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06/28/2017

Supreme Court to Hear Case on Obstruction of the Tax Code

The Supreme Court this week announced that it will hear the case of Carlo Marinello, II v. United States next fall.  The Supreme Court granted Mr. Marinello’s petition for a writ of certiorari after considering it in conference on June 26, 2017, the Court’s last day of the summer session.  Cause of Action Institute filed an amicus curiae brief in support of Mr. Marinello’s petition, urging the Supreme Court to hear the case to address the Second Circuit’s expansive reading of a tax statute that could be interpreted to criminalize routine conduct of everyday American taxpayers and business owners.

Mr. Marinello owned a small courier service in New York. In 2012, the United States obtained an indictment against him under 26 U.S.C. 7212(a)’s “omnibus clause” of the criminal tax code, which makes it a felony to “in any other way corruptly…obstruct [] or impede [] or endeavor to obstruct or impede, the due administration” of the tax code.  The government argued that Mr. Marinello could be guilty of corruptly obstructing or impeding the administration of the tax code by performing acts as common as failing to maintain books and records for his small business, failing to provide his accountant with complete information, and discarding business records, all because he did these acts with the goal of not paying taxes.  However, the tax code already outlaws tax evasion, and it requires that the government prove a heightened criminal intent—that the defendant acted “willfully.”  The Sixth Circuit, in order to cabin its expansive language, has held that an individual must have knowledge that his or her conduct is obstructing an ongoing IRS investigation in order to be found guilty under the omnibus provision.  The Second Circuit and other courts of appeals have interpreted the language much more broadly, however, causing a circuit split.

Cause of Action’s amicus curiae brief highlighted the importance of preserving mens rea, or “guilty mind” requirements and the need for our criminal code to clearly inform people about what is, or is not, illegal.  As Judge Jacobs wrote in his dissent from the rest of the judges on the Second Circuit, “if this is the law, nobody is safe.”  Cause of Action hopes that the Supreme Court will cabin the omnibus clause as the Sixth Circuit has done and intends to file a new amicus curiae brief at the merits stage.  You can check out our prior blog post on this case here.

Erica Marshall is counsel at Cause of Action Institute.

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06/16/2017

Can FTC Ignore the Law to Expand its Power to Regulate Internet Providers?

Cause of Action Institute (“CoA Institute”) has filed an amicus curiae (“friend of the Court”) brief in the U.S. Court of Appeals for the Ninth Circuit in FTC v. AT&T Mobility LLC (“AT&T”) in support of AT&T during the pendency of rehearing en banc of an appeal regarding whether the Federal Trade Commission (“FTC” or “Commission”) has statutory authority to regulate common carriers such as Internet Service Providers (“ISPs”) and telephone companies under Section 5 of the FTC Act.

In September 2016, a unanimous three-judge Panel on the U.S. Court of Appeals for the Ninth Circuit ruled that because the plain language of the FTC Act categorically exempts common carriers like AT&T from FTC regulation under Section 5, the FTC lacks statutory authority to regulate businesses like AT&T. (Instead, such businesses are regulated by a different federal agency, the Federal Communications Commission (“FCC”) under a different federal statute, the Communications Act.)  Consistent with the judicial role and respect for the separation of powers, the Panel explained that “[i]t is not for us to rewrite the statute so that it covers only what we think is necessary to achieve what we think Congress really intended.  That is a job for Congress, not the courts.”

The FTC subsequently filed a petition for rehearing en banc supported by a number of “friend of the Court” briefs arguing that the full Ninth Circuit should vacate the Panel decision and rehear the case because, among other things, the Panel decision was inconsistent with their views regarding sound public policy and left a supposed “regulatory gap” that the FTC should be allowed to “fill.” On May 9, 2017, the Ninth Circuit granted the FTC’s petition.

Concerned about this development, our brief argues that the Court should decide the case the same way the Panel did; that is, calling balls and strikes and deciding the case based on the statute’s plain text rather than a federal agency’s subjective views on what it thinks is enlightened public policy for the entire country. Our brief argues that such an approach respects Congress’s legislative role under Article I of the U.S. Constitution, as well as the separation of powers.  That is because under the U.S. Constitution only the People’s elected representatives in Congress—not a federal agency like the FTC or FCC and not a federal Court—are allowed to rewrite federal law in response to public policy arguments.

As our brief also notes at pages 3-4: “CoA’s interest in this case also stems from its view that, regardless of whether the FTC’s policy goals are sound, the FTC has now “spun out of the known legal universe and … [is] now orbiting alone in some cold, dark corner of a far-off galaxy, where no one can hear the scream ‘separation of powers.’”

These fitting words, describing FTC’s recent forays in Art. III Courts under Section 5, are not hyperbole, but instead reflect a very disturbing reality. FTC’s self-appointed mantle as perverse executive-agency posse comitatus, a poseur arrogant and lawless unto itself, whose overreach and overregulation do not serve the American people or the public interest.

The full brief can be found here.

Patrick Massari is assistant vice president at Cause of Action Institute

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04/26/2017

Criminal Prosecutions on Tax Day: “If this is the law, nobody is safe”

Tax Day is just behind us, marking the ceremonial American tradition of waiting to the last minute to electronically file a Form 1040 in the hopes of receiving a tax refund (or maybe that is just me). This year alone, the IRS expects to process approximately 150 million tax returns.  But few Americans stop to think before clicking “submit,” about the sheer breadth of information they are supplying.  A tax return is an intimate financial portrait that details your income, marital status, number of dependents, the property and assets you’ve acquired, and gifts you’ve received, all based on documents and receipts collected throughout the previous year.

Remember on tax day that while Title 26 of the United States Tax Code gives the IRS the power to levy taxes, it also creates criminal sanctions to make sure people pay what they owe. Tax evasion is a felony, as is failure to pay any tax due, filing a false return, and not filing a return at all in some cases.  But what if otherwise legal acts or omissions—like not keeping financial records, throwing away receipts, not giving all of your documents to your accountant, cashing checks, or even using cash—were also a felony under the tax code?  Tax cheats should be prosecuted, but the law needs to be applied in a way so that the millions of Americans who file tax returns every year, but might not keep receipts or documents, cannot be caught up in an overreaching prosecution.

This was the issue that faced the Second Circuit in United States v. Marinello.  Carlo Marinello ran a courier company in New York and didn’t file tax returns for a number of years.  He was indicted with eight counts for failure to file a tax return.  However, the government also charged him with a felony for “corruptly obstruct[ing] or imped[ing]…the due administration of the [tax code]” under 26 U.S.C. § 7212(a).

This statute states:

Whoever corruptly or by force or threats of force … endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under [Title 26], or in any other way corruptly or by force or threats of force … obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, shall, upon conviction thereof, be fined not more than $5,000, or imprisoned not more than 3 years, or both.

According to the indictment, Mr. Marinello could be guilty of the felony of corruptly obstructing or impeding the administration of the tax code by performing acts as common as “failing to maintain corporate books and records,” “failing to provide [his] accountant with complete . . . information related to [his] personal income,” “discarding business records,” “cashing business checks,” and “paying employees in cash” because he performed these acts and omissions with the intent to obtain an unlawful benefit—not paying taxes. The jury convicted Mr. Marinello on this basis, and the Second Circuit affirmed the conviction.

The other felony provisions in Title 26, including the felony for not paying taxes under section 7202, impose a “willfull” mens rea requirement, which requires the government to prove that the person had a “guilty mind” and acted with the knowledge that his conduct was unlawful, and made a voluntary, intentional violation of a known legal duty.  However, the obstruction statute punishes anyone who “corruptly” endeavors to obstruct or impede the administration of Title 26, a much lower standard.  To act “corruptly” is to act “with intent to gain an unlawful advantage or benefit for oneself or for another.”

As this otherwise statutorily-undefined term has been applied across the land, and by the Second Circuit in Mr. Marinello’s case, any act or omission that obstructs the administration of the tax code is a felony so long as the defendant committed that act or omission to gain an “unlawful benefit”—whether or not the defendant knew that benefit was unlawful, whether or not the act or omission itself is a legal act, and whether or not the unlawful benefit sought by the defendant was even related to the tax code.  Troublingly, this “obstruction” statute has become a catchall felony provision with a reduced mens rea requirement that has swallowed the other criminal provisions in the tax code.  For example, it is hard to imagine how failing to file a tax return would not also impede the administration of the tax code.

Disagreeing with the Second Circuit, and concerned about the overbreadth and vagueness of the statute, the Sixth Circuit has cabined the obstruction statute to require that the government prove that the defendant took action to impede or obstruct a pending IRS investigation or action, such that a particular IRS employee was obstructed by the defendant’s conduct. United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998).

Mr. Marinello filed a petition for a writ of certiorari with the Supreme Court, asking it to hear his case and resolve the split between the Sixth Circuit and the Second Circuit. Cause of Action Institute and the National Association of Criminal Defense Lawyers filed a “friend of the court” brief, urging the Supreme Court to take the case to clarify the type of conduct that is criminalized under the tax code.  As Judge Jacobs of the Second Circuit warned in his dissent from the rest of the court, “if this is the law nobody is safe.”

The full amicus brief can be found here

Erica Marshall is counsel at Cause of Action Institute

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03/20/2017

A Warrantless Phone Search, A Dangerous Precedent

Washington D.C. – Cause of Action Institute (“CoA Institute”) today filed an amicus curiae brief in support of Defendant Hamza Kolsuz who in February, 2016 was arrested at a Virginia airport attempting to board a plane bound for Istanbul, Turkey.

At the time of his arrest, U.S. Department of Homeland Security (“DHS”) Customs and Border Patrol (“CBP”) officers seized Mr. Kolsuz’s iPhone and subsequently ordered a month-long, warrantless forensic search, resulting in nearly 900 pages of detailed information, including Mr. Kolsuz’s internet-browsing history, text messages, emails, and various geographic locations he had visited. Under a 2014 Supreme Court case, any search of a cellphone seized during an arrest requires a warrant.  

While Mr. Kolsuz filed a legal motion to suppress the evidence obtained without a warrant, the presiding judge ruled that the search constituted a border search, and was therefore legal under a narrow exception to the Fourth Amendment. Mr. Kolsuz was found guilty and sentenced to thirty months in prison.

We believe the District Court erred in allowing the evidence. Our brief urges the court to reverse the previous decision and grant Mr. Kolsuz a new trial.  While in certain circumstances, a border search may be conducted without a warrant, in this instance the governmental interests that justify this exception were not in play because neither Mr. Kolsuz nor his phone were crossing any border after his arrest. 

The brief states:

At the time of the search, neither Mr. Kolsuz nor his smartphone were in the process of crossing any border. The Government was not furthering any interest in prohibiting the entry or exit of contraband, enforcing currency control, levying duties or tariffs, or excluding travelers without the property documentation to enter the country…

The privacy interests inherent in electronic devices are so high as to require a minimum of probable cause to justify their search.  Any less protection will continue to chill First Amendment protections, harm business interests, and violate the Fourth Amendment rights of Americans to be free from unreasonable search and seizure.

Federal customs agencies have essentially turned what was supposed to be a narrow exception to the Fourth Amendment’s warrant requirement into a loophole to search anyone’s cellphone or laptop without any reasonable suspicion or probable cause to suspect them of a crime.  Under current DHS “guidance,” anyone who travels internationally can be detained, asked to grant a customs agent access to their cellphone or laptop (including their social media accounts, email, and other remotely-stored information), and even face seizure of their device for off-site searching if they refuse to consent to the search.  News reports have detailed the recounts of many Americans who have been subjected to this policy.  DHS searched 5,000 electronic devices in February of this year alone.  

In addition to the troubling implications under the Fourth Amendment’s right to privacy, the brief outlines how electronic devices are such a commonplace tool that modern business would be unable to function without them.  Journalists and legal organizations rely on smartphones, tablets, and laptops to communicate with sources around the world, store research and contact information, draft and publish news articles, and film or photograph live events, and upload stories to social media.  Similarly, lawyers routinely utilize laptops and smartphones as repositories of attorney-client communications and work product documents. Businesses also need such devices to perform proprietary work, transmit documents detailing trade secrets, and remotely access company information.   

The courts have carefully crafted legal balancing tests that recognize the need to protect certain information, like journalist sources, attorney-client privileged information, and confidential trade secrets, by allowing the government to access such privileged information only when certain compelling justifications exist. In this regard, the current DHS “policy” purporting to allow the agency unfettered access to information at the border does not only contravene the privacy rights of individuals, but also disrupts other carefully-created judicial safeguards that protect the information of businesses, journalists, and lawyers’ clients, from disclosure.

The brief was filed on behalf of Cause of Action Institute, along with the Committee for Justice, a nonprofit organization dedicated to promoting the rule of law, and Floor64 Inc. that publishes the online news site, Techdirt.com. Techdirt’s journalists routinely depend on the ability to protect its sources and private information.

The full brief is available here

For information regarding this press release, please contact Zachary Kurz, Director of Communications at CoA Institute: zachary.kurz@causeofaction.org

 

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02/1/2017

Read Mark Steyn’s Comments on CoA Institute’s Amicus Curiae Brief

Last week, Cause of Action Institute filed an amicus curiae brief on behalf of Dr. Judith A. Curry. Read Mark Steyn’s rundown of the brief here.

The brief itself can be found here.

February 28, 2017 Update:

Today, the District of Columbia Court of Appeals ordered Michael Mann to file a response to the Competitive Enterprise Institute’s petition for rehearing en banc.  This is a good sign that the court is taking the petition seriously and digging into the issues.  We hope that they grant the petition and overturn the panel.

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01/12/2017

CoA Institute Urges Supreme Court to Restrict Agency Power

On January 10, 2017 Cause of Action Institute (CoA Institute) joined an amicus brief filed by the Cato Institute (Cato) in the Supreme Court case Gloucester County School Board v. G.G. to comment on an important aspect of administrative law: the scope of the Auer doctrine (taken from the Supreme Court case Auer v. Robbins (1997)), which holds that courts should generally defer to agency interpretations of their own regulations.  The case involves a challenge to a school board’s decision preventing GG, a transgender student, from using the school bathroom corresponding to his preferred gender identity.

After the board made its decision, the U.S. Department of Education weighed in, issuing an interpretive letter.  James Ferg-Cadima, the Acting Deputy Assistant Secretary for Policy for the Department of Education’s Office of Civil Rights, stated that “Title IX . . . prohibits recipients of Federal financial assistance from discriminating on the basis of sex, including gender identity, …When a school elects to separate or treat students differently on the basis of sex in those situations, a school generally must treat transgender students consistent with their gender identity.”  Thus, according to the letter, Title IX and its regulations would mandate that the school board allow GG to use his preferred bathroom.

GG sued in federal district court, alleging violations of Title IX and the Constitutions’ Equal Protection Clause.  The district court dismissed GG’s claims but on appeal the 4th Circuit overturned this decision and, applying the Auer doctrine, held that the district court should have deferred to the interpretation contained in the Ferg-Cadima letter, as the letter was not plainly erroneous or inconsistent with the statute or agency regulation.  The 4th Circuit so held even though the letter was not subject to any public consideration and was contrary to the prior understanding of Title IX’s requirements.  The case then proceeded to the Supreme Court.

CoA Institute joined with Cato and four law professors to file an amicus brief supporting the school board in order to address the issues related to Auer deference.  The brief calls the Auer doctrine into question and argues in favor of stricter limits on the latitude currently given to agencies interpreting their own regulations.  Among the problems noted by the brief are that this type of deference (1) provides incentives for agencies to issue vague regulations, which they can interpret at will without going through any public notice or comment procedures and (2) undermines the separation of powers by giving agencies the authority to both write regulations, a legislative function delegated by Congress, and to definitively determine their meaning, a judicial function.

You can read the brief here.

Josh Schopf is counsel at Cause of Action Institute

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09/28/2016

Court Rightly Denies Rep. Van Hollen Request to Rehear Free Speech Case

Supporters of free speech and the First Amendment won a significant victory this week when a federal court denied a last ditch effort by Congressmen (and Senatorial candidate) Chris Van Hollen (D-Md.) to salvage his campaign finance case.

On January 21, 2016, a DC Circuit panel reversed the District Court for the District of Columbia and upheld a Federal Election Commission (“FEC”) regulation requiring unions and corporations (including nonprofit organizations) to disclose only those contributors who donate for the purpose of funding an election campaign.

Van Hollen had sued the FEC, arguing that such organizations should be required to reveal all donors, not just those that donate for an election. On appeal to the DC Circuit, CoA Institute filed an amicus brief in support of free speech principles. The DC Circuit agreed with the CoA Institute position that the FEC had struck an acceptable balance between disclosure requirements and First Amendment protections.  In so doing, the Court emphasized a number of points made in the CoA Institute brief, particularly the importance of protecting the constitutional rights of contributors to privacy and anonymous speech.

Following the DC Circuit decision, Van Hollen moved the entire DC Circuit to rehear the case (a rehearing en banc).  On September 27, 2016, the full court denied the petition.  Pending a Supreme Court appeal, the DC Circuit decision is now final.

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