Mens Rea Element of False Claims Crime, 18 USC § 287 (11/19/16)

In United States v. Spear, 2016 U.S. Dist. LEXIS 155368 (ND IL 2016), here, the district court convicted the defendant in a bench trial for "a false claim in violation of 18 U.S.C. § 287 and knowingly committed theft of government funds in violation of 18 U.S.C. § 641."  The opinion making the findings of fact and conclusions of law supporting the conviction is an interesting read, including references to some tax defier type positions of a person allegedly associated with the Moorish Science Temple. (See Wikipedia entry on the Temple here.)

The question I focus on here is the mens rea requirement of the conviction for false claims under 18 USC § 287, here, which in its entirety is:

18 U.S. Code § 287 - False, fictitious or fraudulent claims
Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.

DOJ's CTM discusses the use of § 287 in tax refund cases as follows (22.02[1] Policy), here (footnote omitted):

Title 18 false claims and false claims conspiracy charges are among the non-Title 26 statutes traditionally used in tax prosecutions that involve fraudulent refund schemes. Tax charges under these statutes often are brought against a defendant who filed multiple fictitious income tax returns claiming refunds of income tax in the same year,  particularly when the defendant personally received and retained some or all of the proceeds. 

Many false refund claim cases could also be charged using 26 U.S.C. § 7206(1) or (2) (false returns), or 18 U.S.C. § 1001 (false statements), § 1341 (mail fraud) or § 1343 (wire fraud). Section 287 is preferred to Section 7206 when the defendant pocketed the refund proceeds, because restitution for Title 18 offenses is more readily available than for Title 26 offenses. See 18 U.S.C. § 3663(a)(1). Also see Chapter 44, infra, for a full discussion of restitution for criminal tax offenses. 

Here is the relevant part of the opinion:

The parties agree that the Government must prove that "(1) [Defendant] presented [a] claim[] to the IRS; (2) th[at] claim[] w[as] false, fictitious, or fraudulent, and (3) [Defendant] knew the claim[] w[as] false, fictitious, or fraudulent." United States v. Clarke, 801 F.3d 824, 827 (7th Cir. 2015). Defendant posits, however, that a fourth element of "intent to defraud" is required. [44, at 3.] For support, she cites the Seventh Circuit's Pattern Criminal Jury Instructions for Section 287, which list the first three elements above without brackets but includes a fourth element—"The defendant acted with intent to defraud"—in brackets. See Pattern Criminal Jury Instructions of the Seventh Circuit for 18 U.S.C. § 287 at 161 (2012). The Committee Comment states that "[t]he fourth element (intent to defraud) is bracketed because it is unsettled in this Circuit whether proof of intent to defraud is required under section 287." Id. 

The Comment describes four Seventh Circuit cases that bear on the "intent to defraud" issue. It first identifies two 1991 cases in which the Seventh Circuit either "assumed" intent to defraud was an element or found that jury instructions including with an "intent to defraud" element "accurately presented the jury with the fundamental questions bearing upon the defendant's guilt or innocence." Id. at 161-62 (citing United States v. Nazon, 940 F.2d 255 (7th Cir. 1991), and United States v. Haddon, 927 F.2d 942 (7th Cir. 1991)). The Comment next describes United States v. Catton, which was decided five years after Nazon and Haddon and held that "[i]t is implicit in the filing of a knowingly false claim that the claimant intends to defraud the government, and hence unnecessary to charge willfulness separately." 89 F.3d 387, 392 (7th Cir. 1996). According to the Comment, Catton "equated" willfulness and intent to defraud. See 7th Cir. Pattern Instruction for 18 U.S.C. § 287, Committee Comment at 162 (citing Catton, 89 F.3d at 392 ("the making of a knowingly false claim might seem inherently willful, inherently intended to defraud, making an instruction on willfulness otiose") [JAT to readers, see bottom of page for definition of otiose]). Finally, the Comment cites a 1997 unpublished Seventh Circuit opinion holding that "[p]roof of specific intent to defraud the government is not required to convict under § 287"—a conclusion the court characterized as merely restating "our holding in [Catton]." Id. (quoting United States v. Strong, 114 F.3d 1192 [published in full-text format at 1997 U.S. App. LEXIS 11956] at *2 (7th Cir. 1997)).

Against this backdrop, the Government relies on Clarke—a 2015 case decided three years after the pattern criminal instructions were published. In Clarke, the defendant argued on appeal that the trial court erred by declining to give a "good faith" jury instruction modeled on Seventh Circuit Pattern Criminal Instruction 6.10. See Brief for Defendant-Appellant at *9-10, United States v. Clarke, 2015 WL 740995 (7th Cir. Feb. 9, 2015). The Committee Comment to Instruction 6.10 explains that "this instruction should not be used in cases in which the government is required only to prove that the defendant acted 'knowingly.' Rather, it should be used in cases in which the government must prove some form of 'specific intent,' such as intent to defraud or willfulness." 7th Cir. Pattern Instruction 6.10, Committee Comment at 97 (emphasis added). The Seventh Circuit rejected the defendant's argument and held that he "was not entitled to an instruction on good faith" because "willfulness is not an element of a § 287 claim." Clarke, 801 F.3d at 828 (applying Catton). "The government need only prove that Clarke made a claim upon the United States knowing that the claim was false." Id. 

Defendant, in contrast, makes no effort to substantiate her position that "intent to defraud" is an element under Section 287. She omits any mention of the fact that the fourth element is bracketed in the pattern instruction. [44, at 3.] She does not explain how Catton or Strong can be reconciled with treating intent to defraud as an element. [See generally 44, 47.] And she fails to discuss Clarke at all. Yet Clarke's holding that good faith instructions are inappropriate in Section 287 cases is premised on the fact that the government does not need to prove "specific intent," such as "intent to defraud." See 7th Cir. Pattern Instruction 6.10, Committee Comment at 97. Otherwise, the defendant in Clarke would have been eligible to receive this instruction. Moreover, Clarke describes only three elements under Section 287 and reaffirmed that the government "need only prove" knowledge of the claim's falsity. See 801 F.3d at 827-28. Thus, the Court agrees that "intent to defraud" is not an element of Section 287 under Clarke, Catton, and Strong. n6
   n6 Tellingly, Defendant never identifies any aspect of this case that turns on an "intent to defraud" element separate and apart from the "knowledge" element. During trial, Defendant consistently framed the sole issue in dispute as whether the Government has proven "knowledge." (See, e.g., Tr. 165, May 24, 2016 p.m. ("[T]here's no denial that she received a check, no denial that she signed the check, deposited the check and spent the money. But there's also no evidence of the second important legal aspect of this case, which is knowledge."); id. at 169 (Court: "Is there anything else about what inferences I should be drawing from the evidence that would lead to a not guilty verdict in this case? I guess that's what -- I think you guys have all identified the key issue in the case. It's the knowledge element; that's the key issue." Defendant's Counsel: "Right."); id. at 173 ("So based upon that, your Honor, I think you have stated clearly that this case does focus clearly on the element of [Defendant's] knowledge of whether or not she was entitled to that check."). In fact, the Defendant never even used the words "intent" or "intent to defraud" in her closing argument. Her posttrial briefs are similarly without any specific argument directed to the "intent to defraud" element. [Cf. 47, at 3 ("The circumstantial evidence presented by the government fails to support a reasonable [*21]  inference that [Defendant] possessed such knowledge beyond a reasonable doubt.").] In any event, it is difficult to see how this "element," even if required, would not also be satisfied under the facts of this case once the government proves—as it has—that Defendant knowingly presented a false refund check for payment to the IRS.

DOJ CTM 22.04[3] Knowledge -- Intent -- Willfulness, here (footnote omitted) focuses on the issue as follows:

Section 287 requires the government to prove that a false claim against the government was made, “knowing such claim to be false, fictitious, or fraudulent . . . .” A Section 287 indictment should allege such knowledge, and the proof that the defendant knew the return was false is part of the government’s burden of proof. United States v. Holloway, 731 F.2d 378, 380-81 (6th Cir. 1984).   

It is not necessary to allege willfulness in the indictment. The term “willfully” is not used in Section 287 and is not “an essential element” of § 287. United States v. Irwin, 654 F.2d 671, 682 (10th Cir. 1981). 

The circuits vary, however, on the proof of intent necessary to convict for a violation of Section 287. In United States v. Maher, 582 F.2d 842, 847 (4th Cir. 1978), the Fourth Circuit approved a jury instruction stating that, under Section 287, criminal intent “could be proved by either a showing that the defendant was aware he was doing something wrong or that he acted with a specific intent to violate the law.” In United States v. Milton, 602 F.2d 231, 234 (9th Cir. 1979), the court held that no instruction on “intent to defraud” is necessary where a false claim is charged (because it is not an element of the offense), but left open whether an “intent to deceive” is an element of a charge of submitting a “fraudulent” claim. Id. at 233 n.7. The Eighth Circuit, in  Kercher v. United States, 409 F.2d 814, 817 (8th Cir. 1969), did not draw a distinction between false and fraudulent claims, but held without elaboration that Section 287 requires proof of criminal intent.

I have addressed this issue either directly or indirectly in the following blog entries (reverse chronological order):

• Is Good Faith a Defense to False Claim Charges (Federal Tax Crimes Blog 4/16/16), here.
• Ninth Circuit Affirms False Claim Convictions for Tax Preparer (Federal Tax Crimes Blog 9/2/15), here.
• Fourth Circuit Reverses Tax Obstruction Conviction Because of Bad Instruction and Affirms Denial of Good Faith Instruction for False Claim Conviction (Federal Tax Crimes Blog 11/20/13), here.
• The Willfulness Element of Most Tax Crimes Not Present in All Tax Crimes (Federal Tax Crimes Blog 8/30/13), here.
• Good Faith as a Defense to Tax Crimes (Federal Tax Crimes Blog 2/9/13), here. 

Also, I note that the crime of tax obstruction, § 7212(a), here, also has no willfulness element but the "corruptly" element is read by some courts as being substantially the same as willfulness.  I have following in the chapter on Tax Crimes in  Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), ¶ 12.02[5][b][ii] The defendant must act corruptly.

One court has said that the standard definitions of the elements in Section 7212(a) are “as comprehensive and accurate as if the word 'willfully' was incorporated in the statute,” so that the judge charging the jury did not have to mention the word willfully or define willfully. n177
   n177 United States v. Kelly, 147 F3d 172 (2d Cir. 1998) ; see also CTM 17.04 (2012 ed.) (apparently citing this point in Kelly approvingly); see also United States v. Williamson, 746 F3d 987 (10th Cir. 2014) (quoting Kelly and discussing the overlap between willfully and corruptly, with the suggestion that, in a case where the issue is properly presented at trial, an instruction paralleling the Cheek willfulness instruction might be required to advise the jury that the defendant must have known and intended the unlawful advantage or benefit).In United States v. Sorensen, 801 F3d 1217, 1230 (10th Cir. 2015) , the Tenth Circuit addressed the issue: “By requiring Sorensen's acts be done ‘knowingly and dishonestly,’ the district court had already required proof of knowledge of illegality,” apparently adopting in other words the Kelly equation of corruptly with Cheek willfulness.

See also

• Tenth Circuit Affirms a Tax Obstruction Charge (Federal Tax Crimes Blog 9/15/15), here.
• Tenth Circuit Opinion on Mens Rea for Tax Obstruction - What Does Unlawful Mean? (7212(a)) (Federal Tax Crimes Blog 3/30/14), here.
• Jury Instructions in Tax Obstruction and Klein Conspiracy Case (Federal Tax Crimes Blog 2/6/13), here.
• John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255, 311-312 (2009), here. 

Finally, the Spear opinion discussed here has a quote from another opinion using the word "otiose."  I was not consciously familiar with the word, although in the context used, it was relatively apparent.  I find on quick internet search that otiose is defined as "serving no practical purpose or result."