Larson, Pfaff, Ruble Convictions In KPMG Tax Shelters Case Affirmed (8/27/10)

The Second Circuit issued a Summary Order today affirming the convictions of Larson, Pfaff and Ruble the remnants of the larger KPMG criminal tax prosecution previously gutted in United States v. Stein, 541 F.3d 130 (2d Cir. 2008)(dismissal of 13 defendants because prosecutors improperly forced KPMG to stop paying their attorneys fees). The summary order for the affirmance of the convictions (I call this the Substantive Order) is here and the companion decision regarding Pfaff's bail (I call this the Bail Order), a precedential full opinion, is here.

At the outset, I am surprised, given the public interest in the convictions, that the Court relegated its substantive disposition to a Summary Order. Moreover, the case was the Government's first major initiative in the abusive tax shelter context and there are other similar tax shelter prosecutions and investigations in the pipe line that could be informed by some of the issues presented in the case.  The Second Circuit's Internal Operating Procedure Rule 32.1.1 says:

IOP 32.1.1 Summary Order

(a) Use of Summary Orders. When a decision in a case is unanimous and each panel judge believes that no jurisprudential purpose is served by an opinion (i.e., a ruling having precedential effect), the panel may rule by summary order.

(b) Summary Order Legend. Summary orders filed on or after January 1, 2007, must bear the following legend:

[Legend Omitted because it is at the top of the Summary Order linked above]

In turn, the Local Rules of the Court say:

Local Rule 32.1.1 Disposition by Summary Order

(a) Precedential Effect of Summary Orders. Rulings by summary order do not have precedential effect.

(b) Citation of Summary Orders.

(1) Summary Orders Issued On or After January 1, 2007. In a document filed with this court, a party may cite a summary order issued on or after January 1, 2007.

The basic notion, as I understand it that, if the panel determines that the opinion serves "no jurisprudential purpose" it can be disposed of by summary order which has no precedence. But, somewhat oxymoronically (in my opinion), other citizens can cite the summary order. I guess the question for the litigant is why are you citing the nonprecedential summary order if you aren't relying on it. (I presume that litigants do not cite unfavorable summary orders just to inform the court that it is not bound to and should not use the summary order against the litigant.) I am reminded of Judge Posner's sound bite (but with underlying substance) that unpublished opinions are "sort of a formula for irresponsibility ... . Most judges, myself included, are not nearly as careful in dealing with unpublished decisions." William Glaberson, Caseload Forcing Two-Level System for U.S. Appeals, N.Y. Times, Mar. 14, 1999, at A1. Indeed, I would go just a bit beyond Judge Posner and state my belief that courts will sometimes relegate to summary order status (or whatever the equivalent is in other courts) an opinion that states questionable law of some importance because that they don't want to be troubled with the reasoning such as it is in a future case with different facts.

I would suppose that a court should properly make the decision as to summary order (or whatever its equivalent is elsewhere) only when it feels that the issues resolved by its summary disposition (whether addressed in the summary opinion or not) have been resolved by statute or prior precedent so that future cases should not be informed by the opinion. I find it very difficult to believe that resolution of not one substantive issue raised in this particular case did not present an opportunity for this court to inform future cases.

I use one illustration. In its Summary Order, the panel says:

In a challenge to the finding of willfulness, Appellants argue that “economic substance” law was too vague to support their convictions. Citing United States v. Pirro, 212 F.3d 86, 91 (2d Cir. 2000), Appellants contend that economic substance law was not sufficiently “knowable.” But “knowability,” except perhaps as probative of a defendant’s subjective belief in the lawfulness of his conduct, is only relevant insofar as it bears on constitutional vagueness. Vagueness of the law does not ipso facto negate a jury finding of willfulness. See United States v. Ingredient Tech. Corp., 698 F.2d 88, 97 (2d Cir. 1983). And economic substance law is not unconstitutionally vague: It has been applied in criminal cases before, and (as discussed) is not unsettled in the way Appellants contend. Cf. Pirro, 212 F.3d at 91 (affirming partial dismissal of an indictment insofar as it charged a violation of a purported legal duty the existence of which was an open question).

I have highlighted the portion I want readers to focus on. I respectfully submit that the statement, whether dicta or not, is at least questionable and, in my judgment, is wrong. That is not just my opinion.  That is the holding of the Supreme Court.  I have already covered this point in my Federal Tax Crimes book the relevant portions of which may be reviewed or downloaded here. So, I am suspicious that the panel could have so easily and cryptically swept away or ignored or was not even aware of binding Supreme Court precedent directly in point.