxes be paid “to a fund administered by” the State

Tax Assessor within the meaning of section 358(1)(A), and so we confine our analysis to the
question of whether the State Tax Assessor is a “3rd person” to whom payment is to be made.
 11

B. 36 M.R.S. § 184: Failure to Collect, Account for, or Pay over Tax

[¶20] Kendall next argues that the court erred by denying his motion

for a judgment of acquittal on Counts 5-7, which charge him with failure to

collect, account for, or pay over tax in violation of 36 M.R.S. § 184(1). Kendall

argues, as he did at trial, that section 184(1) applies only to retailers and that

the statute therefore does not apply to him as an officer or agent of Chipco, a

non-retail enterprise. This argument calls for us to construe section 184.

[¶21] Section 184(1) provides:

A person who is required under this Title to collect, truthfully
account for and pay over any tax imposed by this Title and who
intentionally fails to collect or truthfully account for or pay over
that tax at the time required by law or rule, in addition to any
other penalties provided by law, commits a Class D crime.

Section 184(3) then defines “person” to include:

in addition to its defined meaning in section 111, subsection 3, an
officer, director, member, agent or employee of another person
who, in that capacity, is responsible for the control or
management of the funds and finances of that person or is
responsible for either the collection or payment of that retailer’s
taxes.

(Emphasis added.)

[¶22] Section 184 is ambiguous because it “is reasonably susceptible of

different interpretations.” See Furhmann v. Staples the Office Superstore East,

Inc., 2012 ME 135, ¶ 23, 58 A.3d 1083 (quotation marks omitted). The
12

definition of “person” found in section 184(3) can reasonably be read to apply

to all businesses—retailers and non-retailers alike—that are required to

collect, truthfully account for, and pay over any taxes under Title 36.

Alternatively, the phrase “that retailer’s taxes” could reasonably be seen to

restrict the definition of a “person” so that section 184 applies only to retail

businesses. To resolve this ambiguity in section 184(3), in addition to using

the principles of statutory construction noted above, we look beyond the plain

language of the statute and the whole statutory scheme to consider “indicia of

legislative intent such as the statute’s history and its underlying policy.”

Furhmann, 2012 ME 135, ¶ 23, 58 A.3d 1083 (quotation marks omitted).

[¶23] The legislative history for section 184 does not provide guidance

to resolve the ambiguity. See, e.g., L.D. 2381, Statement of Fact, § 6, at 31

(112th Legis. 1986) (stating merely that this provision “enacts a standard

criminal provision.”). We therefore examine the larger statutory scheme of

which section 184 is a part.

[¶24] Examining the context of the phrase “that retailer’s taxes,” we

conclude that for two reasons, those words do not limit the broad definition of

“person[s]” who are subject to the prohibition created in section 184(1). First,

there is only one reference in section 184 to a “retailer.” When the Legislature
 13

referred to “that retailer’s taxes,” one would expect to find an antecedent

reference to a retailer, which would assist in identifying “that retailer[]”

whose taxes are at issue. There is no such reference, which indicates that the

phrase “that retailer[]” does not modify the entire definition of “person” in

section 184(3).

[¶25] More fundamentally, section 184 provides the State with a

criminal process to enforce tax-related duties of broad application imposed on

individuals and entities. Section 184 criminalizes the failure “to collect,

truthfully account for and pay over any tax imposed by this Title . . . .” 36 M.R.S.

§ 184(1) (emphasis added). “[T]his [t]itle”—namely, Title 36—encompasses a

wide swath of taxes, including property taxes; sales and use taxes; business

taxes; motor fuel taxes; inheritance, succession, and estate taxes; income taxes

for individuals and various forms of business entities; and special taxes

associated with particular businesses and activities. See 36 M.R.S.

§§ 201-6902 (2015). Some of these tax obligations are borne by retailers—

but most are borne by others. It is also significant that the Legislature placed

section 184(1) in the chapter entitled, “Uniform Administration Provisions,”

making it applicable as an overarching vehicle for the criminal enforcement of

the particular taxation provisions that follow in Title 36.
14

[¶26] Given the broad and comprehensive scope of Title 36, we cannot

attribute to the Legislature an intent to limit the scope of criminal

enforcement merely to a retailer’s failure to comply with its tax obligations,

and, for no evident reason, to thereby exclude from section 184(1) all other

categories of people and entities that are subject to Maine’s tax laws.

[¶27] We recognize the principle of statutory construction that “[a]ll

words in a statute are to be given meaning, and no words are to be treated as

surplusage if they can be reasonably construed.” Freeman v. NewPage Corp.,

2016 ME 45, ¶ 7, 135 A.3d 340 (quotation marks omitted). Nevertheless, we

decline to give section 184(3) the limiting effect that Kendall argues, which

would confine the application of section 184 to retailers and thereby

unreasonably and arbitrarily limit the reach of the criminal enforcement

process for tax violations. Such an interpretation would be inimical to the

specific purpose of section 184 and to the overall framework of Title 36.

[¶28] We therefore conclude that the definition of a “person” in section

184(3) is not restricted to a retailer. Because the State presented evidence

that Kendall was “responsible for the control or management of the funds and

finances of” Chipco, and was “responsible for either the collection or payment

of” Chipco’s taxes, he was subject to prosecution for violating section 184(1).
 15

The charges in counts 5-7 were applicable to Kendall, and the court did not err

in denying his motion for judgment on acquittal of those counts.

C. Rule 403: Evidence of Country Club Memberships

[¶29] Finally, Kendall argues that the court abused its discretion by

denying his motion in limine to exclude evidence of country club

memberships purchased by Chipco for the benefit of his wife and him—what

Kendall describes as evidence of affluence or wealth—based on his assertion

that the evidence was unfairly prejudicial. See M.R. Evid. 403.

[¶30] Pursuant to Rule 403, “[t]he court may exclude relevant evidence

if its probative value is substantially outweighed by a danger of . . . unfair

prejudice, confusing the issues, misleading the jury. . . or needlessly presenting

cumulative evidence.” Id. Evidence is unfairly prejudicial if it “has an undue

tendency to move the tribunal to decide on an improper basis, commonly,

though not always, an emotional one.” State v. Begin, 2015 ME 86, ¶ 20,

120 A.3d 97 (quotation marks omitted). Our review of the trial court’s

determination of relevance under Rule 403 is for clear error, respecting the

court’s “broad discretion to weigh the relevance of evidence against the

danger of unfair prejudice to the defendant.” State v. Kimball, 2016 ME 75,

¶ 16, 139 A.3d 914 (quotation marks omitted).
16

[¶31] The evidence at issue concerns two country club memberships

purchased by Chipco, which were used only by Kendall and his wife, at the

same time Chipco was experiencing financial difficulties and failing to pay

over withholding taxes due to the State Tax Assessor. Kendall asserts that

evidence about the details of the country club memberships constituted

evidence of “affluence” that was unfairly prejudicial to him because it invited

“class bias” while providing very little probative value.

[¶32] In denying Kendall’s motion to exclude the evidence, the court

determined that evidence of Kendall’s use of the country club memberships

was “highly relevant” to Kendall’s underlying diversion, for personal benefit,

of limited corporate funds that should have been used to pay withheld taxes

over to the State Tax Assessor. Because violations of sections 358(1)(A) and

184 may be proved with evidence of intentional conduct, evidence that

Kendall personally benefitted from the use of Chipco’s money that, pursuant

to section 177, Chipco promised but failed to pay over to the State Tax

Assessor was relevant to the issues in the case. 36 M.R.S. § 177 (2015).

Further, the charges of theft pursuant to section 358 required the State to

prove that Kendall dealt with the withholdings as his own. The court’s
 17

determination that the evidence carried substantial probative value was not

erroneous.9

[¶33] While allowing the State to present this evidence, the court

displayed appropriate sensitivity to any concerns of wealth-based prejudice

by prohibiting the State from presenting evidence about whether the country

clubs were “rich or exclusive or anything of that nature,” and from making

unnecessarily repetitive references to them. By imposing restrictions on the

manner and extent to which the State could present evidence of the Kendalls’

use of the country club memberships, the court took effective steps to prevent

“appeals to class prejudice [that] are highly improper and cannot be

condoned. . . .” United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 239

(1940). By doing so, the court properly and thoughtfully invoked the

balancing principles of Rule 403.

[¶34] In determining that the “highly probative” evidence of personal

benefits Kendall gained from money held by Chipco for the State Tax Assessor

was not substantially outweighed by any unfair prejudice, see Begin, 2015 ME

86, ¶ 20, 120 A.3d 97, the court acted well within the bounds of its discretion.

9 Although not expressly mentioned by the court, evidence that Kendall diverted tax
withholdings for his own purposes was relevant also because of evidence that Kendall told MRS
officials that Chipco’s funds were exhausted, and because Kendall argued at trial that other Chipco
employees were responsible for the diversion and that he was suffering financially along with
Chipco.
18

The entry is:

Judgment affirmed.

On the briefs:

Thomas F. Hallett, Esq., Hallett, Zerillo & Whipple P.A.,
Portland, for appellant John Kendall

Janet T. Mills, Attorney General, Gregg D. Bernstein, Asst.
Atty. Gen., and Elizabeth Weyl, Stud. Atty., Office of the
Attorney General, Augusta, for appellee State of Maine

At oral argument:

Thomas F. Hallett, Esq., for appellant John Kendall

Gregg D. Bernstein, Asst. Atty. Gen., for appellee State of
Maine

Cumberland County Unified Criminal Docket docket number CR-2013-5456
FOR CLERK REFERENCE ONLY