Sunday, December 23, 2012

First Circuit Addresses Circuit Split Over Over Standard of Review Involving the Denial of an Advice-of-Counsel Jury Instruction (12/22/12)

The Circuit Splits Blog has this entry, Circuits Split Over Standard of Review Involving the Denial of an Advice-of-Counsel Jury Instruction (Circuit Splits Blog 12/17/12), here, addressing the First Circuit's decision in United States v. Powers, 702 F.3d 1 (1st Cir. 12/14/12), here.  The advice of counsel defense is often encountered in tax cases as a specific nuance on the requirement that the defendant have acted with intent to violate a known legal duty; if the defendant relied upon advice of counsel that it was not a legal duty, then the defendant should be acquitted.

The Circuit Splits Blog explains:
When a defendant's argument at trial boils down to, "My attorney advised me that it was okay to proceed, so I did.", a defendant may ask the court to give the jury such an instruction. When the court's response is "No.", should an appellate court review the lower court's determination de novo or apply an abuse-of-discretion standard? 
The answer:  It depends.

One unusual aspect of Powers is that the Government itself asked for the reliance on counsel instruction, in anticipation of the defendant raising the defense as it he claimed he would.  But then, the defendant's evidence was less than expected, so the Government withdrew  the request and the Court refused to give the instruction.

Here is the First Circuit's answer in full context and its affect on the bottom-line holding (footnote omitted):
A. Refusal to Give Advice-of-Counsel Instruction 
Although the government, in its initial proposed jury instructions given to the district court on the fourth day of trial, requested that an advice-of-counsel instruction be given, this was apparently based on defense counsel's representation in his opening statement that he would call attorney DeFranceschi to testify that he advised the defendants that their position -- that neither recruiters nor temporary workers were employees of CTS -- was "litigable" and "reasonable." By day seven of trial, the defense had not called DeFranceschi, and the defense never did so. At the charge conference the government stated that it was withdrawing the request. Defense counsel asked that the instruction be given. 
The district court decided not to give an advice-of-counsel instruction, giving two reasons: (1) "the defendants have presented no evidence that they fully advised Attorney DeFranceschi of their plan, received advice regarding that plan before 2000, and followed that exact advice in good faith"; and (2) "even if there were some basis for an advice of counsel instruction, that instruction is subsumed by the general good-faith instruction that the Court will give." 
It is a basic tenet of criminal law that a defendant is entitled to an instruction on his theory of defense provided that the theory is a legally valid one and there is evidence in the record to support it. United States v. Rodriguez, 858 F.2d 809, 812 (1st Cir. 1988) (instruction regarding entrapment). In making this determination, the district court is forbidden from weighing the evidence, making credibility determinations, or resolving evidentiary conflicts. Rather, the court must take the evidence in the light most favorable to the defendant, to see if the inferences and evidence can plausibly support the theory of the defense. Id. 
These same rules are used for the defense of good faith reliance on the advice of counsel. See United States v. Christopher, 142 F.3d 46, 55 (1st Cir. 1998). We review these determinations de novo. See United States v. Howard, 687 F.3d 13, 18 (1st Cir. 2012); United States v. Sánchez-Bérrios, 424 F.3d 65, 76 (1st Cir. 2005); Rodriguez, 858 F.2d at 812. This is different from the abuse of discretion standard in some other circuits. See, e.g., United States v. Bush, 626 F.3d 527, 538-39 (9th Cir. 2010). There is no claim the good-faith instruction was flawed. 
Here, it was essential to the prosecution to show beyond a reasonable doubt that the defendants had knowingly committed the charged offenses. The crimes with which defendants were charged required an intent to impede or defraud, or wilfully making or aiding a false representation. See United States v. Mubayyid, 658 F.3d 35, 57 (1st Cir. 2011) (conspiracy to defraud the IRS); United States v. Stergios, 659 F.3d 127, 132 (1st Cir. 2011) (mail fraud); 26 U.S.C. § 7206(1) (subscribing false tax returns), (2) (procuring false tax returns). If the defendants had acted pursuant to advice of counsel, this would have been very useful evidence for them of lack of fraudulent intent or wilfulness. See United States v. Ibarra-Alcarez, 830 F.2d 968, 973 (9th Cir. 1987). 
The circuits have provided some guidance as to the types of facts which will warrant giving an advice-of-counsel instruction. Some have suggested a defendant must show that he or she fully disclosed all material facts to his/her attorney before the advice was given, that the attorney gave that advice, and that the defendant actually relied on counsel's advice in a good faith belief that his/her conduct was lawful. See Bush, 626 F.3d at 539; United States v. Rice, 449 F.3d 887, 897 (8th Cir. 2006). We have been clear that the defense "is not available to one who omits to disclose material information to advisors or dictates imprudent outcomes to advisors." Janeiro v. Urological Surgery Prof'l Ass'n, 457 F.3d 130, 140 (1st Cir. 2006).   That principle disposes of this claim. 
At trial, the defendants chose not to testify and not to call DeFranceschi -- whom they first consulted in 2000 to represent them before the DUA -- as a witness. The prosecution introduced exhibits demonstrating that Powers had faxed phony invoices to DeFranceschi and represented to him that they were "good representatives of the type of invoices we rec'd then and now" from recruiters. The government also introduced evidence that DeFranceschi represented to Davis, copying Powers, that CTS's recruiters "quote a price. If the price is within the profit target CTS quotes the customer, they complete the job and are paid." DeFranceschi would have no first-hand knowledge of this and was likely repeating representations made to him. Legal advice made based on material misrepresentations to counsel does not qualify for the defense. There was no evidence that Powers corrected this statement, which he knew to be a misrepresentation. 
Defendants assert that "[i]t is clear from the record evidence that Attorney DeFranceschi knew the material facts about the CTS business model and advocated that the model was appropriate." They have pointed to no evidence that this was so, that DeFranceschi advised them that their actions were legal, or that they relied on such advice. In light of the evidence that attorney DeFranceschi was not told needed information and was given false information, the instruction was unavailable. 
We add that the ample good-faith instructions cured any possible harm to the defendants. The good-faith instructions given were as follows: concerning the general meaning of "knowingly": "[i]f the defendant acted in good faith . . . that is a defense to the charge that he acted in a knowingly criminal manner"; concerning the mail fraud charge: "if the defendant acted in good faith, he cannot be guilty of the crime"; and concerning the charges of subscribing or procuring false tax returns: 
if the defendant then under consideration in good faith believed that he paid all the taxes he owed, he cannot be guilty of criminal intent to evade taxes. Therefore, if you find that the defendant then under consideration honestly believed that he owed no taxes, even if that belief was unreasonable or irrational, then you should find him not guilty. However, you may consider whether the defendant's belief was actually reasonable as a factor in deciding whether he held that belief in good faith.  
These instructions adequately conveyed that an absence of intent to defraud, or an honest belief that taxes were not owed, would shield defendants from conviction. The defendants have not argued that the instructions would not encompass a situation in which their good-faith belief was based on the advice of counsel. We do not suggest that the presence of a good-faith instruction invariably eliminates the need for a court to consider an advice-of-counsel instruction. But here, there could have been no prejudice to defendants. See United States v. Allen, 670 F.3d 12, 15 (1st Cir. 2012).
Notice that the Court invokes a standard fall back to avoid having to reverse a conviction.  The notion is that (i) the standard willfulness instructions and good faith instructions properly informs the jury that it can convict only if the defendant intentionally violated a known legal duty and did not act in good faith and (ii) if the jury believed that the defendant acted in good faith reliance on the advice of counsel, it would not have convicted on the instructions given.  I think this fall back notion -- often used by the courts -- is misguided.  It relies upon the black box nature of the jury to sustain a conviction where it cannot be known whether the jury acted properly on the limited instructions given.  If the defendant is entitled to the reliance of counsel instruction, then he should have it and it should not be denied simply because other instructions may cover some of the same ground in a general sense.  I thus think this fall back assumption should be avoided and the affirmance or reversal based on what we know happened -- i.e., the instruction to which the defendant was entitled was or was not properly given -- without assuming that, in any event, we assume the jury did the right thing on the instructions it did get.

I should note that Powers was convicted for Klein conspiracy which has no textually explicit willfulness requirement and for tax perjury (Section 7206(1)) which does have a textually explicit willfulness requirement.  The Supreme Court has interpreted the willfulness requirement as the intent to violate a known legal duty.  The Government regularly argues that the Klein conspiracy requires something materially less than wilfullness as defined.  I have argued that, in context, the Courts have interpreted and applied the Klein conspiracy to require that level of intent even if not call willfulness.  See John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here.

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