29 May 2019
JMBM’s ADA Compliance and Defense Group has defended more than 750 ADA lawsuits and DOJ investigations or actions brought against owners and operators of hotels and other businesses classified as “public accommodations” under the Americans with Disabilities Act (ADA). A federal Grand Jury has indicted a prolific ADA plaintiff for income tax evasion. More than just an interesting story, Marty Orlick explains how this might affect current and future ADA litigation.
Serial Plaintiff Who Filed Nearly 3,000 Americans with Disabilities Act (‘ADA’) Lawsuits is Indicted by a Federal Grand Jury and Faces Possible Imprisonment and Fines for Income Tax Evasion
Martin H. Orlick, Hotel Lawyer & Chair,
JMBM’s ADA Compliance & Defense Group
In an ironic twist of fate, Scott N. Johnson, Esq., a disabled Sacramento attorney, who has filed nearly 3,000 ADA lawsuits as plaintiff, starting in the United States District Court for the Eastern District of California, now faces possible jail time for felony income tax fraud according to a Federal Grand Jury Indictment.
On May 23, 2019, United States Attorneys filed a Grand Jury Indictment, United States of America v. Scott Norris Johnson, accusing Johnson of three counts of “Making and Subscribing a False Tax Return” by failing to declare substantial income derived from ADA settlements on his U.S. Individual Income Tax Returns and his U.S. Corporation Income Tax Returns for the tax years 2012-2014.
According to the Indictment, from no later than “on or about January 28, 2008, SCOTT NORRIS JOHNSON owned and operated Disabled Access Prevents Injury, Inc. (“DAPI”), a corporation registered in the State of California. DAPI was treated as a C corporation for tax purposes.” The Indictment alleges that Johnson was DAPI’s sole shareholder and that DAPI “provided legal services associated with lawsuits that it filed on behalf of SCOTT NORRIS JOHNSON as the plaintiff.”
Starting in February, 2013, Johnson retained a law firm identified in the Indictment only as “Law Firm A” to represent him in filing ADA lawsuits against businesses primarily in Northern California. Court records show that in recent years, Johnson has been represented primarily by the Center for Disability Access, a San Diego-based ADA advocacy law firm.
According to the Indictment, Johnson was the plaintiff in thousands of lawsuits filed in the Eastern District of California and elsewhere. “Pursuant to the Small Business Job Protection [Act] of 1996, payments related to lawsuit settlements or awards were taxable unless they were paid on account of personal physical injury or physical sickness” the Indictment alleges. The Indictment alleges that “during tax years, 2012, 2013 and 2014, SCOTT NORRIS JOHNSON received taxable income from his lawsuits that exceeded the combined amounts he reported on his Forms 1040 and DAPI’s Forms 1120 for each of these years.” The net result, the Indictment continues, is that Johnson “paid little to no income tax for tax years 2012, 2013 and 2014″.
The Indictment goes on to assert that in violation of Title 26, United Stated Code, Section 7206 (1), Johnson:
“…did willfully make and subscribe a false 2012 U.S. Individual Income Tax Return, Form 1040, which was filed with the Internal Revenue Service and was verified by a written declaration that it was made under the penalties of perjury, and which he did not believe to be true and correct as to every material matter, in that he knew that he received more taxable income than he reported…”
Counts 2 and 3 accuse Johnson of the same violations for tax years 2013 and 2014 respectively.
If the allegations that Johnson “Made and Subscribed False Tax Returns” prove true, he could face a maximum sentence of up to three years in prison on each Count and a fine of up to $100,000, or both fine and imprisonment.
Arraignment is scheduled for May 29, 2019 at 2 PM in Courtroom 27 before Magistrate Judge Deborah Barnes.
How does this affect how businesses respond to ADA lawsuits in the future?
When businesses enter into settlement agreements with ADA plaintiffs, they may want to require a provision in the settlement agreement that states the settlement does not include personal injury damages (unless it actually does). Defendants should also consider requiring an IRS Form W-9 from the plaintiff and plaintiff’s law firm, so IRS Form 1099s can be issued for both plaintiff and counsel.
How does this affect defendants in ADA lawsuits filed by Johnson?
Should defendants in pending ADA lawsuits filed by Johnson seek to stay the litigation until the outcome of the criminal case?
If Johnson is convicted or pleads guilty, should defendants who paid settlements to Johnson and fees and costs to Johnson’s lawyers (at least in the years 2012, 2013, and 2014), seek to recover the monies they paid?
These questions also arose from a precedent-setting lawsuit against another serial ADA plaintiff and the two law firms representing him, filed recently by the Riverside District Attorney’s office and which is the subject of my recent article.
The DA in that case alleges that the plaintiff and the law firms filed fraudulent and unfair ADA complaints against local businesses in violation of California’s Unfair Business Practices Act, Business and Professions Code Sections 17200, et seq. The DA’s lawsuit seeks injunctive relief to prevent further fraudulent ADA claims, damages, costs and attorneys’ fees.
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. Please contact us if you would like to discuss any issues or development that affect your hotel interests. We would like to see if our experience might help you create value or avoid unnecessary pitfalls. Who’s your hotel lawyer?
Jim Butler is a founding partner of JMBM and JMBM’s Global Hospitality Group® which provides business and legal advice to hotel owners, developers and investors. This advice covers hotel purchase, sale, development, financing, franchise, management, labor & employment, ADA, IP, litigation and many other areas.
Jim is recognized as one of the top hotel lawyers in the world and has led the Global Hospitality Group® in more than $87 billion of hotel transactions and more than 3,900 hotel properties located around the globe.
Contact Jim at +1-310.201-3526 or JButler@jmbm.com