Friday, September 10, 2010

Third Circuit Decision in Staudtmauer - Willful Blindness (Conscious Avoidance)

The Third Circuit issued a very interesting opinion yesterday in a tax crimes case. The opinion is United States v. Stadtmauer, 620 F.3d 238 (3rd Cir. 2010), here. The opinion is 88 pages long and covers several important issues. I plan to discuss the issues in separate blogs, but first I start the Court's introduction to the opinion:
Following a two-month jury trial in the District Court for the District of New Jersey, Richard Stadtmauer was convicted of one count of conspiracy to defraud the United States (in violation of 18 U.S.C. § 371), and nine counts of willfully aiding in the filing of materially false or fraudulent tax returns (in violation of 26 U.S.C. § 7206(2)). On appeal, Stadtmauer raises many challenges to these convictions. We deal principally with the issue Stadtmauer raises last: whether the District Court erred in giving a willful blindness instruction in this case, including whether the Supreme Court's decision in Cheek v. United States, 498 U.S. 192 (1991), forecloses the possibility that willful blindness may satisfy the legal knowledge component of the "willfulness" element of criminal tax offenses. We join our sister circuit courts in concluding that Cheek does not prohibit a willful blindness instruction that applies to a defendant's knowledge of relevant tax law. We reject also Stadtmauer's other claims of error, and thus affirm.
In this first installment on the Third Circuit's decision, I discuss the issue the Court identified as the most important -- willful blindness. The willful blindness concept goes by several similar names: willful ignorance, deliberate ignorance, or some variation thereof. I use willful blindness because the Third Circuit uses that term. However, personally, I am concerned that using the word willful may confuse it with the concept of willfulness for tax crimes (which is why I prefer conscious avoidance for the concept; for a prior posting on conscious avoidance, see here and particularly the linked discussion from my book.)

Cheek, as we all know, provides a seemingly clear standard for the willfulness element of the major tax crimes -- "voluntary, intentional violation of a known legal duty." Reading that language literally (ah, where are the textualists when you need them?), intentional requires specific intent. But, the courts have constructed a functional equivalent of specific intent from the concept of willful blindness. The concept may be variously formulated but, in my thinking, it is something like the following: The defendant with knowledge that there is a high probability that the conduct would be illegal if he informed himself nevertheless undertakes the conduct without informing himself so as to be able do disclaim knowledge of the illegality and the intent to violate the law. That mashes together some of the better formulations of the concepts as expressed by the Court, so I suggest that the reader with the general concept then turn with me to the Third Circuit's formulations and discussion in the Staudtmauer opinion.

Staudtmauer's opening salvo was straightforward. The Supreme Court's formulation of the willfulness element of tax cases requires specific intent. Negligence, even gross negligence and even deliberate ignorance is still not specific intent and that is what Cheek requires, notwithstanding that some courts may have confused deliberagte blinldness for specific intent.

The Third Circuit reviewed Cheek and concluded that Cheek sets up two extremes:
(1) a person with "actual knowledge" of a legal duty, and (2) a person who, in good faith, is ignorant of the duty, misunderstands it, or believes that it does not exist. It held that criminal tax liability could not attach to a person in the latter category.
Although not articulating this analysis, I think the Court then proceeded to reason from those knowns to the unknown in the spectrum between and shoehorn the deliberate ignorance situation into the one that it viewed as most consistent with its notion of criminal culpability. Deliberate ignorance is neither fish nor fowl -- it is not specific intent; nor is it a good faith misunderstanding of the legal duty. It, in concept, is a bad faith failure to know the legal duty. If you only have two places to go on that spectrum, the Third Circuit and other courts have said they will go with guilt of a crime. Now, this is not the way the Court articulated its analysis, so I commend you to the Court's reasoning in its own words.

For some of the potential rubs in the concept, however, I would the reader to this version of the willful blindness instruction which DOJ Tax promotes in its Criminal Tax Manual (DOJ CTM (2008), Jury Instructions, 26.7201-19, here):
Knowledge of Falsehood

(Deliberate Ignorance)

The element of knowledge may be satisfied by inferences drawn from proof that a defendant deliberately closed his eyes to what would otherwise have been obvious to him.

A finding beyond a reasonable doubt of a conscious purpose to avoid enlightenment would permit an inference of knowledge. Stated another way, a defendant's knowledge of a fact may be inferred from willful blindness to the existence of the fact.

It is entirely up to you as to whether you find any deliberate closing of the eyes and the inferences to be drawn from any such evidence. Although knowledge may be inferred from the defendant's behavior, you must still find that he had actual knowledge. However, a showing of mistake, negligence, carelessness, recklessness, or even gross negligence is not sufficient to support a finding of either willfulness or knowledge.
As given, the instructions seems to permit the jury to conclude that someone has the specific intent from the fact that, objectively, the person is only deliberately ignorant. This is a bit of a semantical game, but the defendant is either ignorant or has intent. I just don't see how ignorance is proof of intent. Deliberate ignorance may be worthy of being declared a crime, but it is not intent which is the key element of the crime under the Cheek formulation. I guess I just don't get it. But that is not what is important. What is important, though, is that the judges get it (at least want it). And I and others must conform to that reality whether we get it or not.

Of course, even while recognizing some continuing utility for the willful blindness instruction, courts do caution that it is a potentially confusing concept that can produce guilt where a defendant is innocent. Rather than recreate the wheel on this subject, I offer the following from my Tax Crimes book starting with Judge Posner's comments in United States v. Giovanetti, 919 F.2d 1223, 1228-1229 (7th Cir. 1990) (some citations omitted):
The most powerful criticism of the ostrich instruction is, precisely, that its tendency is to allow juries to convict upon a finding of negligence for crimes that require intent. The criticism can be deflected by thinking carefully about just what it is that real ostriches do (or at least are popularly supposed to do). They do not just fail to follow through on their suspicions of bad things. They are not merely careless birds. They bury their heads in the sand so that they will not see or hear bad things. They deliberately avoid acquiring unpleasant knowledge. The ostrich instruction is designed for cases in which there is evidence that the defendant, knowing or strongly suspecting that he is involved in shady dealings, takes steps to make sure that he does not acquire full or exact knowledge of the nature and extent of those dealings. A deliberate effort to avoid guilty knowledge is all the guilty knowledge the law requires. “To know, and to want not to know because one suspects, may be, if not the same state of mind, the same degree of fault.” A good example of a case in which the ostrich instruction was properly given is United States v. Diaz, 864 F.2d 544, 550 (7th Cir. 1988). The defendant, a drug trafficker, sought “to insulate himself from the actual drug transaction so that he could deny knowledge of it,” which he did sometimes by absenting himself from the scene of the actual delivery and sometimes by pretending to be fussing under the hood of his car.

* * * *

The critical question so far as Janis's guilt or innocence was concerned is simple (to pose, not necessarily to answer): what did Janis know? Did he know that he was renting his house for use as a wire-room, or did he believe that he was renting his house to the Orlando crew for some private purpose of theirs unconnected with gambling? (Even criminals have private lives.) The ostrich instruction did not advance this inquiry; it confused it, by pointing the jury to circumstances of deliberate avoidance of knowledge that did not exist. As we said in United States v. Bigelow, 914 F.2d 966, 971 (7th Cir. 1990), when the facts require the jury to make a “binary choice” between “actual knowledge” and “complete innocence,” the ostrich instruction should not be given.

The true intermediate case between a clearly proper giving of the ostrich instruction because the defendant did physical acts to insulate himself from knowledge, as in Diaz, and the clearly improper giving of the instruction because the only issue is the defendant's actual knowledge or complete ignorance, is the case of purely psychological avoidance. Josefik was such a case. “It is inconceivable that Josefik did not believe that the scotch was stolen, and in context all the challenged instruction [the ostrich instruction] meant is that he could not get off the hook simply by resolutely refusing to find out for sure whether it was stolen.” In other words, the deliberate effort to avoid guilty knowledge that we said is all the guilty knowledge the law requires can be a mental, as well as a physical, effort -- a cutting off of one's normal curiosity by an effort of will. There is no evidence of either sort of effort here.
In view of the Pomponio-Cheek insistence upon violation of a known duty, the question not yet definitively resolved is whether the intentional disregard instruction is appropriate in a tax case requiring willfulness. Most courts avoid confronting the conceptual issue by constraining the concept with a reminder to the jury that the Government must in all events prove that the defendant intentionally violated a known legal duty. As suggested in the Fifth Circuit’s pattern jury instruction, conduct not rising to the level of willful blindness even if extremely careless, is not criminalized. Conceptually, depending upon the degree of carelessness, it may only be a hair’s difference between criminalized willful blindness and careless disregard for the truth.

Finally, considering the potential for jury misunderstanding of the concept, Courts require that the judge be very careful in the charge to the jury. For example, the Second Circuit’s clear holding is that “a conscious avoidance charge must communicate two points: (1) that a jury may infer knowledge of the existence of a particular fact if the defendant is aware of a high probability of its existence, (2) unless the defendant actually believes that it does not exist.” To reinforce its insistence on these charges, the Second Circuit recently said:
Indeed, we have repeatedly emphasized that the prosecutor should request that the “high probability” and “actual belief” language be incorporated into every conscious avoidance charge. We ordered that the opinion [so holding] be circulated to all Assistant United States Attorneys engaged in criminal prosecutions in the Circuit.
United States v. Kaiser, 609 F.3d 556, 566 (2d Cir. 2010) (quoting and citing other Second Circuit cases (quotations and citations omitted).)

No comments:

Post a Comment

Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.