Monday, January 10, 2022

3rd Circuit Rejects Argument to Extend Marinello Pending Proceeding Requirement for Tax Obstruction to the Defraud Klein Conspiracy (1/10/22)

In United States v. Desu, ___ Fed. 4th ___, 2022 U.S. App. LEXIS 465 (3rd Cir. 1/7/22), CA3 here and GS here, the Court affirmed a conviction of Desu for “tax fraud.”  The Court rejected several arguments but apparently wrote the precedential opinion to clarify the standard of review for an “an evidentiary hearing as provided in Franks v. Delaware, 438 U.S. 154 (1978).”  The Franks hearing is a general process in criminal cases rather than related to tax, so I don’t discuss it here.

The Court did address, rather perfunctorily, a tax crimes issue that has been discussed several times on this blog – whether the Supreme Court’s decision in Marinello v. United States, ___ U.S. ___, 138 S. Ct. 1101 (2018), holding that a pending administrative proceeding is required for tax obstruction can apply to and limit the tax defraud conspiracy (the Klein conspiracy) that arguably is sufficiently similar to tax obstruction as to warrant a pending administrative proceeding limitation.  The consensus of the holdings in other courts (district and circuit) has been that that aspect of Marinello does not apply to the defraud Klein conspiracy.

The Court rejected the argument.  The Court’s reasoning is short so I copy and paste pp. 7-9 (omitting a footnote):

III

     A

            Desu next argues that the two counts in the indictment alleging violations of 18 U.S.C. § 371 fail to state an offense. In those counts, the government alleges that Desu conspired “to defraud the IRS by impeding, impairing, obstructing, and defeating the lawful government functions of the IRS to ascertain, compute, assess, and collect income taxes,” a crime known as a Klein conspiracy. App. 94, 100. Desu claims that [*8] both counts fail to state an offense under Marinello v. United States, 138 S. Ct. 1101 (2018). In Marinello, the Supreme Court held that to convict someone of obstructing or impeding the administration of the Internal Revenue Code under 26 U.S.C. § 7212(a), the government must prove that a ‘“nexus’ [existed] between the defendant’s conduct and a particular administrative proceeding, such as an investigation, an audit, or other targeted administrative action.” Id. at 1109. Desu claims that both counts fail to state an offense because they do not allege that an investigation was pending when he committed the conspiracies as required by Marinello in the separate but similar statute. 

            According to Federal Rule of Criminal Procedure 12(b)(3), a party must raise a claim for “failure to state an offense” by “pretrial motion if the basis for the motion is then reasonably available and the motion can be determined without a trial on the merits.” “If a party does not meet the deadline for making a Rule 12(b)(3) motion, the motion is untimely. But a court may consider the defense, objection, or request if the party shows good cause.” Fed. R. Crim. P. 12(c)(3).

            The grand jury indicted Desu on October 11, 2018, nearly seven months after the Supreme Court issued Marinello  [*9] in March 2018. Desu did not raise his Marinello argument until he filed a post-conviction motion for acquittal, so it was untimely under Rule 12. The District Court refused to consider Desu’s Marinello argument because he failed to raise it before trial and Desu did not show “good cause” for his untimeliness.

     B

            We review a district court’s good cause ruling for abuse of discretion. Davis v. United States, 411 U.S. 233, 245 (1973).  If we uphold a district court’s “good cause” ruling, we will not consider the defendant’s argument. See United States v. Fattah, 858 F.3d 801, 807 (3d Cir. 2017) (“[W]e will not consider any unpreserved arguments absent ‘good cause.’” (quoting Fed. R. Crim. P. 12(c)(3))).

            To establish good cause for his untimeliness, Desu argued that he needed to wait to use his Marinello argument while “lower courts determine[d] the implications of Marinello on Klein conspiracies.” App. 2292. The District Court did not err, let alone abuse its discretion, in rejecting Desu’s excuse. Desu waited for months to use an argument that he knew he could make at any time prior to the deadline imposed by Rule 12. Holding out for a more favorable legal landscape is not an appropriate excuse for delay. See United States v. Daniels, 803 F.3d 335, 352 (7th Cir. 2015) (“That additional case law later is handed down which may better support an argument does not constitute ‘good cause.’”).

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