Opposition Brief — Gross v. United States

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QUESTION PRESENTED

Whether, in addition to instructing the jury that it

must find that petitioner acted knowingly and willfully

in order to convict, the district court was required to

give petitioner’s requested instruction that good faith is

a defense to the charges against him.

(I)

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES

Cases:

Cheek v. United States, 111 S. Ct. 604 (1991) wu... 7-8

Cupp v. Naughten, 414 U.S. 141 (1978) ..... 6

Estelle v. McGuire, 112 S. Ct. 475 (1991) ..... 6

Mathews v. United States, 485 U.S. 58 (1988) ................. 6

United States v. Alcantar, 882 F.2d 1175 (9th Cir. 1987). 10

United States v. Casperson, 773 F.2d 216 (8th Cir.

a acces uucnhnene nenenensuansbanniese 10

United States v. Cegelka, 853 F.2d 627 (8th Cir. 1988),

cert. denied, 488 U.S. 1011 (1989) .....................cccsccecsees 11

United States v. Dockray, 943 F.2d 152 (1st Cir. 1991) ... 10

United States v. Gambler, 662 F.2d 834 (D.C. Cir. 1981) . 10

United States v. Goss, 650 F.2d 1336 (5th Cir. 1981) ....... 10

United States v. Haddock, 956 F.2d 1534 (10th Cir.

ae ea a duastesapaseaneecnenns 12

United States v. Harrold, 796 F.2d 1275 (10th Cir. 1986),

cert. Ganied, 470 U.S. 1067 (1987) .......0...02.000.00e.cessecneees- 12

United States v. Harting, 879 F.2d 765 (10th Cir. 1989) .. 12

United States v. Hildebrandt, 961 F.2d 116 (8th Cir.

1992), petition for cert. pending, No. $2-5090 ............... 11

United States vy. Hopkins, 774 F.2d 716 (10th Cir.

ae cca ensindnbannaiunass 10, 11-12

United States v. Hunt, 794 F.2d 1095 (5th Cir. 1986) ...... 10

United States v. Mann, 884 F.2d 532 (10th Cir. 1989) ..... 12

United States v. McElroy, 910 F.2d 1016 (2d Cir. 1990) .. 10

United States v. Park, 421 U.S. 658 (1975) ................ 6

(111)

IV

Cases—Continued: Page

United States v. Pomponio:

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United States v. Rochester, 898 F.2d 971 (5th Cir. 1990).. 10

United States v. Sanders, 834 F.2d 717 (8th Cir. 1987) ... 1]

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In the Supreme Court of the Cinited States

OCTOBER TERM, 1992

No. 92-205

FREDERICK A. GROSS, PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals, Pet. App. la-28a, is

reported at 961 F.2d 1097. The memorandum opinion of

the district court, Pet. App. 29a-43a, is unreported.

JURISDICTION

The judgment of the court of appeals was entered on

April 20, 1992. A petition for rehearing was denied on

May 19, 1992. Pet. App. 45a. The petition for a writ of

certiorari was filed on July 31, 1992. The jurisdiction of

this Court is invoked under 28 U.S.C. 1254(1).

(1)

STATEMENT

After a jury trial in the United States District Court

for the Eastern District of Pennsylvania, petitioner was

convicted of conspiracy to violate the securities laws, in

violation of 18 U.S.C. 371, and two counts of making false

statements in filings with the Securities and Exchange

Commission (SEC), in violation of 15 U.S.C. 78ff(a). Pe-

titioner was sentenced to two years’ imprisonment and a

$100,000 fine on the conspiracy count, to be followed by

two years’ probation on the false statement counts. The

court of appeals affirmed.

1. Petitioner was the co-founder and chief executive

officer of Systems and Computer Technology Corpora-

tion (SCT), a company that provided computer services

to a number of colleges and universities. Petitioner’s co-

defendant, William Searcy, was the company’s vice presi-

dent and one of its directors. The evidence showed that

petitioner and Searcy conspired to inflate artificially the

income recognition of SCT in order to enhance the value

of the company’s publicly traded stock. Pet. App. 5a-4a.

In early 1984, petitioner directed employees of SCT to

issue so-called “out letters” to individuals who had

signed or might sign contracts for the provision of goods

and services by SCT. These letters gave clients the op-

tion of escaping from their contracts with SCT, although

the terms of the contracts did not provide for such can-

cellation. The company’s revenue reports were prepared

by individuals relying on the contracts alone without

knowledge of the “out letters,” and those individuals

treated the contracts as binding. As a result, the rev-

enues reported in the company’s revenue reports were

inflated. Pet. App. 4a.

Petitioner’s deception caused false statements about

the company’s revenues to be included in filings with the

SEC for the second and third quarters of 1984. The

3

scheme was first exposed when the auditors for SCT un-

covered one of the “out letters.” Further investigation

disclosed the rest of the deceptive scheme. Pet. App. 4a.

2. The district court instructed the jury that to con-

vict petitioner on the conspiracy and false statement

charges it must find that he acted “knowingly” and

“willfully.” Pet. App. 10a-lla. With respect to the con-

spiracy count, the jury was instructed that

[bjefore you may find that a defendant has become a

member of a conspiracy, the evidence in the case

must show beyond a reasonable doubt that the con-

spiracy was knowingly formed and that the defendant

willfully participated in the unlawful plan with the

intent to advance or further some object or purpose of

the conspiracy.

To act or participate willfully means to act or partic-

ipate voluntarily and intentionally and with specific

intent to do something the law forbids or with spe-

cific intent to fail to do something the law requires to

be done. That is to say, to act or to participate with a

bad purpose either to disobey or disregard the law.

Id. at 10a. The court also instructed the jury that

[aln act is done knowingly if done voluntarily and in-

tentionally and not because of mistake or accident or

other innocent reason. The purpose of adding the

word “knowingly” is to insure that no one will be

convicted for an act done because of mistake or acci-

dent or other innocent reason.

Id. at 39a. With respect to the false statement counts,

the jury was instructed that

you must find that the defendant knew the statement

made or caused to be made was false. An act is done

knowingly if done voluntarily and intentionally. The

4

defendant must have been aware of what he was doing

and what he was not doing.

(Ylou must find that if the defendant made or caused

to be made a false statement he was acting willfully,

that is deliberately or on purpose and not because of

mistake, inadvertence or accident.

Id. at 10a-1la.

Petitioner requested that the court also give the fol-

lowing instruction on good faith:

Since an essential element of the crime charged is

intent to defraud, it follows that good faith on the

part of a defendant is a complete defense to a charge

of securities fraud.

A defendant, however, has no burden to establish a de-

fense of good faith. The burden is on the government

to prove fraudulent intent and consequent lack of

good faith beyond a reasonable doubt.

Even false representations or statements or omis-

sions of material facts do not amount to a fraud un-

less done with fraudulent intent. However mislead-

ing or deceptive a plan may be, it is not fraudulent if

it was devised or carried out in good faith. An honest

belief in the truth of the representations made by a

defendant is a good defense, however inaccurate the

statements may turn out to be.

Pet. App. 5a. The district court declined to give that in-

struction with respect to petitioner. The court also de-

clined to give it with respect to co-defendant Searcy on

the counts in which both Searcy and petitioner were

charged. The court, however, did give the good faith in-

struction with respect to the securities fraud and mail

5

fraud counts, in which Searcy was charged but petitioner

was not. Jd. at 5a, 13a.

3. The court of appeals affirmed, rejecting petitioner’s

contention that the district court abused its discretion

by not giving his good faith instruction. ‘Pet. App. 9a-

12a. Agreeing with the majority of the courts of appeals

that have considered the question, the court explained

that petitioner’s requested instruction was “merely sur-

plusage” since it was “simply a reiteration that the gov-

ernment must carry its burden in demonstrating that

the accused acted knowingly and willfully, because a jury

finding that the defendant has acted knowingly and will-

fully is inconsistent with a finding that the defendant

acted in good faith.” Id. at 1la-12a. The court observed

that “[bly giving a detailed instruction on the elements

of the crime with which [petitioner] was charged, the

court ensured that a jury finding of good faith would lead

to an acquittal.” 7d. at 12a. Evaluating the jury in-

structions as a whole, the court concluded that “the dis-

trict court’s charge was within the bounds of its discre-

tion.” Ibid.

The court of appeals also rejected petitioner’s alterna-

tive claim that it was error not to give the good faith in-

struction on the counts against him because the court

gave that instruction on counts charging different of-

fenses against Searcy. Pet. App. 13a. The court deter-

mined that “the jury was not misled,” because Searcy did

not receive the good faith charge on the counts against

both Searcy and petitioner. Accordingly, the court

agreed with the government’s argument that “no nega-

tive implication could have arisen when neither defen-

dant received the good faith instruction on the crimes

with which both defendants were charged.” /bid.'

' The court of appeals also rejected petitioner’s claim that the

government failed to disclose some material covered by the Jencks

6

ARGUMENT

Petitioner contends (Pet. 8-21) that the district court

erred in failing to give a separate good faith instruction

to the jury and that this Court should grant review to

resolve a conflict in the circuits on the question whether

such an instruction is required. The court of appeals

correctly held that no such instruction is required, and

the claimed circuit conflict does not warrant this

Court’s review.

1. A defendant is entitled to an instruction on his the-

ory of defense if he makes a timely request for the in-

struction, the evidence supports the instruction, and the

instruction correctly states the law. See Mathews v.

United States, 485 U.S. 58, 68 (1988). But a defendant is

not entitled to have the jury instructed in his particular

words; it is sufficient if the instructions given ade-

quately and correctly cover the substance of the re-

quested instruction. It is thus well settled that the ade-

quacy of the instructions must be evaluated in the con-

text of the charge as a whole. See Estelle v. McGuire,

112 S. Ct. 475, 482 (1991); United States v. Park, 421 U.S.

658, 674 (1975); Cupp v. Naughten, 414 U.S. 141, 146-147

(1973).

Petitioner contends that, although the jury was in-

structed adequately and correctly on the requirement

that the government establish that he committed his of-

fenses knowingly and willfully, the district court never-

theless erred by failing to include his separate instruc-

tion that good faith is a defense to the crimes charged.

Although we agree that good faith is a defense, the in-

structions that the court gave adequately informed the

Act, 18 U.S.C. 3500, Pet. App. 14a-19a, and his claim that the dis-

trict court had impermissibly relied on certain information in de-

termining petitioner’s sentence, id. at 24a-27a. Petitioner does not

renew those claims here.

7

jury of that defense, and the district court did not err in

refusing petitioner’s proposed good faith instruction.

This case is controlled by United States v. Pomponio,

429 U.S; 10 (1976) (per curiam). In Pomponio, the defen-

dants were charged with willfully filing false income tax

returns, in violation of 26 U.S.C. 7206(1), by causing cor-

porations they controlled to report certain payments as

loans when they knew the payments were really taxable

dividends, and by claiming partnership losses as deduc-

tions when they knew the losses were properly at-

tributable to a corporation. 429 U.S. at 10-11. On ap-

peal, the defendants claimed that the district court

“erred in refusing to give a requested instruction on

good faith belief of the defendants as to the nature of the

loans especially and the deductibility of the partners|’]

losses.” United States v. Pomponio, 528 F.2d 247, 248

(4th Cir. 1975). .

The court of appeals accepted that claim. It noted that

the trial court gave “full and complete” instructions that

the jury should convict only if it found that the defen-

dants signed their tax returns knowing them to be false.

528 F.2d at 249. It nevertheless held that “[slince a

good faith belief would tend to negate the elements of

willfulness and knowledge, [the defendants] were entitled

to [such] an instruction * * *.” Jd. at 250.

This Court reversed the judgment of the court of ap-

peals, holding that, because the trial judge had

“adequately instructed the jury on willfulness, * * *

[a]n additional instruction on good faith was unneces-

sary.” 429 U.S. at 13° See also Cheek v. United States,

2 The Court also rejected the court of appeals’ holding that it

was improper to instruct the jury that “[glood motive alone is

never a defense where the act done or omitted is a crime.” 429

U.S. at 11. The Court explained that the term “willfully” connotes

“an intentional violation of a known legal duty,” and does not re-

quire proof of any other motive. 7d. at 12.

8

111 S. Ct. 604, 610 (1991) (noting the Court’s holding in

Pomponio that “after instructing the jury on will

fulness, an additional instruction on good faith was un-

necessary”).°

In petitioner’s case, the jury was instructed that it

must find beyond a reasonable doubt that petitioner

“willfully participated” in the conspiracy. The court

then explained that “[t]o act or participate willfully

means to act or participate voluntarily and intentionally

and with specific intent to do something the law forbids

or with specific intent to fail to do something the law re-

quires to be done. That is to say, to act or to participate

with a bad purpose either to disobey or disregard the

law.” The court also instructed, on the false statement

counts, that the jury must find that petitioner “knew the

statement made or caused to be made was false,” and that

he “made or caused to be made a false statement * * *

willfully, that is deliberately or on purpose and not be-

cause of mistake, inadvertence or accident.” Pet. App.

10a-lla, 39a. Those instructions are essentially identi-

cal in all relevant respects to the instructions that were

found sufficient in United States v. Pomponio.’ Accord-

3 In Cheek v. United States, 111 S. Ct. at 611, this Court held

that, in a tax evasion case, it is error to say that “a claimed good-

faith belief must be objectively reasonable if it is to be considered as

possibly negating the Government’s evidence purporting to show a

defendant’s awareness of the legal duty at issue.” Cheek’s holding

that a jury should not be instructed that a defendant’s belief must

be objectively reasonable does not undercut or diminish the holding

of Pomponio that the standard instructions on knowledge and will-

fulness are adequate to present the good faith defense to the jury.

4 In that case, the Court noted that the jury was instructed that

“la] willful act” is “one done ‘voluntarily and intentionally and

with the specific intent to do something which the law forbids, that

is to say with [the] bad purpose ei her to disobey or to disregard

the law.’” Pomponio, 429 U.S. at 11; see also id. at 11 n.2.

-

9

ingly, as in Pomponio, “laJn additional instruction on

good faith was unnecessary.” 429 U.S. at 13.

As the court of appeals explained, the jury’s conviction

under the instructions given is inconsistent with a find-

ing that petitioner acted in good faith. The required

finding of knowledge and bad purpose negated peti-

tioner’s claim of good faith. Although petitioner argues

that his proposed instruction was necessary “to focus

the jury’s attention on the essential issues in the case

and to inform the jury of the permissible ways in which

the issues may ve resolved,” Pet. 18, the instructions

given adequately fulfilled that objective. To the extent

petitioner’s proposed instruction sought to focus the

jury on the requirement that petitioner could not be con-

victed if he had “[a]n honest belief in the truth of the rep-

resentations” in the SEC filings, Pet. App. 5a, the ac-

tual instructions directed attention to that issue by re-

quiring a finding that petitioner knew the statements

were false and deliberately or purposefully intended to

make the false statements.

Indeed, petitioner’s proposed instruction was mislead-

ing in a significant respect. His proposed instruction

stated that “an essential element of the crime charged is

intent to defraud” and sought to point out that a plan “is

not fraudulent if it was devised or carried out in good

faith.” Pet. App. 5a. But an “intent to defraud” is not

an element of the substantive false statement offense of

which petitioner was twice convicted, nor an element of

the charge of conspiracy to commit that substantive of-

fense, which was one of the objects of the conspiracy. /d.

at 43a. Petitioner’s proposed charge would have inaccu-

rately told the jury that intent to defraud was an element

of those offenses. The misleading nature of petitioner's

proposed charge provides an independent ground for up-

holding the district court’s rejection of it.

10

2. Petitioner acknowledges (Pet. 11-12) that the deci-

sion of the Third Circuit in this case agrees with the ma-

jority of the courts of appeals that have addressed the

question of the adequacy of standard instructions on

knowledge and willfulness to present the good faith de-

fense. See, e.g., United States v. Dockray, 943 F.2d 152,

154-155 (1st Cir. 1991); United States v. McElroy, 910

F.2d 1016, 1026 (2d Cir. 1990); United States v. Rochester,

898 F.2d 971, 979 (5th Cir. 1990); United States v. Alcan-

tar, 832 F.2d 1175, 1179 (9th Cir. 1987); United States v.

Gambler, 662 F.2d 834, 837 (D.C. Cir. 1981). He contends

(Pet. 13-14), however, that review is warranted because

in United Staies v. Casperson, 773 F.2d 216, 223-224 (8th

Cir. 1985), and United States v. Hopkins, 744 F.2d 716,

718 (10th Cir. 1984) (en banc), the courts held that, even if

the jury is instructed on willfulness and specific intent,

an additional good faith instruction is required in cases

in which the evidence supports the instruction.

Although we believe that Casperson and Hopkins were

wrongly decided, there is no need for this Court to grant

review in this case to resolve any disagreement among

the courts of appeals. As the First Circuit observed in

United States v. Dockray, 943 F.2d at 155, “ilf there is a

discernible trend on this issue, it seems to be moving

against” the requirement of a separate instruction on

good faith. In the years since the decisions in Casperson

and Hopkins, the Fifth Circuit has abandoned its earlier

ruling in United States v. Goss, 650 F.2d 1336 (1981), that

a separate good faith instruction is required. See United

States v. Hunt, 794 F.2d 1095, 1098 (5th Cir. 1986); United

States v. Rochester, supra. Moreover, the First and

Third Circuits have joined the other circuits that hold

that when the jury is correctly instructed on willfulness

and knowledge, a separate instruction on good faith is

not required. See United States v. Dockray, supra;

Pet. App. 12a.

11

In addition, neither the Eighth Circuit nor the Tenth

Circuit has extended its requirement of-a separate good

faith instruction to offenses involving the making of a

false statement.’ Since its decision in Casperson, the

Eighth Circuit has held repeatedly in cases involving

false statement offenses that the standard instructions

on knowledge and willfulness adequately present the

good faith defense. See United States v. Hildebrandt,

961 F.2d 116, 118-119 (1992) (false statement in filing with

IRS, 18 U.S.C. 1001), petition for cert. pending, No. 92-

5090 (filed July 2, 1992); United States v. Cegelka, 853

F.2d 627, 628-629 (1988) (false statemant in Medicare

forms, 42 U.S.C. 1395nn(a)(1)), cert. denied, 488 U.S. 1011

(1989); United States v. Sanders, 834 F.2d 717, 719 (1987)

(false statement to government agency, 18 U.S.C. 1001,

and criminal conversion, 18 U.S.C. 658). Accordingly,

there is no square conflict between the Kighth Circuit

cases and the decision in this case.

Nor is there a square conflict with any Tenth Circuit

decision. The Tenth Circuit’s holding in Hopkins was

limited to mail fraud and wire fraud offenses. See 744

5 It is unnecessary to consider the adequacy of the instructions

with respect to any other offense in this case. Petitioner was con-

victed on two counts of making or causing to be made false state-

ments in SEC filings, and one count of conspiracy to commit secu-

rities fraud or to make or cause to be made false statements in SEC

filings. Pet. App. 42a n.10. As the district court stated, how-

ever, the jury’s verdict on the conspiracy count “can be sustained

solely on the basis” of the jury’s conclusion that petitioner con-

spired to make false statements, and “[t]he special verdicts re-

turned by the jury demonstrate that the jury unanimously agreed

that [petitioner] conspired to violate 15 U.S.C. § 78ff(a) by making

false and misleading statements in SCT’s quarterly reports.” /d.

at 48a. Accordingly, although the court of appeals wrote its opin-

ion more broadly, the judgment in this case does not depend on

whether the jury was properly instructed as to the securities fraud

object of the conspiracy.

12

F.2d at 718 (“Our holding as to the need for a good faith

instruction * * * is intended to apply to both substan-

tive and conspiracy counts for mail or wire fraud.”). The

Tenth Circuit has since stated its rule regarding the

need for a good faith instruction in unqualified terms,

and has extended it to a variety of other offenses. See

United States v. Haddock, 956 F.2d 1534, 1547 (1992)

(bank fraud, 18 U.S.C. 1344); United States v. Mann, 884

F.2d 532, 536-537 (1989) (willful failure to file tax return,

26 U.S.C. 7203); United States v. Harting, 879 F.2d 765,

767 (1989) (same); United States v. Harrold, 796 F.2d

1275, 1283 (1986) (tax evasion, 26 U.S.C. 7201), cert. de-

nied, 479 U.S. 1037 (1987). We are unaware, however, of

any decision applying it to a false statement offense.

Thus, while we disagree with the Tenth Circuit’s rule on

its own terms, that court has not applied its rule so as to

raise a square conflict with this case.

In any event, the issue that divides the courts of ap-

peals does not have sufficient importance in the adminis-

tration of federal criminal trials to warrant review by

this Court. Ail courts of appeals are in accord with the

underlying principle that the instructions, considered as

a whole, must be adequate to present the good faith de-

fense to the jury and fairly guide the jury to acquit if it

believes the defense. The difference of opinion is over

whether, for some offenses, a separate good faith in-

struction is required, above and beyond instructions that

the defendant must act knowingly and willfully. From

this Court’s decision in United States v. Pomponio,

supra, we submit that the answer is clear that no sepa-

rate instruction is required. But the existence of a dif-

ferent rule in some circuits, requiring the instruction to

- be given, is not as a general matter harmful or burden-

13

some to the jury, the government, or the courts.° Thus,

while we believe that a separate good faith instruction is

unnecessary, this Court’s review is not required to en-

force uniformity of practice on that issue.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

KENNETH W. STARR

Solicitor Gereral

ROBERT S. MUELLER, III

Assistant A‘torney General

RICHARD A. FRIEDMAN

Attorney

OCTOBER 1992

6

Nor would it be harmful if district courts were to follow the

court of appeals’ admonition that “[wJhile it was not reversible er-

ror for the district court to refuse to give the good faith instruc-

tion in this case, we commend to the district judges in the exercise

of their discretion its use as a supplement to the ‘knowing and will-

ful’ charge in future cases.” Pet. App. 12a.