Wednesday, January 13, 2021

Third Circuit Discussion on Violation of Legal Duty with Other Reasonable Interpretations of Duty (1/13/21)

In United States v. Harra, ___ F.3d ___, 2021 U.S. App. LEXIS 915 (3rd Cir. 2021), here, the Court held (as summarized at the opening of the opinion):

When a defendant is charged with false reporting based on an ambiguous reporting requirement, what is the prosecution’s burden at trial as to the element of falsity? Is it sufficient for the prosecution to prove the statement was false only under the Government’s interpretation of the requirement, or must it prove the statement was false under each objectively reasonable interpretation of the requirement? In the balance hang the convictions of four former executives of Wilmington Trust Corporation, a bank that, in the wake of the Great Recession of 2008, excluded certain commercial real estate loans from those it reported as “past due” to the Securities and Exchange Commission and the Federal Reserve. The executives maintained that, under a reasonable interpretation of these requirements, the exclusion of the loans was proper, but the District Court denied their requests to introduce evidence concerning or instruct the jury about that alternative interpretation. The jury then found the executives’ reporting constituted “false statements” for purposes of 18 U.S.C. § 1001, 15 U.S.C. § 78m, and related statutes and convicted Defendants on all counts. 

We hold today that to prove falsity beyond a reasonable doubt in this situation, the Government must prove either that its interpretation of the reporting requirement is the only objectively reasonable interpretation or that the defendant’s statement was also false under the alternative, objectively reasonable interpretation. And because the Government here produced insufficient evidence from which a rational jury could find Defendants’ statements false under this rule, we will reverse Defendants’ false statements convictions and remand on those counts for entry of judgments of acquittal. As for Defendants’ conspiracy and securities fraud convictions,  [*6]  however, which were charged in the alternative on an independent theory of liability, we will vacate and remand for retrial.

Harra is not a tax case, but it does involve the interpretation and application of 18 USC § 1001, sometimes deployed in tax cases.  Moreover, I think it has overtones related to other issues in tax crimes.  I will offer points that, from my perspective of interest in tax crimes, I think are potentially important:

The concerns discussed in the decision and the analysis seem to track the Cheek standard for tax crimes.  Under Cheek, a tax crime (such as tax evasion, § 7201) must have been committed "willfully" -- that is, was the “voluntary, intentional violation of a known legal duty.” Cheek v. United States, 498 US 192, 200 (1991) (citing United States v. Bishop, 412 U. S. 346 (1973) and United States v. Pomponio, 429 U. S. 10 (1976) (per curiam) (see also Justice Blackmun’s dissent citing this as the “conclusively established standard for willfulness under the applicable [tax] statute,” Cheek p. 209.).  Cheek established that there is no requirement to negate this element that the defendant prove that the defendant’s belief be objectively reasonable.

A related requirement for tax crimes with a willfully element is that the duty be, knowable meaning that the duty is sufficiently void of ambiguity as a legal matter that it can be known to an actor.  I develop this analysis in Saltzman and Book, IRS Practice and Procedure ¶ 12.05[2][b][iii] Complexity and uncertainty in the tax law (online edition).  My analysis relies principally upon the seminal decision in James and its progeny.  James v. United States, 366 US 213 (1961).  (For those without access to Saltzman and Book, see Fourth Circuit Fuzzes the Issue as to Whether Legal Uncertainty Is an Issue for the Court (11/5/18), here, where I quote the section.  The issue of  whether the legal duty (or command) is knowable, I assert, is a question for the judge and not the jury.  The jury should resolve only the question of whether the defendant knew the knowable duty.  (In James, the jury had determined that James intended to violate the law; the Supreme Court held that his intent was irrelevant because the legal duty was uncertain as a matter of law (not knowable).

In Harra, however, the Court says (Slip Op. 24-27) that the reasonableness of the interpretation of the legal requirement is for the jury to determine, concluding “In sum, while the judge retains an essential role in a false statement trial involving an ambiguous reporting requirement, the question of the reasonableness of a proffered interpretation of that requirement is for the jury.”  This, I suppose, could invite competing experts to opine to the jury on what the reasonableness of the interpretation is (a phenomenon that played out (as I recall but haven't double-checked) in  United States v. Garber, 607 F2d 92 (5th Cir. 1979) (en banc).

Based on the James discussion, and although the statutes in question in Harra do not have an explicit willfully element, I think the elements are sufficiently like willfully to require the same analysis.  And, if my analysis is correct, I am concerned that the Harra holding that reasonableness of the legal duty interpretation is for the jury. I think the better resolution might be to let the judge make that determination before the case gets submitted to the jury and then, as in the tax cases, let the jury determine whether the defendant actually held the interpretation (even if unreasonable).

Please note that these are just preliminary observations regarding Harra.  I will continue to ruminate on the opinion and perhaps add further discussion later.  In the meantime, I hope that readers will weigh in either by leaving comments or by emailing me at

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