The following post, which was authored by Joseph DiRuzzo, originally appeared on the Federal Tax Crimes Blog on May 5, 2014. We re-post it here with permission.
On April 30, 2014, the Philadelphia based U.S. Court of Appeals for the Third Circuit issued its precedential opinion in United States v. Tai, ___ F.3d ___, 2014 U.S. App. LEXIS 8129 (3d Cir. April 30, 2014), here. A copy of the Tai decision is available here.
Before filing an appeal with the Third Circuit, Tai was convicted for mail and wire fraud related to the “Fen-Phen Settlement Trust” which was created to compensate victims who underwent surgery for heart valve replacement or primary pulmonary hypertension (PPH) after taking Fen Phen. The trust was established by the U.S. District Court for the Eastern District of Pennsylvania to administer all claims and benefit payments to Fen Phen victims who registered as part of the Nationwide Class Action Settlement Agreement with American Home Products Corporation.
Individuals wishing to make claims were required to submit a physician’s report from a cardiologist and the Trust would review the documents to ensure that the claims were legitimate. Tai was one of the cardiologists hired to prepare reports in support of individuals claims. Tai admitted that in about 10% of his cases, he drafted reports that he knew were incorrect. When Tai’s reports were audited, a substantial number were not only clearly incorrect, but included measurements which were “inconsistent with a human adult heart.” Slip op. at 6.
Tai was charged with mail and wire fraud in violation of 18 U.S.C. sections 1341 and 1343; he was found guilty on all charges and sentenced to 6 years in prison. Tai appealed his conviction arguing that, among other things, the jury instruction was “constitutionally infirm because it shifts the burden of proof to the defendant to disprove intent.”
As a threshold matter, because Tai did not raise his objection to the jury instruction at the trial level and thereby failed to preserve it, the Third Circuit employed a “plain error” test, which is a highly deferential standard of review. Under the “plain error” test, criminal defendants have the burden of establishing than any error was “plain” and he must show: (1) an error; (2) that is plain; (3) that affects substantial rights; and (4) which seriously affects the fairness, integrity, or public reputation of judicial proceedings.Johnson v. United States, 520 U.S. 461, 466-67 (1997).
Regarding the instruction, the Third Circuit observed that a “willful blindness instruction is typically delivered in the context of explaining how the Government may sustain its burden to prove that a defendant acted knowingly in committing a charged offense.” A jury instruction must track the applicable law, but District Court judges have substantial latitude in the actual wording of the jury instruction. However, insofar as jury instructions related to the Fifth Amendment’s requirement that the Government prove its case beyond a reasonable doubt on each element of the offense, “a jury instruction violates due process if it fails to place squarely on the Government the full burden of proving beyond a reasonable doubt the required mental state for the offense.” Slip op. at 10 citing Patterson v. New York, 432 U.S. 197, 204-07 (1977).
In other words, as Tai argued, shifting the burden of proof in a criminal case violates the Fifth Amendment and can often result in a conviction being overturned. SeeMullaney v. Wilbur, 421 U.S. 684, 703–04 (1975) (due process does not permit shifting the burden of proof to the defendant by the use of conclusive or burden-shifting presumptions); see also Boles Trucking v. United States, 77 F.3d 236, 241 (8th Cir. 1996)(discussing in a civil case that “it is reversible error to place the burden of proof on the wrong party or to place an unwarranted burden of proof on one party.” (internal quotations and citations omitted)). However, because the “willful blindness instruction then explicitly explained that ‘the Government may prove’ this element through evidence that established beyond a reasonable doubt that Tai ‘deliberately closed his eyes to what would otherwise have been obvious to him,’” (slip op. at 11), there was no impermissible burden shifting. Ultimately, the Third Circuit concluded that the “instructions told the jury when willful blindness does or does not exist, but did not imply in any way that Tai must present evidence concerning his own beliefs or knowledge.” Accordingly, “there was no implicit or explicit shifting of the burden of proof to Tai.” Id.
The Tai case is instructive in criminal tax and Bank Secrecy Act cases to the extent that it addresses the willful blindness jury instructions which often arise in those cases. Since the mens rea requirement requires that the Government prove that a criminal defendant had the culpable mental state, often the defense strategy will be along the lines of ignorance, negligence, incompetence, or lack of sophistication, but falling short of being criminal. In order to rebut this defense, the Government will typically attempt to introduce evidence that when a defendant “sticks his head in the sand” such deliberate acts – i.e., the willful blindness – cannot be used to escape criminal liability. This essentially pits the criminal defendant’s subjective belief against the jury’s belief as to what was reasonable under the circumstances.
One other, special point is also worth mentioning. The Government may attempt to argue in “willful blindness” cases that the defendant’s actions were not objectively reasonable and hence the jury can conclude that the defendant intentionally intended to be willfully blind to the facts. This subjective versus objective tension will often dictate the outcome of the case, but will almost always require a criminal defendant to take the stand in his defense to assert a Cheek defense. In Cheek v. United States, 498 U.S. 192 (1991), the Supreme Court established that a genuine, good faith belief that one is not violating the Federal tax law based on a misunderstanding caused by the complexity of the tax law is a valid defense to a charge of “willfulness,” even though the defendant’s belief is objectively irrational or unreasonable.
More often than not, willful blindness cases boil down to one question: does the jury believe the defendant?