Case o' Week: Good as Gold - Kahre and Defense Evidence in Tax Cases

   If your salary is paid with a fifty dollar U.S. coin, you federal owe tax on how many dollars?

   (Hint: the answer ain’t “fifty . . . .)

United States v. Kahre, 2013 WL 6284419 (9th Cir. Dec. 5, 2013), decision available here.

Players: Per curiam decision by Judges Hug, Rawlinson and Ikuta. Hard-fought appeal by D. Nev. AFPDs Michael Powell and Michael Kennedy.  

Facts: Robert Kahre and his co-defendants were charged with federal tax crimes. Id. at *1. Kahre ran a business where employees were paid in gold or silver coins. Employees then exchanged these coins for cash from Kahre’s company – with no W2’s and no payroll taxes paid. Id. at *4-*5. Co-defendant Lori testified at trial that she thought the gold and silver coins were legal tender based on the “Gold Bullion Coin Act of 1985,” that she calculated her wages based on the face value of the coins (instead of their worth as precious metals), and that she thus thought she made too little to trigger tax obligations. Id. at *6. Robert Kahre testified at trial that he believed that gold was legal tender, and that the IRS was an illegal agent of the World Bank and IMF. Id. at *5. The district court allowed the defendants to testify about these views that bore on their theory that they believed their “coin” payroll scheme legal (and therefore this wasn’t willful evasion). The court, however, excluded other evidence concerning the legality of “gold clause contracts.” Id. at *17. The defendants were convicted on tax counts; Robert Kahre was sentenced to 190 months. Id. at *6.

Issue(s): “Appellants challenge the district court’s exclusion of evidence concerning the legality of gold clause contracts.” Id.

Held: “Legal materials upon which the defendant does not claim to have relied . . . can be excluded as irrelevant and unnecessarily confusing because only the defendant’s subjective belief is at issue: the court remains the jury’s sole source of law . . . . The district court, therefore, properly excluded evidence, including proffered expert testimony, that conflicted with its correct legal ruling that coins were assessed at fair market value for tax purposes irrespective of their use as legal tender.” Id. (internal quotations and citation omitted).

Of Note: This per curiam opinion is as dry as old toast, but read between the lines and its clear there was a brutal battle in the district court. Kahre got obstruction after testifying, challenged the judge’s partiality on appeal, id. at *19, and brought a Bivens action against the AUSA. (The AUSA complained to defense counsel that the Bivens action threatened his job and his pension, and the case was now, “personal.” Id. at *3, *16). On appeal, Kahre argued that the AUSA should have been removed because he was a defendant in the Bivens civil rights action. The Ninth was unpersuaded, and in a decision of first impression in the Circuit explains: “We . . . hold that proof of a conflict must be clear and convincing to justify removal of a prosecutor from a case.” Id. at *15 (emphasis added). 

  As the adage goes, if planning to shoot an elephant, it is prudent to bring an elephant gun -- here, the Ninth found neither the challenge to the judge or to the AUSA, of sufficient firepower on appeal. Id. at *16, *19.

How to Use: Kahre is depressingly familiar to anyone who defends clients convinced of the righteousness of their -- creative -- gold theories, or their “Corporation Sole” status, or other ideas of the “fringe on the flag” ilk. It is thus a good teaching tool: everything we worry about when advising these clients about trial (severe limitations on the “proof” of their theories, significant obstruction of justice penalties, and a Circuit that doesn’t share the defendant’s strong views of the prosecutor and judge) happened, and was affirmed. A thin silver lining was the Ninth’s acknowledgement that there is a willfulness element in these tax cases -- it’s the government’s burden to negate a good faith belief. Id. at *18. That’s small solace to Kahre; he’s serving fifteen.

                                               

For Further Reading: News flash: AUSAs unfairly impede trial rights by threatening mandatory minimums for clients who don’t plead. For a thoughtful report on one of the worst systemic bars to justice in the federal system, visit the Human Rights Watch site available here.

Image of gold coin from http://ad-orientem.blogspot.com/2010/06/77-years-ago-today.html Image of Roosevelt with elephant from http://upload.wikimedia.org/wikipedia/commons/6/66/Roosevelt_safari_elephant2.jpg

Steven Kalar, Federal Public Defender N.D. Cal. Website at www.ndcalfpd.org

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Case o' The Week: The Ninth Gets it Wright -- Federal Jurisdiction in Child Pornography Cases

Does a statute that makes it a federal crime to transport child pornography across state lines, require that the images actually cross state lines?

Um, yes. United States v. Wright, 2010 WL 4345670 (9th Cir. Nov. 4, 2010), decision available here.

Players: Important victory for D. Az. AFPDs Heather Williams and Brian Rademacher. Decision by Judge Milan Smith, concurrence by Judge Hug.

Facts: An FBI agent got onto a mIRC (Internet Relay Chat) and directly hooked into a a computer server later traced to Wright’s address. Id. at *1. The agent downloaded child porn, and Wright was charged with the “advertisement, transportation, and possession of child pornography.” Id. at 2. Because the FBI agent’s computer (in Arizona) linked directly to Wright’s computer (in Arizona), (albeit over the internet) the images did not move across state lines. Id. at *3.

Wright beat seven counts at trial. Id. (!?! - a remarkable victory - seven acquittals in a child porn trial!). One of the counts of conviction was transportation of child porn under 18 USC § 2252A (as it existed in 2003). Id.

Issue(s): “Whether section 2252A(a)(1)’s ‘in interstate . . . commerce’ language requires the government to prove that the images themselves traveled across state lines appears to be a question of first impression in this circuit. Wright’s principal argument is that the statute does so require.” Id. at *3 (emphasis added).

Held: “[O]ur precedent indicates that criminal statutes punishing the transmission of the relevant material ‘in interstate or foreign commerce’ require the material itself to cross state lines. Yet here, as the government concedes, none of the images Wright transported to Andrew’s computer left the state of Arizona. Indeed, none traveled outside the city of Tuscon.” Id. at *6. “[W]e hold that an interstate predicate act - here, Wright’s connection to the IRC network - does not provide a sufficient basis for federal jurisdiction under section 2252A(a)(1).” Id. at *9.

Of Note: Judge Milan Smith pens a terrific analysis of the legislative history of the federal child porn statute, and the jurisdictional requirements of the precise language used. The case is a huge win and should be required reading for anyone mulling a challenge to the “jurisdictional hook” of any statute. Note, however, that this is not a broad invalidation of the federal child porn statutes – Wright presents some pretty unique facts. The agent in Wright accessed the images using “mIRC:”a very specific file-sharing client that “linked” the two machines. That is a very different system than, for example, downloading images off of a web page, or e-mailing porn. Both of these methods would have almost certainly created a jurisdictional hook under the Wright analysis.

How to Use: AFPDs Williams & Rademacher are formidable defense duo, and this lengthy opinion wades through their many additional challenges – with some good language and results. On the jurisdictional front, Judge Smith rejects the government’s argument that any use of the internet is always enough provide the jurisdictional hook for a charge. Id. at *11. Along the way he also scolds the government that the mere use of a computer is also insufficient: “Whether the defendant transported child pornography by mail, by sea, or by computer, the government must still prove it crossed state lines.” Id. at *8.

Moreover, while the defense didn’t win on this argument, Judge Smith provides a very sympathetic and quotable discussion of the defense right to introduce FRE 404(b) evidence – even against absent witnesses. Id. at *20.

Finally, Wright will be the go-to case to reverse those tight-lipped D.J.’s who summarily deny defense motions with contested evidentiary issues, with no factual findings. Id. at *13. Silence may be golden, but it’ll earn a district court a quick remand when it means that the Ninth can’t conduct a meaningful review. Id. at *12-*13.

For Further Reading: The biggest practical impact of Wright is a disappointing discussion at the end of the opinion on the financial and time limitations on computer forensic review. Id. at *24-*25. Anyone undertaking defense computer forensic review – or paying for it – should read this section, and should worry about the costs that it will generate. The defense, it appears, was sandbagged on the eve of the Wright trial, and didn’t get a needed continuance to counter a new forensic theory. Id. Their complaint fell on deaf ears on appeal. How do we avoid this situation in future cases? Empty CJA coffers, pay for scorched-earth forensic analysis, and salt the appellate record when money and time is unfairly restricted. For an interesting article worrying about electronic evidence in criminal cases, see Daniel B. Garrie, & Daniel K. Gelb, E-Discovery in Criminal Cases: A Need for Specific Rules, available here.


Image of mIRC logo from http://www.mirc.com/



Steven Kalar, Senior Litigator N.D. Cal. FPD. Website at www.ndcalfpd.org


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Case o' The Week: Obscene in Oshkosh? Perverse in Poughkeepsie? Kilbride and the National Obscenity Standard

Federal obscenity statutes require the jury to determine whether the image at issue is "obscene" using "community standards." When there's no control over where the image is sent geographically, however, (like in a spam e-mail), what is the relevant "community" whose standards are to be used to identify "obscene" images? Even in the Ninth Circuit, there's a pretty wide range in "communities" between, say, San Francisco and San Diego, Missoula and Mill Valley. Fortunately, Judge Betty Fletcher (left) answers this question for us in a particularly thoughtful and thorough new opinion, United States v. Kilbride,__ F.3d __, No. 087-10528 , 2009 WL 3448360 (9th Cir. Oct. 28, 2009), decision available here.

Players: Decision by Judge Betty Fletcher, joined by Judges Hug and Hawkins.

Facts: Kilbride and others controlled an overseas company, “Ganymede Marketing.” Id. at *1. The company send spam into the states with sexually-explicit images and faked email headers. Id. The defendants were charged with, among other things, interstate transportation of obscene materials for sale. Id. at *2. (Ed. Note: this does not appear to involve child porn, which is (also) criminalized under separate federal statutes that carry much higher exposures).

At trial the jury instruction regarding whether the material was “obscene” did not define which “community’s standards” the jurors were to consider when reaching this determination. Id. at *4. Using the Supreme Court’s ‘74 Hamling language, the instruction allowed the juror to “simply draw on knowledge of the community or vicinage from which he comes in determining contemporary community standards.” Id. at *4 (emphasis added).

Issue(s): “Defendants assert . . . that Hamling’s prevailing definition of contemporary community standards is not appropriate for speech disseminated via email. Because persons utilizing email to distribute possibly obscene works cannot control which geographic community their works will enter, Defendants argue that applying Hamling’s definition of contemporary community standards to works distributed via email unavoidably subjects such works to the standards of the least tolerant community in the country. This, Defendants assert, unacceptably burdens First Amendment protected speech. To avoid this constitutional problem, Defendants argue, obscenity disseminated via email must be defined according to a national community standard.” Id. at *8.

Held: “[We] join Justices O’Connor and Breyer [who wrote concurring decisions in Ashcroft v. ACLU, 535 U.S. 564 (2002)] in holding that a national community standard must be applied in regulating obscene speech on the Internet, including obscenity disseminated via e-mail. . . . To avoid the need to examine the serious First Amendment problem that would otherwise exist, we construe obscenity as regulated by §§ 1462 and 1465 as defined by reference to a national community standard when disseminated via the internet.” Id. at *12 (internal quotations and citation omitted). “In light of our holding, the district court’s jury instructions defining obscenity pursuant to Hamling was error. However, this error does not require reversal because this error was far from plain.” Id.

Of Note: This long decision discusses many issues other than what is described above. Judge Fletcher considers, and rejects, a “void for vagueness” challenge brought against the anti-SPAM statute. Id. at *13. Like Judge Berzon in last week’s Van Alstyne decision, Judge Fletcher also struggles to make sense of a severely fractured, controlling, Supreme Court decision. Id. at *9-*12.

Of greatest interest, however, is the new rule (or rather, newly-distilled rule) on the relevant “community” to be used to determine “obscenity.” It is a good rule: the national community standard denies “the most puritan of communities [the] heckler’s Internet veto affecting the rest of the Nation.” Id. at *10 (quoting Justice Breyer from Ashcroft v. ACLU). Interesting to speculate on how the Kilbride rule can be expanded – maybe to the “lascivious” prong of the federal child porn definition? See 18 U.S.C. § 2256(2)(a)(v).

How to Use: Kilbride will be a seminal decision for cases involving obscenity on the internet. Note, however, that (by and large) it will not be a important decision in child pornography cases. Pornography involving real children can be prosecuted even if it is not “obscene” under the Miller test. See New York v. Ferber, 458 U.S. 747 (1982). Hence, with the possible exception of the example above, Kilbride should not be read as requiring a “national community” test for whether an image is child porn – the obscenity definition (generally) is irrelevant in (real-child) porn cases.

For Further Reading: For an interesting article on the Hon. Betty Fletcher, thankfully one of the most “active” (as in “busy,” not “activist”) Senior Judges in the Ninth, visit the Seattle Weekly here.


Image of the Hon. Betty Fletcher by Steven Miller, of the Seattle Weekly, from http://www.seattleweekly.com/photoGallery/?gallery=744151


Steven Kalar, Senior Litigator N.D. Cal. FPD. Website at www.ndcalfpd.org

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