Court of Appeals Rejects Arguments that Instructions on Willfulness and Good Faith Were Reversible Error (7/16/14)

In United States v. Basile, 2014 U.S. App. 12388 (3d Cir. 2014), here, the defendants, husband and wife, chiropractors, engaged an asset protection firm who put them into offshore entities and bank accounts to avoid tax.  The defendants took other actions to obscure their income and avoid tax.  The defendants were intransigent in dealing with the IRS; their intransigence led to criminal prosecution.

As often the case, their  principal defense was the Cheek willfulness defense -- that the defendants did not intend to violate a known legal duty.  The jury convicted.  On appeal, the defendants asserted that the instructions were deficient.  The Court of Appeals held (one footnote omitted; bold face supplied by JAT):

A 

First, the Basiles argue that the instructions wrongly permitted the jury to reject their good-faith defense if jurors found their beliefs objectively unreasonable, in violation of Cheek v. United States, 498 U.S. 192 (1990). We disagree. 

The  jury instructions stated: 

A belief need not be objectively reasonable to be held in good faith; nevertheless, you may consider whether the Defendant's stated belief about the tax statutes was reasonable as a factor in deciding whether the belief was honestly or genuinely held. 

A1685 (emphasis added). This is an accurate statement of law under Cheek, which held that a jury instruction cannot require a tax evasion defendant's claimed good-faith belief to be objectively reasonable to negate the government's evidence of willfulness. 498 U.S. at 203. As "[k]knowledge and belief are characteristically questions for the factfinder," such an instruction erroneously transforms a fact question into a legal one. Id. However, even though a good-faith belief need not be objectively reasonable, the jury can still consider reasonableness in determining whether the belief was honestly held. As the Cheek Court noted, "[o]f course, the more unreasonable the asserted beliefs or misunderstandings are, the more likely the jury will consider them to be nothing more than simple disagreement with known legal duties imposed by the tax laws and will find that the Government has carried its burden of proving knowledge." Id. at 203-04. 

B 

The Basiles also contend that the District Court erred by instructing the jury that they did not act in good faith 

if, even though they honestly held a certain opinion or belief or understanding, they also knowingly made false statements, representations, or promises to others. 

A1686. This sentence comes from the Third Circuit's model instruction on the good faith defense generally, which also states that in tax cases, "the trial judge should give Instruction 6.26.7201-4 (Tax Evasion — Willfully Defined), n5 supplemented if need be under the circumstances of the case, by this instruction." See Third Circuit Model Criminal Jury Instruction 5.07.
   n5 The entire instruction reads as follows:
The third element the government must prove beyond a reasonable doubt is that (name) acted willfully. "Willfully" means a voluntary and intentional violation of a known legal duty. (Name)'s conduct was not willful if (he)(she) acted through negligence, mistake, accident, or due to a good faith misunderstanding of the requirements of the law. A good faith belief is one that is honestly and genuinely held.

The Basiles argue that this statement allowed the jury to conclude that they could not have acted in good faith if they knowingly made false statements to others "at any time during the over ten year course of conduct presented in [the] case." P. Basile Br. at 45. As Paul notes, "[j]ust because at some point Mr. Basile may have made a misrepresentation to another person, for whatever reason, does not mean that he did not sincerely believe that he was acting in compliance with his legal duties." P. Basile Br. at 45. In essence, he contends that one can knowingly make false statements and still be acting in good faith in the tax context. For her part, Barbara argues that the instruction allows false and inaccurate statements in tax returns she crafted in good faith to undermine her entire defense. B. Basile Br. at 27-28. 

These arguments stem from the distinctive meaning of "willfully" in tax cases: Willfulness is required for conviction on charges of tax evasion, willful failure to file, and filing false tax returns, but due to the complexity of the tax code, in tax cases the Supreme Court has "carv[ed] out an exception to the traditional rule" that ignorance or a mistake of law is no defense to criminal prosecution. Cheek, 498 U.S. at 199-200. Thus, in the tax context, a defendant's behavior is not willful if it stems from honest ignorance or mistake—that is, good faith. 

Given how the good-faith defense interacts with the willfulness requirement, we agree that the "false statements" sentence was confusing as used here. At a minimum, it was overbroad: The fact that a person knowingly made a false statement regarding one's duty to pay taxes, and in what amount could be relevant to whether he acted in good faith; whether he knowingly made a false statement about another subject (i.e., "Those frog legs were delicious" or "I'm too tired to work out") would not. 

However, even assuming that the jury instructions were imprecise, our inquiry does not end there. We review for harmless error, asking "whether it appears beyond a reasonable doubt that the error complained of did not contribute to the verdict obtained." Neder v. United States, 527 U.S. 1, 9-10, 15 (1999) (internal citation and quotation marks omitted). Here, the Government did not argue that the Basiles lacked good faith because they had broadly made false statements during the time in question or because they had filed inaccurate tax returns. Rather, it argued they could not have genuinely believed they were complying with the law given their life experience and conduct as it related to paying (or not paying) taxes, relying on considerable supporting evidence to show willfulness. The jury agreed with this, and we see no reason to disturb the verdict based on an unclear but ultimately insignificant sentence in the jury instructions. There is no indication that the instruction obviated an otherwise viable good-faith defense or contributed to the verdict. Any error on this point was harmless. n6
   n6 Barbara also challenges the District Court's jury instruction on willful blindness, arguing that it "wrongly suggested that willful blindness could satisfy the requirement that Mrs. Basile had the specific intent to violate the law." B. Basile Br. at 30. In her brief Barbara acknowledges that the instruction was "technically correct," but contends that it needed more clarification anyway. We disagree. Even more clearly than in United States v. Stadtmauer, where we affirmed in the face of a similar argument, "the Court's instructions made clear that willful blindness applied only to the element of knowledge." 620 F.3d 238, 258 (3d Cir. 2010).

JAT Comments: The two key noteworthy items are:

1. The overbroad and confusing instruction about making false statements generally as negating good faith.  The court adequately discusses that.

2.  The willful blindness instruction.  I have noted in this blog on several occasions that the precise function of willful blindness has not been definitively resolved.  Is willful blindness a substitute for willfulness -- specific intent -- or is willful blindness mere a fact that the jury can consider in determining whether the Government has proved specific intent beyond a reasonable doubt?  The jury instruction above seems to instruct the jury that, if it finds willful blindness, it must find willfulness.  I don't think there is any certainty about that, despite the fact that the wife apparently conceded it was technically correct.

Also, most practitioners know that pattern jury instructions are not sacrosanct and can misstate the law either generally or in the context of the case at hand.  I note the following in a footnote my my Federal Tax Crimes book:

Often, I use so-called “pattern jury instruction” approved by panels for one or more of the United States Circuit Courts of Appeals.  Within the circuits, these pattern jury instructions are usually the starting point for fashioning the actual instructions that will be used in any case.  The district judge trying the case is required to give instructions appropriate to the specific case being tried, and hence may modify the pattern instructions as appropriate to the case.  Moreover, merely because the Circuit Courts in some manner sponsor the pattern jury instructions does not mean that they are necessarily correct instructions on the law or cannot be improved.  Even, on their face, they can be deficient, thus requiring judges and trial lawyers to exercise some diligence in their use. n5 Nevertheless, unless I specifically caution otherwise, the Circuit pattern jury instructions I use in this text do adequately state the law (in my judgment).
  n5 See e.g., United States v. Svete, 521 F.3d 1302, 1310(11th Cir. 2008) (holding that the 11th Circuit pattern jury instruction on mail fraud is “deficient” as to the scope of the burden on the Government.)  The holding that the pattern instruction was deficient was subsequently reversed in United States v. Svete, 556 F.3d 1157 (11th Cir. 2009), but the key point is that pattern jury instructions do not necessarily state the law.  When they do, the use of the instruction will be sustained, but when they do not, the use will not be sustained provided that the resulting error rises to the level of a reversible error.
I also give another example below for the crime of tax evasion, the first crime discussed in this text.  I use an actual charge from a recent case rather than a pattern jury instruction.  I previously used the Fifth Circuit pattern jury instruction.  In my opinion, the Fifth Circuit pattern jury instruction is misleading or incorrect.  See also United States v. Maggert, 2011 U.S. App. LEXIS 10976 (11th Cir. 2011) (involving a similarly deficient Eleventh Circuit pattern jury instruction which, in the case, was sustained under the plain error standard).