Supreme Court Adopts the Position Urged by Cause of Action for When Fabrication-of-Evidence Lawsuits Must Be Filed

The window of time to file any lawsuit is limited. The period usually begins to run when the plaintiff first knows that something went wrong. In special circumstances, however, fair policy requires that the window to sue opens, or as lawyers say, the claim “accrues,” at a different time. Today, in McDonough v. Smith, a case in which Cause of Action Institute filed two briefs, the Supreme Court identified one of those special situations.

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Justice Gorsuch Opines on Due Process and Civil Asset Forfeiture

In Sessions v. Dimaya,1 Justice Gorsuch concurred in the judgment of a fragmented Supreme Court but only in part of the plurality opinion by four other justices. Justice Gorsuch wrote a separate opinion to explain something he (but not the plurality) thinks is fundamental about due process. His concurring opinion highlights how civil cases, including forfeitures, now frequently impose harsher penalties than criminal prosecutions.

Dimaya involved federal statutes authorizing deportation of criminal aliens. The law designates specific crimes which, when an alien is convicted of them, allow nearly automatic deportation. It also has a “catch-all” provision that includes any felony that “by its nature” involves “substantial risk” of “physical force” against property or another person.2 The question in Dimaya was whether this catch-all provision was so vague that it did not provide fair notice about what crimes carry the risk of deportation, thereby violating the due process clause of the Fifth Amendment. The plurality (Justices Kagan, Ginsburg, Breyer, and Sotomayor) and Justice Gorsuch answered Yes, and together they held the statute void for vagueness. Dimaya, the convicted alien, won; Attorney General Sessions lost.

Justice Gorsuch’s opinion about why the winner won takes a different tack than the plurality took. Civil asset forfeiture is key to understanding why.

Deportation, like most forfeitures, is a civil matter, even after an alien is convicted and even though deportation is “a particularly severe penalty which may be of greater concern to a convicted alien than any potential jail sentence.”3 More than one commentator quickly noted that Justice Gorsuch did not join the plurality’s opinion that “the most exacting vagueness standard should apply to removal cases, because the penalty of deportation is so severe.”4

That’s where Justice Gorsuch draws the line. “My colleagues suggest the law before us should be assessed under the fair notice standard because of the special gravity of its civil deportation penalty. But, grave as that penalty may be, I cannot see why we would single it out for special treatment when (again) so many civil laws today impose so many similarly sever sanctions.”5

Enter forfeiture.

Ours is a world filled with more and more civil laws bearing more and more extravagant punishments. Today’s “civil” penalties include confiscatory rather than compensatory fines, forfeiture provisions that allow homes to be taken…. Some of these penalties are routinely imposed and are routinely graver than those associated with misdemeanor crimes—and often harsher than the punishment for felonies. And not only are punitive civil sanctions … rapidly expanding, they are sometimes more severely punitive than the parallel criminal sanctions for the same conduct. … Given all this, any suggestion that criminal cases warrant a heightened standard of review does more to persuade me that the criminal standard should be set above our precedent’s current threshold than to suggest the civil standard should be buried below it.

*             *             *

Why, for example, would due process require Congress to speak more clearly when it seeks to deport a lawfully resident alien than when it wishes to … confiscate [a citizen’s] home? I can think of no good answer.”6

Tyler Arnold and I have made similar points here about civil asset forfeiture. Justice Gorsuch’s point is both broader (also touching civil commitments and broad business licensing requirements) and narrower (not foreclosing the possibility that particular civil forfeitures can meet the requirements of the Due Process Clause) than ours. So be careful what you wish for. A constitutional due process challenge to civil asset forfeiture generally could still come out exactly wrong at this Supreme Court.

Mike Geske is counsel at Cause of Action Institute

Sessions v. Dimaya, 584 U.S.       , 138 S.Ct. 1204, 200 L. Ed. 549, 2018 U.S. LEXIS 2497 (April 17, 2018).

2 See 18 U.S.C. §16(b); see also 8 U.S.C. §1101(a)(43).

3 Dimaya, 138 S. Ct. at 1213, 200 L. Ed. at 558, 2018 LEXIS 2497 at * 15-16 (Kagan, J., plurality op.) (citations and quotations omitted).

4 Dimaya, 138 S. Ct. at 1213, 200 L. Ed. at 557-58, 2018 LEXIS 2497 at * 15 (Kagan, J., plurality op.) (citations and quotations omitted).

5 Dimaya, 138 S. Ct. at 1231, 200 L. Ed. at 578, 2018 LEXIS 2497 at * 56 (Gorsuch, J., concurring in part, concurring in judgment) (citations and quotations omitted).

6 Dimaya, 138 S. Ct. at 1229, 1231, 200 L. Ed. at 575-76, 578, 2018 LEXIS 2497 at *52-53, *56-57 (Gorsuch, J., concurring in part, concurring in judgment) (citations and quotations omitted; emphases by Justice Gorsuch).

Has the IRS Changed Its Selection Criteria or Just a Machine?

In May 2013, the Treasury Inspector General for Tax Administration (“TIGTA”) reported audit results showing that between May 2010 and May 2012, the Internal Revenue Service (“IRS”) used “inappropriate criteria” to identify which organizations’ applications for tax-exempt status it would give heightened scrutiny.  TIGTA found that IRS selections had been based on groups’ names or policy positions rather than objective indicia that groups might act outside the requirements and limitations for tax-exempt status under 26 U.S.C. § 501(c).  As restated by TIGTA in its latest Review of Selected Criteria Used to Identify Tax-Exempt Applications for Review, published this month, “using names and/or policy positions instead of developing criteria based on tax-exempt laws and Treasury Regulations is inappropriate.”

The IRS asserts it has been reforming its review-selection process ever since in an effort to develop “data-driven” criteria and use “data analytics to inform decision-making.”  For example, the latest work plan for the Tax Exempt and Government Entities 2018 fiscal yeatar says the IRS will “continue to improve Form 990, 990-EZ, and 990-PF compliance models” as part of a new “data-driven approach” to checking compliance and selecting returns for examination.  The phrases “data-driven selection criteria” and “data analytics” can conjure algorithms and black-box calculators that are supposed to mirror impartial decisions and whose lack of bias is notoriously difficult to understand without expert background and sophisticated mathematics.

The IRS’s description of its approach, however, proffers something much simpler that does not involve sophisticated mathematics or algorithmic analysis.  Instead, its new “data-driven” approach involves analyzing informational returns for indicia that the group is operating outside the restrictions of the tax-exempt statutes or not complying with reporting obligations.  So, under the 2018 Plan, examinations will target organizations whose returns show the “highest risk of Employment Tax non-compliance” (such as 1099 information showing “high distributions” or numerous employees but “zero or minimal Medicare and/or Social Security wages paid”).  And examinations will focus on entities that do not file schedules required by their Form 990 information.  More generally, when an entity’s Form 990 suggests it has taxable business income unrelated to its charitable purposes, an examination should ask whether the entity filed Form 990-T and if not, why not.

If this “data-driven” approach is new, a few questions arise:  How was the IRS using data from Form 990 series returns before now?  Why weren’t these compliance criteria used previously?  Shouldn’t the IRS have been flagging these potential problems all along?

In any event, to the extent “data-driven” analysis does not rely on names or policy positions but instead focuses on objective indicia of compliance with the law and Treasury regulations, the new approach will be better than the IRS’s past inappropriate practices.  But if that’s all that’s being changed, and the data being relied upon is still from Forms 1023 and 990, then perhaps “machine-driven” better captures the new examination-selection criteria than “data-driven.”

Mike Geske is Counsel at Cause of Action Institute.

Newest TIGTA Review Shows Broader Extent of Political Targeting by IRS

The U.S. Department of Justice has filed a proposed consent order settling a federal case in which scores of organizations allege that the IRS violated their rights to free speech, free association, and equal protection of the law when it screened their applications for tax-exempt status on the basis of their names and policy positions alone. In the consent order the IRS admits its process was wrong and the Court will declare that “discrimination on the basis of political viewpoint in administering the United States tax code violates fundamental First Amendment rights.” That’s a spectacular settlement and a welcome outcome for the plaintiffs. But it will not end the IRS’s continuing practice of preparing sensitive case reports for supervisory review whenever an application or request for information might “attract media or Congressional attention.” The Internal Revenue Manual provisions that authorize sensitive case reports are where the scandal of political targeting by the IRS began. And until those provisions are withdrawn, cases and requests that an administration considers “sensitive” but outside the terms of the new consent order may still get special treatment within the IRS.

In a 2013 Audit Report, the Treasury Inspector General for Tax Administration (“TIGTA”) found that the IRS “inappropriately identified specific groups applying for tax-exempt status” whose applications would receive special scrutiny. Over a two-year period beginning in May 2010, the IRS inappropriately identified those groups “based on their names or policy positions instead of developing criteria based on tax-exempt laws and Treasury Regulations.” The result was a process by which the IRS demanded and examined additional information from these groups after labelling them “Tea Party cases,” and the ensuing controversy was dubbed the “IRS Tea Party targeting scandal.”

In its new 2017 Review, published earlier this month, TIGTA recounts how the IRS developed and used 17 “selection criteria” between 2004 and 2013 to identify which groups and applications for tax-exempt status deserved extra attention. Politicians and media outlets are claiming that the 2017 Review proves there never was an “IRS Tea Party targeting scandal” because the IRS also used names and policy positions to select progressive, liberal, and Democratic-affiliated groups for heightened scrutiny. A Washington Post headline sums up the revisionist interpretation:  “Four years later, the IRS tea party scandal looks very different.  It may not even be a scandal.”

This 2017 Review provides new information, disclosing that the IRS sometimes used names and political positions alone as selection criteria for heightened scrutiny of tax-exempt applications instead of the organization’s activities and the requirements of the Internal Revenue Code and related regulations. The initial 2013 Audit Report was limited to two years of IRS practice beginning in May 2010 because that was “the first date that [TIGTA was] informed that the Determinations Unit was using criteria which identified specific organizations by name.” 2013 Audit Report at 9 n. 20.  Yet the 2017 Review shows that the same kind of “inappropriate” practice began at least five years earlier, and neither the new 2017 Review nor the early press and political commenters recognize the significance of this revelation.

Yes, as the early reactions suggest, two of the overtly partisan criteria identified in the 2017 Review are tied expressly to the Democratic Party and “progressive” partisans.  But the IRS first used these criteria to choose applications for heightened scrutiny way back in 2005 and 2007, during the George W. Bush administration.

At the end of 2007, the IRS selected applications from groups named in the “Emerge network of organizations” whose purpose “was to train women to run as Democratic candidates for public office.” By September 2008 the IRS highlighted the “Emerge” criterion in an e-mail alert and training.  Up to 12 applications may have been affected by the Emerge criterion, either initially or upon subsequent review.

In October 2005 the IRS began using the “Progressive” criterion, identifying “the word ‘progressive’” and the “Common thread.”  In April 2007, the IRS noted further that the groups “appear as anti-Republican” with “references to ‘blue’ as being ‘progressive.’”  Up to 74 applications may have been affected by the Progressive criterion.

These two criteria are no small potatoes. Together, the Emerge and Progressive criteria may have played an inappropriate role in more than half (96 of 181) of the applications considered in the 2017 Review.

Two other criteria identified in the 2017 Review are overtly partisan for the other side. Just before the 2010 mid-term elections, the Obama IRS looked for “Pink Slip” and “We the People” in names or titles as proxies for Tea Party groups to select tax-exempt applications for special examination. And in the run up to the 2012 general election in which President Obama was re-elected, the IRS began using “Paying the National Debt” to identify applications for extra scrutiny, a criterion which overlapped with “We the People.”

So, reporters and politicians who claim that the IRS’s inappropriate use of names and policy positions was never a scandal are ignoring the important chronology revealed in the new 2017 Review. By claiming that this selection process was not scandalous because goose and gander got the same sauce without considering who applied that sauce and when, they are condoning politically influenced tax decisions at the IRS so long as the law allows presidents of both political parties to harass their political opponents. But wrongs on both sides don’t make a right. As John McGlothlin of Cause of Action Institute opined last week in “The Hill,” the 2017 Review shows that “neither side focused on the larger point – that citizens from both sides of the political spectrum, were being denied their rights.”

Politics periodically infects tax enforcement and administrations of both parties have used political targeting by the IRS. But as Cause of Action Institute has discussed many times, the larger point is that the IRS and Congress have turned blind eyes to the identifiable, current provisions in the Internal Revenue Manual that allow such meddling. So inappropriate political targeting by the IRS remains a threat under the agency’s own regulations, even now under President Trump. Leviathan’s nature is to flee reform, so let’s hope Congress exercises its power to tame that beast, and soon. Without those reforms, the IRS can and inevitably will continue to use  inappropriate, politically-charged criteria in enforcement, investigatory, and compliance decisions, to evade congressional reforms, and to avoid accountability.

Mike Geske is counsel at Cause of Action Institute.

Criminal Forfeiture Protects Property Owners More Than Civil Forfeiture

In two months, the Supreme Court of the United States has issued two opinions about forfeiture, the set of legal rules by which ownership in seized property is transferred to the State. Civil asset forfeiture is currently much in the news and recent opinions may obliquely portend some broad changes to that area of law, although the rulings do not expressly say so.  What the rulings do show is the shocking lack of protections available to property owners whose property is divested through civil forfeiture proceedings compared to when property is divested through criminal forfeiture.  In civil forfeiture, owners frequently have lower protections against losing their rights and face higher thresholds to recover their property than convicts whose property is forfeited as part of sentencing for their criminal acts.  Injustices arising out of criminal forfeiture, at least, are now under repair.  The Supreme Court may now be in a position to address civil forfeiture.

In Honeycutt v. United States, 581 U.S. ___, No. 16-142, slip op. (June 5, 2017), the Court limited the ability of prosecutors to use conspiracy and joint and severable liability doctrines to extend the effects of criminal forfeiture, defined as the statutory power of the “Government to confiscate property derived from or used to facilitate criminal activity.” Honeycutt, slip op. at 3.  A hardware store owner sold $400,000 of a product used to make methamphetamine.  The owner and his brother were both indicted and the Government sought forfeiture of about $269,000 profit from those sales.  As an hourly employee of the store owner, the convicted brother “never obtained tainted property,” Honeycutt, slip op. at 11, but rather had only been paid his wages.  The owner pleaded guilty and agreed to forfeit $200,000 as part of the sentence; a jury acquitted the brother of some counts but convicted him on some conspiracy charges; and the government sought to hold him jointly liable for the remaining $69,000 of profit by seeking criminal forfeiture from him.  The question, therefore, was whether the applicable statute allows conspiracy-related or joint and several liability for forfeiture judgments against convicted defendants who did not acquire “tainted property.”

The Court answered No. Criminal forfeiture may only be applied in judgment against persons actually convicted of a crime, only to the convicted person’s (and no other person’s) interest in the forfeited property, and only as a judgment arising from the counts on which the defendant was actually convicted.  Moreover, the statute at issue limits forfeiture “to the person’s property obtained directly or indirectly as a result of the crime,” and to property “acquired … during the period of the violation” for which there “was no likely source for such property other than” the crime. Honeycutt, slip op. at 4—5, 8.  Given those limitations, the Court ruled that

“Congress did not authorize the Government to confiscate substitute property from other defendants or coconspirators; it authorized the Government to confiscate assets only from the defendant who initially acquired the property and who bears responsibility for its dissipation. Permitting the Government to force other co-conspirators to turn over untainted substitute property would allow the Government to circumvent Congress’ carefully constructed statutory scheme….”   Honeycutt, slip op. at 9.

The Court ruled that the text of the statute at issue showed Congress had imported some in personam (literally, against the person) aspects into criminal forfeiture sentencing, but had retained the focus on “tainted property” that is included in purely in rem (literally, against the thing) civil forfeiture proceedings. Honeycutt, slip op. at 10.

By requiring some nexus between personal irresponsibility of the owner and the penalty of transferring ownership to the State, criminal forfeiture is more protective of property rights than civil forfeiture. As civil forfeiture law now stands, prior to eliciting evidence in the record of the brother having earned only an hourly wage, the government could have seized property of that value from the brother based on probable cause that it was “related” to a crime (based on evidence from the owner’s guilty plea) and likely forfeited it successfully.  At the very least, in that scenario, the burden of proving that the brother had innocently earned the $69,000 would have shifted to the brother before the money was ordered to be returned.

Indeed, civil asset forfeiture requires no nexus between any person’s individual responsibility and a proven crime, but rather only a nexus between the property at issue and a suspected crime.   This difference arises out of the distinction between in personam and in rem jurisdiction.  In effect, that doctrinal distinction has been carried so far that civil asset forfeiture can divest even innocent owners of property on the basis of mere probable cause to believe property is connected with a suspected crime, even if no crime is ever proved, even if there is not enough evidence to charge anyone with a crime, and even if the property was involved only through a third-party unknown to the owner.  Some procedures allow an innocent owner to recover property, but they are expensive and require legal involvement and provide no assurance that the property will be returned.

The injustice that can be worked against criminal defendants by these latter kinds of hurdles were displayed in Nelson v. Colorado, 581 U.S. ___, No. 15-1256, slip op. (April 19, 2017). After conviction, the State of Colorado sets up inmate accounts for defendants, and money they earn in jail is allocated from those accounts to pay costs, fees, and restitution.  When convictions are reversed, some defendants can seek refunds under Colorado’s Exoneration Act.  But under the Exoneration Act, a defendant must “prove her innocence by clear and convincing evidence….” Nelson, slip op. at 12.   The Supreme Court held that the Exoneration Act refund scheme did not comport with procedural due process requirements.

According to the Court, a state “may not presume a person, adjudged guilty of no crime, nonetheless guilty enough for monetary exactions;” instead, “[t]o comport with due process, a State may not impose anything more than minimal procedures on the refund of exactions dependent upon a conviction subsequently invalidated.” Nelson, slip op. at 7, 10.  But to most outside observers, that is exactly what often happens in civil asset forfeiture.  In civil forfeiture, no crime need be proved or even charged against the owner or, indeed, anyone else.   In fact, the guilt or innocence of the owner whose property is forfeited is irrelevant to an underlying civil forfeiture action, and a separate action or affirmative defense of remission or other mitigation must be initiated by an innocent owner.

If the Court’s limitation to nothing “more than minimal procedures” for a wrongfully convicted defendant to recoup criminal exactions is correct, then why should anyone, particularly an innocent owner in a civil asset forfeiture matter where no crime need be proved, still be required to participate in any action, even civil, where they might have to show by a preponderance or higher burden that they were innocent or otherwise entitled to maintain their property? The situation is even more egregious where civilly forfeited property was used by someone else without the owner’s knowledge.  The Supreme Court’s work in reforming the law governing forfeiture is only half done, at best.

Mike Geske is counsel at Cause of Action Institute

Selective Memory: Presidential Control of Press and Information

Among people who know and use the Freedom of Information Act and similar laws to discover and report what the government is doing, this week is known as Sunshine Week, a time to promote government transparency. But a disorienting fog has settled in.

When was the last day that the news did not include a report about the President’s use of direct social media to avoid traditional press outlets whom he regularly disparages for using unlawfully leaked information to unfairly report what the government is doing and planning? Allegations abound that the administration regularly imposes unprecedented policies that restrict or remove access to government information and impede contacts between the press and knowledgeable civil servants.  For example:

“White House curbs routine disclosure of information and deploys its own media to evade scrutiny by the press.”

“It’s turning out to be the administration of unprecedented secrecy and unprecedented attacks on a free press.”

The “administration’s steadily escalating war on leaks, the most militant I have seen since the Nixon administration, has disregarded the First Amendment and intimidated a growing number of government sources of information — most of which would not be classified — that is vital for journalists to hold leaders accountable.”

The administration’s anti-leak effort “targets not only national security departments and agencies but most federal bureaucracies from the Peace Corps to the Social Security Administration and the Education and Agriculture Departments.”

“[W]e now have evidence of a pattern of anti-media behavior…. The suspicion has to be that maybe these ‘leak’ investigations are less about deterring leakers and more about intimidating the press.”

The administration’s “recent effort to stem leaks in the federal workforce doesn’t just exemplify … cluelessness. It verges on being a parody of it.”

The depth of dismay is hard to overstate. An executive editor of The New York Times put it this way: “I would say it is the most secretive White House that I have ever been involved in covering, and that includes — I spent 22 years of my career in Washington and covered presidents from President Reagan on up through now, and I was Washington bureau chief of the Times during George W. Bush’s first term.”

But none of the above-linked stories is about President Trump or current events. All of these complaints were written about President Obama early in his second term.

This selection of stories about how the Obama administration manipulated the media and restricted independent access to government information is representative. If anything, it’s too cautious.  Readers can find much more, and much worse, reported by the most respected of voices. Even so, complaints about the relationship between the press and the Obama and Trump administrations and their unprecedented, programmatic restriction of access to information are strikingly similar.  Perhaps such practices sting more sharply after a President takes the oath and starts to govern.  Politico reports that the President’s aides are “obsessed with taking advantage of Twitter, Facebook, YouTube and every other social media forum, not just for campaigns, but governing.” Yet that story, too, was about President Obama, not President Trump.

Controlling information in service of a president’s political objectives is not new. It is not sui generis and did not spring forth fully formed like Athena from Zeus’s head—or President Trump’s.  The current administration has taken another step in a well-known progression, and not a big one at that.  In historical context we can recognize it without surprise as the next manifestation of Leviathan’s thirst for ever more power and control.  Bob Schieffer, after decades as a Washington correspondent and broadcast news anchor, sums up the situation this way:  “When I’m asked what is the most manipulative and secretive administration I’ve covered, I always say it’s the one in office now.”

Mike Geske is counsel at Cause of Action Institute

Transparent Procedures about the President’s Tax Returns

As we explained earlier this week, post-Watergate reforms to the Internal Revenue Code declared taxpayer’s tax returns and related information confidential.  Disclosure of confidential taxpayer information is the exception and is prohibited except for enumerated, limited purposes and situations that are “authorized by statute.”  Even when disclosure is statutorily authorized, the Internal Revenue Code imposes additional procedures so that, absent prior consent, disclosure of confidential taxpayer information to the government for purposes other than administering or enforcing tax law becomes a matter of public record.

Recent debate about President Trump’s tax returns has provided a case study about how the confidentiality rule and limited disclosure exceptions operate, both legally and politically. Under 26 U.S.C. § 6103(f), the House Ways and Means Committee and the Senate Finance Committee can request access to examine any taxpayer’s information (including the president’s) without the taxpayer’s consent, but only subject to procedural safeguards designed to make the fact of Congress’s request publicly transparent.  Last week, the Ways and Means Committee considered but decided against invoking that authority to obtain the president’s returns.  On February 27, 2017, the Democrats forced the entire House to take a floor vote on whether the Committee should invoke the statute.  Again, along party lines, the decision was made not to seek the President’s returns (although two Republicans voted “present” rather than nay).

Thereafter, in a March 1, 2017 letter, Democratic members of the Senate Finance Committee requested that their Chairman, Orrin Hatch (R-UT), use the same statutory authority to obtain President Trump’s tax returns for the Committee’s review.  The Democrats argued that the information would help investigate suspicions about the President’s business and political relationships.  Senator Hatch, in a joint letter with House Ways and Means Committee Chairman Brady, rejected the Democratic members’ request.  The Senate and House Chairmen argued that their Committees’ authority to obtain taxpayer information should only be invoked when tax improprieties or abuse of taxpayer rights were suspected, and that broader uses to investigate business and political relationships would be an “abusive” and “dangerous precedent.”

The press has widely reported these events and arguments, as it should. As we wrote earlier this week, “by requiring that every congressional request for an American taxpayer’s confidential information is transparent, the Tax Reform Act of 1976 implicitly relies on the press and third-party watchdog groups to make that information known to the broader public, hopefully, in an accurate and user-friendly form.”  The public is indeed paying attention and some constituents are vigorously inquiring about their representatives’ and senators’ position about the President’s tax returns.  Engagement like that indicates that the statutory protections promoting transparency for congressional requests to see confidential taxpayer information are operating as they should.  Lawmakers must weigh the value of confidentiality whenever they consider seeking access to a taxpayer’s protected information and, when they choose disclosure over confidentiality (or when, as in this instance, they vote against disclosure), constituents will know and be able to use that information in evaluating the work of their representatives.

Mike Geske is counsel at Cause of Action Institute