Petition for Writ of Certiorari — Reid v. United States

»ovame Court, U.S,

92-595 ) | FILED

OCT 5 __1992

OFAOE GE THE CLERI

IN THE

Supreme Court Of The United States

Term,

JOE W. REID,

Petitioner,

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

G. Douglas Jones

(Counsel of Record)

Jones & Bowron, P.C.

450 Park Place Tower

Birmingham, Alabama 35203

(205) 254-9000

Counsel for Petitioner

QUESTIONS PRESENTED FOR REVIEW

|. Whether Federal criminal jurisdiction pursuant to Title 8.

United States Code, Section 666 extends to local ’ ‘organizations,’

such as the municipal water works board of the City of Birmingham,

Alabama, where the only federal monies received by said board were

reimbursements for labor and material associated with the relocation

of water facilities due to certain road building projects. rather than

“benefits” as the term is generally understood.

2. Whether, in a criminal tax case, the burden of persuasion

regarding the detendant’s state of mind is shifted to the defendant,

in violation of Due Process, by the failure of the trial court to give

an affirmative jury instruction that a Subjective good faith belief that

one is not violating the law can negate the statutory willfulness

requirement of criminal tax offenses, as delineated by this Honorable

Court's opinion in Cheek v. United States. wee 5 FE SE.

604, 112 L.Ed.2d 617 (1991)

il

LIST OF PARTIES

The parties to this case in the Court of Appeals were as tollows

JOE W. REID

UNITED STATES OF AMERICA

iil

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR MEVIEW «1.6 «sss i

b967 OF PART IgGs ...-.- 2s ee ees Terres ee ii

TABLE OF CONTENTS .....----- seer ccc iil

TABLE OF AUTHORITIES .......---- ++: +>: V

UMTS BELOW .. 0. ee ee es |

es a a a arr |

STATUTES INVOLVED ......---:- secre: |

STATEMENT OF THE CASE ....-------:+:>> 3

REASONS FOR GRANTING THE WRIT ......-. 12

|. Whether Congress Intended To Extend Federal Criminal

Jurisdiction Pursuant To Title 18, United States Code.

Section 666 To Local “Organizations,” Such As The

Municipal Water Works Board Of The City Of Birmingham,

Alabama, Where The Only Federal Monies Received By

Said Board Were Reimbursements For Labor And Material

Associated With The Relocation Of Water Facilities Due To

Certain Road Building Projects, Rather Than "Benefits" As

The Term Is Generally Understood, Is An Important

Question Concerning The [Interpretation Ot The

Jurisdictional Element Of A Congressional Statute Which

Has Not Been, But Should Be Addressed By This Honorable

Court.

11. Whether, In a Criminal Tax Case, The Burden Of

Persuasion Regarding The Defendant's State Ot Mind Is

Shifted To The Defendant, In Violation Of Due Process, By

iv

The Failure Of The Trial Court To Give An Affirmative

Jury Instruction That A Subjective Good Faith Belief That

One Is Not Violating The Law Can Negate The Statutory

Willfulness Requirement Of Criminal Tax Offenses. As

Delineated By This Honorable Court’s Opinion In Cheek v.

United States, U.S. , 111 S.Ct. 604, 112 L.Ed.2D 617

(1991), Is An Important Question Of Federal Statutory And

Constitutional Law Which Has Not Been, But Should Be.

Addressed By This Honorable Court.

Ape REE ona d ss (a ie se ok aie ee ee 28

CAR te ee MOE GURU WOR 6 vse sk kee oe ws 29

PTT Pear eR gl Ci gO EONS iN ce don eden 30

COURT OF APPEALS ORDER OF

WHICH REVIEW IS SOUGHT ........... A-I-]

COURT OF APPEALS ORDER

EOIN CHIVAS ROUGAMMEINOS ow ee A-II-1

Wee We NG eek ep ee gs A-III-1

TEXT OF LEGISLATIVE HISTORY

me RIE Te ee a ee eee A-IV-1

Vv

TABLE OF CASES AND OTHER AUTHORITIES

Cases Page(s)

Baker v. Eufaula Concrete Company, Inc.

OF Sa Oe Tee Ce, AOD nk ac te ee ha aes 27

Cheek v. United States

__ US... HS. 604,

bie Ee ee er CN PE) 6k es ee ee ee ee passim

Commissioner v. Court Holding Company

See Or eee CEE oy 65 ko els 8 ee are & ee 27,28

Dixson v. United States

465 U.S. 482, 104 S.Ct. 1172.

(Be BY 8, |: ee er aera 14, 16, 17, 18

Francis v. Franklin

471 U.S. 307, 105 S.Ct. 1965,

OO te SE Sete) 65.5 a hae 25

Morissette v. United States

342 U.S. 246, 72 $.Ct. 240,

oe ky hi Sie ee a ee ee 25

Sandstrom v. Montana

442 U.S. 510, 99 S.Ct. 2450

0 0 ee ee ag sc 5 0s a's sen we 25, 26

United States v. Barquin

799 F.2d 619 (10th Cir. 1986) .........---- 2 eee 18

United States v. Bishop

412 U.S. 346. 93 S.Ct. 208,

Om RO 8. oa rma are ere ee fe err 23

United States v. Bordallo

O57 B34 SiS Os Cie. IOGE). . «ss 0 seas tee 18

vi

TABLE OF CASES AND OTHER AUTHORITIES - (Continued)

Page(s)

United States v. Cicco

938 F.2d 441 (3rd Cir. 1991) .. 2... ..000002020002.. 18

United States v. Del Toro

513 F.2d 656 (2d Cir. 1975). cert. den..

423 U.S. 826 (1975).................00... 16. 17

United States v. U.S. Gypsum Co.

438 U.S. 422, 98 S.Ct. 2864,

57 L.Ed.2d 854 (1978) ...... 0. ......2.2...0... . ae

United States v. Hinton

683 F.2d 195 (7th Cir. 1982),

Aff. 465 U.S. 482 (1984) .....00000002.. ae. Ss 8,

United States v. Lankford

955 F.2d 1545 (1Ith Cir. 1992) ........2..2.2.202.2.2... 28

United States v. Little

889 F.2d 1367 (Sth Cir. 1989) ........2.2.2.2.2.2.2... 18

United States v. Mosley

Gao Fae Cee Cre. BPG)) ww cc eee ee 16

United States v. Murdock

290 U.S. 389, 54 S.Ct. 223, 78 L.Ed 381 (1932).... 22,24

United States v. Opdahl

9350 f.26 1550 (ile Cir. 1991) wo wee eee 27

United States v. Pomponio

429 U.S. 975 S.Ct. 22, 50 L.Ed.2d 12 (1976) .... 21. 23, 24

United States v. Reynold

Fit F268 Gan Che Ge. eee so ns ee eee 18, 19

vil

TABLE OF CASES AND OTHER AUTHORITIES - (Continued)

Page(s)

United States v. Simas

937 F.2d 459 (9th Cir. 1991) .....- 2 ee eee es 18

United States v. Smith

659 F.Supp. 833 (S.D. Miss. 1987) ...-----+ss 00> 18

United States v. Snyder

930 F.2d 1090 (Sth Cir. 1990) ....---- eee: 18

United States v. Stewart

727 F.Supp 1068 (N.D. Tex (ae ae 17, 18, 29

United States v. Webb

691 F.Supp. 1064 (N.D. Ill. eres. 17, 18, 29

United States v. Westmoreland

941 F.2d $72 (Sth Cir. 1988) ....------ eee r tees 18

Statutes

1s mR sd Grae a ee ee eC ea, 16, 19

Wide TRUBS ok 5 ck 6s te ees eee es passim

i, we eta oe Os re ee 4,5, 15

cc. eR oe Gere eee ee ee ee passim

11-50-230, et seq, Code of Alabama .....-----+++-°> 4

Legislative History

S. Rep. No. 225, 98 Cong., 2d Sess. 369,

Reprinted in 1984 U.S. Code Congressional

and Administrative News 3182, 3511 ...---- +--+ ee: +

OPINIONS BELOW

The opinion of the United States Court of Appeals for the

Eleventh Circuit is unreported. The court's order is printed in

Appendix A-I hereto. The judgement affirmed Petitioner's

convictions of one count of tax evasion and one count of bribery in

the United States District Court for the Northern District of

Alabama.

JURISDICTION

The judgement of the United States Court of Appeals in the

Eleventh Circuit was entered on March 24, 1992. A timely Petition

tor Rehearing w.s denied without opinion on July 6, 1992.

The jurisdiction of this Court is invoked under 28 U.S.C.

Section 1254 (1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

[. Petitioner was convicted of violating 18 U.S.C. § 666, Theft or

Bribery Concerning Programs Receiving Federal Funds. The

complete text of 18 U.S.C. § is set out in Appendix A-lIII.

In addition the legislative history of 18 U.S.C. § 666 found at

\S. Rep. No. 225, 98 Cong., 2d Sess. 369, Reprinted in 1984 U-S.

Code Congressional and Administrative News 3182, 3511 is printed

in Appendix A-IV.

Finally, 23 U.S.C. § 123 is also relevant to this particular

question. That statute is presented in Appendix A-V.

[I. With regards to Petitioner's conviction tor income tax evasion.

this case involves the Due Process clause of the Fitth Amendment to

the Constitution of the United States, which provides as follows:

No person shall be held to answer for a capital, or otherwise

infamous crime, unless on a presentment or indictment of a

Grand Jury, except in cases arising in the land or naval

forces, or in the Militia, when in actual service in time of

s

~~

War or public danger: nor shall any person be subject for

the same offence to be twice put in jeopardy of life or limb:

nor shall be compelled in any criminal case to be a witness

against himself’, nor be deprived of life. liberty, or property,

without due process of law: nor shall private property be

taken for public use, without just compensation.

Petitioner was convicted tor violating 26 U.S.C. § 7201. which

provides as follows:

Any person who willfully attempts in any manner to evade

or defeat any tax imposed by this title or the payment

thereof shall, in addition to other penalties provided by law,

be guilty of a felony and. upon conviction thereof, shall be

tined not more than $100,000 ($500,000 in the case of a

corporation), or imprisoned not more than 5 years, or both,

together with the cost of prosecution.

3

STATEMENT OF THE CASE

I. PROCEEDINGS IN THE DISTRICT COURT:

On November 30, 1990, the Grand Jury for the Northern

District of Alabama returned a Two Count Indictment against

Petitioner. Joe W. Reid. Count One of the Indictment charged the

Petitioner with attempting to evade federal income taxes due for

income received in 1986 in violation of 26 U.S.C. § 7201. Count

Two charged that the Petitioner, as a member of the Water Works

Board of the City of Birmingham and its successor board, the Water

Works and Sewer Board of the City of Birmingham, did corruptly

accept $206,457.97 intending to be rewarded in connection with

certain transactions of said Water Works Board in violation of Title

18 U.S.C. § 666(a)(1) (B). (RI-1)' The trial of said case

commenced on February 4, 1991, before the Honorable James H.

Hancock. United States District Judge for the Northern District of

Alabama. On February 11, 1991, the jury returned its verdict

finding the Petitioner guilty of both counts of the Indictment.

Sentencing was held on March 11, 1991, at which time the Petitioner

was sentenced as follows:

Count One: Twelve months in the custody of the Attorney

General with the cost of prosecution taxed against the Petitioner:

Count Two: Five years in the custody ot the Attorney General

to run concurrently with the twelve-month sentence imposed under

Count One and a fine of $35,000.00.

The Petitioner also was ordered to pay special assessments ot

$50.00 for each count of the indictment.

Notice of Appeal was timely filed on March 11. 1991, and

Petitioner’s Motion for Bail Pending Appeal was granted.

' References to the trial court record are presented with reference to the volume

and page number of the tnal transcript.

4

II. Proceedings In The Eleventh Circuit Court of Appeals

On March 24, 1992. the United States Circuit Court of Appeals

tor the Eleventh Circuit issued a per curiam decision attirming the

Petitioner’s conviction. A Petition for Rehearing and Rehearing En

Banc was timely filed on April 14, 1992. On July 6, 1992, said

petition was denied, again without opinion. Petitioner's Motion tor

Stay of the Mandate was granted on August 7, 1992.

Il. Facts Material to a Consideration of the Issues

At all times pertinent to the charges in this case, the Petitioner

was a member of the Water Works Board tor the City of

Birmingham, Alabama. (the "Board") The Board is a corporation

organized pursuant to § 11-50-230. et seq, Code Of Alabama. The

Board does not administer any federal funds nor does the Board

receive federal grants or assistance. The Board is, however, often

reimbursed by the State of Alabama tor labor and materials used by

the Board to relocate water facilities that interfere with certain

highway projects. A portion of the funds reimbursed to the Board

by the State are received by the State trom the Federal Highway

Trust Fund.

Evidence elicited at Petitioner's tria! set forth the manner and

means by which the Board is reimbursed by the State with federal

funds. At various times, the Board is required to relocate their

water facilities due to highway construction or improvements.

(R3-61) Prior to performing the work, the Board sends an estimate

to the State of Alabama for the labor and materials that will be

required for the relocation project. The estimate is then approved

and authorized by the State. Following completion of the relocation

work, the Board submits an invoice to the State for

"reimbursement." (R3-65) The State disburses the invoice amount

to the Board and then bills the Federal Highway Trust Fund for

reimbursement of the expenditures paid to the Board. All of the

payments to the Board for the relocation of the water facilities are

paid as “reimbursements” in the “usual course of business” tor labor

and material (R3-61,65,68,.69,75.84) and only to the extent

authorized by 23 U.S.C. § 123.

During the year 1986, five highway projects of the State

required the Board to relocate specific water facilities. For it's work

on these projects, the Board was reimbursed a total of $73.938.46.

(R3-74,84) Of this amount, approximately $65,000 was reimbursed

SE

to the State with federal funds. (Govt. Ex. 74) The undisputed

testimony indicates that pursuant to 23 U.S.C. § 123 each payment

was reimbursement for “services rendered,” including labor and

materials. (R3-84) That is. the Board was only reimbursed for the

actual cost attributable to cach relocation project.

In 1985. the Petitioner and four others, including realtor Brooks

Emory and attorney William Murray, formed an investment group

(hereinatter referred to collectively as "Emory") for the purpose ot

purchasing property. (R3-87,90) The investors signed a Fiduciary

Agreement naming Mr. Emory as Trustee to handle all financial

matters, including accounting. (R3-29) The Trust was assembled

in late spring of 1986, although the Fiduciary Agreement was not

formally executed until August 20, 1986. (R3-29.31, Govt. Ex. 49)

The Fiduciary Agreement listed three of the investors in their

individual capacities, Mr. Murray's interest in the name of his

corporation, "MYCA", and the Petitioner's interest in the name of

“ALAGA, a Georgia entity." The Petitioner’s daughter, Donna

Johnson, signed on behalf of ALAGA. (Govt. Ex. 40. R4-66)

On April 7, 1986, U. S. Pipe Corp. committed to grant Emory

an option to purchase 1220 acres of land. The price for the option

was $150.000. (R2-78. Govt. Ex. 38) On April 28. 1986. the otter

was extended to June 2, 1986. (R2-79. Govt. Ex. 39) Following

this commitment, the investors began preparation for a proposed

development. Mr. Murray and Mr. Emory also began discussions

with the City of Birmingham with regard to the annexation of this

' property. In this regard, they met with David Vann, an attorney

who handled the City’s annexation legal matters. Mr. Vann was also

Chairman of the Birmingham Water Works Board ot which

Petitioner was a member. (R2-31)

The initial meetings with Mr. Vann centered around annexation

into Birmingham. In a meeting held on April 30. 1986. however,

Mr. Emory and Mr. Murray learned tor the first ime that if the

annexation was to take place, the Water Board also would have to

control the water supply. (R2-33.57.59,171) At that meeting. Mr.

Vann agreed that the Board would actually purchase trom Emory the

U. S. Pipe property for $6,555 per acre, payable as tollows:

$1,500,000 on or before May 15, 1986, and the balance ot

$5.491.000 on or before January 15, 1987. U. S. Pipe’s otter to

grant the option was pending at this time.

6

The Board met several times with regard to the proposed

purchase of this property. Mr. Murray and Mr. Emory negotiated

only with Mr. Vann and the Board Director: never with the full

Board. (R2-73) After a series of negotiations, Emory, the Board

and U. S. Pipe. each with the full knowledge of the others’

participation, modified the original structure of the transactions and

agreed to the following:

1. U. S. Pipe would increase the price for the option from

$150,000 to $500.000.00 (Govt. Ex. 40):

2. The Board would purchase the option from Emory tor

$1.159.000.00, providing that:

a)

b)

d)

e)

f)

The Board would pay the required $500.000.00 to

purchase the option through a check payable to Emory

Realty and U. S. Pipe jointly, which Emory would then

immediately endorse and tender to U. S. Pipe:

Prior to the Board’s “acceptance” of the assignment,

Emory, at its cost, would remove all encroachments and

encumbrances to said property and provide the Board

with title insurance, a survey, and a general warranty

deed:

Emory would “assign” the option to the Board prior to

May 30, 1986:

The $500,000.00 would be credited against the purchase

price of the land:

Emory had the option of choosing the closing date

which would be between December 15. 1986 and

January 15, 1987;

At closing, the Board would pay U. S. Pipe the balance

of $5,356,000.00 for the purchase of the land and would

pay Emory the “option” purchase price” of

$1.159,000.00:

-

g) The Board would petition Birmingham tor annexation:

and

h) Emory was given an option to re-purchase the property.

(Govt. Ex. 55)

At trial, Mr. Emory testified that the investors wished to control

the closing date so as to structure this investment in order to receive

long term capital gains tax treatment. (R4-182) These transactions

were done pursuant to the advice of Mr. Emory’s independent,

outside accountant: Mr. Murray (the attorney); and Mr. Murray's

accountant.

The option to purchase the property (the Emory-U.S. Pipe

Agreement), the purchase of the option (the Emory-Water Board

Agreement), and the “assignment” of the option to the Board were

executed simultaneously, as described above, on May 21, 1986

(Govt. Ex. 50,51) One week later, on May 28, 1986, David Vann.

as Chairman of the Board, notified U. S. Pipe that the Board

intended to “exercise” the option. (R3-21, Govt. Ex. 42)

Throughout the next six months, Emory performed those tasks

required in the agreement with the Board. (R3-21, Govt. Ex. 42)

The sale of the property and the sale of the option were closed

simultaneously on December 15, 1986. The Board paid U. S. Pipe

$5.376,286.17 for the property and paid Emory $1.163.143.52 for

the option. (R3-17-26, Govt. Ex. 50.51)

Although the Petitioner, as a member of the Board, did not

participate in the negotiations between Emory and the Board, the

Government did elicit evidence that the Petitioner did not fully

disclose to the other board members his involvement with the Emory

group and that he lobbied other board members to relax restrictive

covenants placed on the development of the property. It was this

evidence, in sum, that supported the Government's theory that

Petitioner had violated 18 U.S.C. § 666.

Following the closing, the investors received their respective

proceeds from the sale of the option. The Petitioner’s share was in

the form of a check payable to "ALAGA" for $188.150.00. This

check was deposited into an investment account in South Carolina

that listed the Georgia address of Petitioner's son but the Petitioner's

own social security number. (R3-143,146.149, Govt. Ex. 5)

8

All of the information concerning the transaction was turned

over to Mr. Emory’s independent, outside accountant, Mr. Law

Lamar. (R3-198) Mr. Lamar prepared and filed with the IRS the

Partnership Return of Income indicating that the partnership held “an

option on land" from May 15 to December 15, 1986, and received

income in the amount of $1,163,143.52. Because the option was

held tor more than six months, the individual Schedule K-1 Forms

(A Partner’s Share of Incomes, etc. for each investor) reported the

income to each investor as a long term capital gain. The K-1! for

"ALAGA" listed the Petitioner's social security number. (R3-200,

Govt. Ex. 5)

Mr. Emory, the fiduciary responsible tor the trust, told the

partners that the money they received should be treated as a long

term capital gain and both he and Mr. Murray treated their income

as a long term capital gain. (R2-67, R4-183) There was no evidence

presented to indicate that the partnership return or other investors’

returns were ever challenged with regard to the tax treatment of this

income.

Shortly before the deadline to file 1986 Income Tax Returns, the

Petitioner orally advised a tax accountant that he had received a long

term capital gain of $206,457. (R3-207) The Petitioner did not

present the accountant with any documentation, but it was

acknowledged that the oral information was consistent with the Form

K-1 prepared by Mr. Lamar and given to Petitioner. (R3-215) From

these figures, the Petitioner's tax liability was computed to be

$28,755. The Petitioner timely forwarded this amount to the IRS,

together with a Request for Extension to file his return. (R3-219,

Govt. Ex. 1) A second extension was filed in August (R3-209,

Govt. Ex. 2) but Petitioner did not timely file his return on October

15 as required. (R3-210,211)

At trial, Mr. Duncan McLean, an IRS auditor, testified that the

Petitioner's 1986 tax return was ultimately filed in February 1990

and an additional $9,620.07 was paid on the income reported as a

long term capital gain. This amount was due because of a

calculation error made by Petitioner's accountant at the time that he

filed for the first extension and paid the $28,000. (R3-206) This

testimony was also presented by the defense through Mr. H. G.

Owens, the accountant who prepared Petitioner’s return. (R4-147,

R5-24,25,28). As to the Petitioner's tax liability for 1986, Mr.

McLean, without explanation as to why, treated the Petitioner's

il

9

income from the Emory Trust as a short term gain rather than a long

term gain, thereby causing 100% rather than 40% of the gain to be

taxed. (R4-141) He then calculated that the Petitioner had a 1986

tax liability of $55,791.93. (R4-142) — It was acknowledged,

however, that this determination was based solely on his opinion that

the income from the Trust was a short term gain. (R4-151)

The Defense called as its witness Mr. John Holditch, a

Birmingham real estate lawyer. Mr. Holditch had examined all

pertinent documents regarding this transaction and, according to the

Defense proffer, was prepared to give the following opinion with

regard to the complete transactions and related documents:

(R5-5-9, 11-13)

1. That the May 21. 1986 agreement between Emory and the

Water Works Board was a contract to purchase an option tor

$1,159,000.

to

That the Board would in effect loan Emory the $500,000

required to obtain the option from U. S. Pipe.

3. That in order to complete the assignment of the option,

Emory was required to meet other conditions with regard to

the U. S. Pipe property, namely, obtaining title insurance,

a survey and legal fees, etc.

4. That had the Board not been satisfied with the performance

of Emory, then the Board was under no obligation to

complete the purchase of the option.

5. That Emory held the option from May 21. 1986 until the

closing date of December 15, 1986 (approx. 7 months), at

which time Emory received the agreed on consideration and

the assignment of the option actually occurred.

The defense offered Mr. Holditch’s testimony in rebuttal to

Agent McLean's testimony to prove that Petitioner's income was, in

fact, a long term capital gain and further, that Petitioner's treatment

of this income as a long term capital gain wus done in good faith.

The District Court found that the witness would be giving his

legal opinion with regard to whether or not the documents created an

option and for how long the option extended itself. The Court held

10

that it was the Court's function to give the legal effect of the

documents and excluded Petitioner's expert testimony. even as it

would pertain to good faith. (R5-8)

During jury instructions, the Court summarized the facts

involving the Emory/U.S. Pipe Agreement and the Emory/Water

Works Board Agreement, stating that:

Under the written assignment received in evidence as

Government’s Exhibit 57 Emory Realty, on the same day.

May 21, 1986, assigned to the Water Works Board the

option Emory Realty had just acquired. Thus, as of May

21, 1986, Emory Realty has transferred to the Board the

option which Emory Realty at that date acquired from U. S.

Pipe. Emory Realty, Inc., atter May 21, 1986, did not own

the option acquired trom U. S. Pipe on May 21, 1986. The

Water Works Board owned the option after May 21, 1986.

(R5-129) (Emphasis added)

This charge had the legal of effect of stating as a matter of law

that Emory did not hold the option for more than six months.

Finally, the Court charged the jury that the term "willfully," as

used in criminal tax cases, “means that the act was committed

voluntarily and purposely with the specific intent to do something the

law forbids; that is to say with bad purpose to disobey or disregard

the law." (R4-122) The Court further refused to give a jury

instruction concerning Petitioner’s good faith treatment of his income

from the Emory trust. Petitioner’s request for a good faith

instruction was based on the undisputed evidence that Petitioner

treated the Emory income in the same manner as the other Emory

partners and consistent with the Partnership return and Petitioner's

K-1 and the fact that Petitioner had timely paid over $28.000 in

income taxes on said income. Petitioner’s requested instruction read

as follows:

Reliance upon conduct of others in good faith, is not

punishable under 26 U.S.C. § 7201. It is an absolute

defense that the Petitioner conducted himself in good faith.

In evaluating the Petitioner’s good faith, you must consider

whether the Petitioner relied upon his accountant and trust

a

iI

partners for information, whether he even filed a tax return,

whether he used his taxpayer I.D. number appropriately,

whether he sent any money to the IRS in 1987.

(Court’s Ex. No. 2, R5-71)

The jury convicted Petitioner on both counts of the indictment.

12

REASONS FOR GRANTING THE WRIT

I. WHETHER CONGRESS INTENDED TO EXTEND

FEDERAL CRIMINAL JURISDICTION PURSUANT TO

TITLE 18, UNITED STATES CODE, SECTION 666 TO

LOCAL "ORGANIZATIONS," SUCH AS_ THE

MUNICIPAL WATER WORKS BOARD OF THE CITY OF

BIRMINGHAM, ALABAMA, WHERE THE ONLY

FEDERAL MONIES RECEIVED BY SAID BOARD WERE

REIMBURSEMENTS FOR LABOR AND MATERIAL

ASSOCIATED WITH THE RELOCATION OF WATER

FACILITIES DUE TO CERTAIN ROAD BUILDING

PROJECTS, RATHER THAN "BENEFITS" AS THE TERM

IS GENERALLY UNDERSTOOD, IS AN IMPORTANT

QUESTION CONCERNING THE INTERPRETATION OF

THE JURISDICTIONAL ELEMENT OF A

CONGRESSIONAL STATUTE WHICH HAS NOT BEEN,

BUT SHOULD BE ADDRESSED BY THIS HONORABLE

COURT.

The Petitioner was convicted for violating Title 18 U.S.C. § 666

which prohibits the theft or bribery from an organization,

government, or agency that “receives, in any one year period,

benefits in excess of $10,000 under a Federal program involving a

grant, contract, subsidy, loan, guarantee, insurance, or other form

of Federal assistance.” 18 U.S.C. § 666. [emphasis added]. The

question presented by the Petitioner to this Honorable Court

challenges the District Court’s interpretation of the jurisdictional

element of § 666. That is, the Petitioner challenges the finding that

the Municipal Water Works Board of which he was a member,

received "benefits" in excess of $10,000 and was therefore an

“organization” within the meaning of 18 U.S.C. § 666. Petitioner's

challenge is based on the undisputed facts that the only federal funds

received by the Water Works Board were funds paid by and through

the State of Alabama for labor and materials used by the Board to

relocate water facilities in advance of a State highway project.

While the State of Alabama may have received “benefits” in excess

of $10,000, the Municipal Water Works Board did not. Any monies

paid by the State of Alabama were purely commercial in nature,

13

having been paid in consideration for services rendered and/or in

consideration of goods provided and are thus not benefits within the

meaning of the statute.

Petitioner's request that this Honorable Court construe the

jurisdictional element of 18 U.S.C. § 666, is apparently a case of

first impression at the Federal appellate level. Although presented

by Petitioner in his direct appeal, the Eleventh Circuit Court of

Appeals elected to render a decision without opinion. Because this

particular statute is relatively new, and the fact that it is obviously

being used more frequently by Federal prosecutors, the question of

Federal law raised by petitioner is therefore an extremely important

one in that the Court’s holding would literally expand or contract

Federal criminal jurisdiction in regard to the common law offenses

of thett and bribery. There is no doubt that a ruling by this

Honorable Court on this particular issue will have a significant

impact on future investigations and prosecutions under this statute.

It is the position of the Petitioner that the Water Works Board

for the City of Birmingham did not receive the type of “benefits” or

"Federal assistance” contemplated by Congress in enacting the above

code section, and that therefore the District Court was without

subject matter jurisdiction with regard to Count Two of his

indictment. The term “benefits” is not defined in the statute and at

trial, the District Court did not offer the jury an explanation as to

what type of “benefits” must be received in order to fulfill the

essential jurisdictional element of this offense. The District Court

did. however, explain its interpretation of the statute in over-ruling

Petitioner's Motion for Judgment of Acquittal. The District Court

stated:

Well, work and labor was done for the payment as opposed

to welfare benefit payments or something of that nature. In

other words, work and labor performed in effect being paid

for by the Government, in my opinion, will satisfy the

statute. It does not necessarily contemplate Government

benefit programs like welfare or ... headstart. (R-114)

The Eleventh Circuit Court of Appeals apparently agreed with

the District Court’s broad interpretation.

14

The terms “benefits” and “assistance” are not defined in the

Statute. Accordingly, the Court must look to the legislative history

of 18 U.S.C. § 666 to clarify these terms consistent with

Congressional intent. See Dixson v. United States, 465 U.S. 482,

104 S.Ct. 1172, 79 L.Ed.2d 458 (1984). Petitioner submits that the

reasoning of the District Court, as adopted by the Eleventh Circuit,

is completely contrary to the Congressional intent behind the term

“benefit” as gleaned from the following excerpt from the Legislative

History:

The term "Federal program involving a grant, a contract, a

subsidy, a loan, a guarantee, insurance, or other form of

Federal assistance” is to be construed broadly, consistent

with the purpose of this section to protect the integrity of the

vast sums Of money distributed through Federal progranis

from theft, fraud, and undue influence by bribery.

However, the concept is not unlimited. The term "Federal

program” means that there must exist a specific statutory

scheme authorizing the Federal assistance in order to

promote or achieve certain policy objectives. Thus, not

every Federal program or disbursement of f “ds will be

covered. For example, if a Government ag-ncy lawfully

purchases more than $10,000 from a supplier, it is not the

intent of this section to make a theft of $5,000 or more from

the supplier, a Federal crime. It is, however, the intent to

reach theft and bribery in situations of the types involved in

the Del Toro, Hinton, and Mosley cases cited herein.

S. Rep. No. 225, 98 Cong., 2d Sess. 369, Reprinted in 1984 U.S.

Code Congressional and Administrative News 3182, 3511 [emphasis

added. ]

The following facts, which are undisputed, clearly demonstrate

that the Birmingham Water Works Board is not the type of

Organization to which this statute was intended to apply:

1. The Board was in effect forced to relocate their water

facilities in advance of highway projects. (R3-61)

|

15

2. The Board received no direct federal funds but was rather

reimbursed by the State of Alabama Highway Department.

(R3-65)

3. The State of Alabama paid the Board for material and labor

in connection with the Board’s relocation of its water

facilities. (R3-84)

4. The services performed by the Board and paid for by the

State Highway Department were strictly commercial and

done in the normal course of business. (R-3-84)

5. The Board was considered to be just like any other “vendor”

with regard to the services performed and payments received

by the State Highway Department. (R3-84)

6. The State of Alabama paid for the Board’s labor and

material and then sought reimbursement from the Federal

Highway Administration Trust Fund. (R-3-61)

As is the case with all federal monies, the Board was reimbursed

pursuant to authorization granted in a particular federal statute: 23

U.S.C. § 123. That statute, however, specifically prevents a utility

from profiting or in any way receiving a "benefit" due to the forced

relocation of it’s water facilities. The statute allows only for

reimbursement of the “entire amount paid by such utility properly

attributable to such relocation after deducting therefrom any increase

in the value if the new facility and any salvage value derived trom

the old facility." 23 U.S.C. § 123(c) (Emphasis added) The Board.

therefore. receives no "benefits" or “assistance” whatsoever for it's

efforts in relocating it’s water facilities.

Petitioner respectfully submits that any federal monies paid

through the State pursuant to the above process and authorization.

lose their character as “benefits” once they are paid to a utility ina

strictly commercial transaction. There was no allegation or even

suggestion that there was anything illegal, improper. or fraudulent

with respect to the invoice submitted by the Board or the payments

made to the Board. In fact, as was clearly mandated by the

authorization statute, 23 U.S.C. § 123. the Board only "broke even"

on these transactions. Certainly this type of scenario, as exemplified

16

by the facts in this case, bear absolutely no similarity to the tacts in

the Del Toro, Hinton, and Mosley cases cited in this legislative

history, the holdings of which dealt with the construction of the

Federal Bribery Statute, 18 U.S.C. § 201, and prompted enactment

of this statute.

tates v. Del Toro, 513 F.2d 656 (2d Cir. 1975), cert.

den. 423 U.S. 826 (1975), the defendant was an official of the city

agency which administered the “Model Cities" Program funded

through the United States Department of Housing and Urban

Development. There, the United States paid 100% of the cost of the

Model Cities’ Program and 80% of its salaries. The defendant was

convicted under Title 18 U.S.C. § 201, which prohibits the bribing

of a federal public official, for accepting a bribe to lease certain

office space. His conviction, however, was overturned by the

Second Circuit which found that the defendant was merely a city

employee rather than a federal employee. Del Toro at 663.

United States v. Mosley, 659 F.2d 812 (7th Cir. 1981) involved

a defendant employed by the State of Illinois Bureau of Employment

Security as a CETA Intake Eligibility Officer who was also

convicted under 18 U.S.C. 201 for taking a bribe as a federal

official. The Seventh Circuit found specifically that the defendant

was a federal officer within the meaning of 18 U.S.C. 201 and

affirmed the conviction.

In United States v. Hinton, 683 F.2d 195 (7th Cir. 1982) Aff.

Dixson v. United States, 465 U.S. 482, 104 S.Ct. 1172, 79 L.Ed.2d

458 (1984), the defendants were officers of a community based non-

profit corporation called United Neighbors, Inc. which had

contracted with the City of Peoria to administer federal funds funded

to the city under a community development block grant and federal

metro reallocation grant from the United States Department of

Housing and Urban Development. There, the community

development grant was entirely sponsored with federal funds and

paid the salaries and costs of United Neighbors, Inc. In affirming

their convictions, this Honorable Court determined that the

appropriate inquiry in determining if an individual falls within the

category of “persons performing activities for or on behalf of the

United States," was “whether the person occupies a position of trust

with federal responsibilities.” Dixson, 465 U.S. at 496.

The fact situation with regard to the case before this Honorable

Court is clearly different from the types of “organizations” cited

17

above which had prompted Congressional action to amend § 666.

As noted by the Honorable Mary Lou Robinson, United States

District Judge for the Northern District of Texas, the programs that

received “benefits” and “federal assistance” in Del Toro, Hinton, and

Mosley all involved “a charitable distribution of funds: that is, the

federal government distributing funds for the purpose of aiding the

needy, and receiving no tangible material in return for its funds."

United States v. Stewart, 727 F.Supp. 1068 (N.D. Tex 1989)

The nature of the relationship of the “organization” in Stewart,

above. and the federal government is very similar to the facts in this

case. In Stewart, the detendant was charged with stealing helicopter

parts from Bell Helicopter. The government alleged that Bell

Helicopter was an organization within the meaning of the statute in

that Bell Helicopter was an organization that received benefits in

excess of $10,000 pursuant to a federal program involving contracts

for the manufacture and modification of helicopters for the United

States. Stewart at 1070. Judge Robinson, however, correctly noted

that the legislative history clearly did not intend to apply 18 U.S.C.

§ 666 to situations involving a quid pro quo or those transactions

that were purely commercial in nature. Stewart at 1072. Likewise,

monies paid in consideration for services or in consideration for

goods provided, even if customized, are not benefits within the

meaning of the statute. Szewart at 1072, citing United States v.

Webb, 691 F.Supp. 1064 (N.D.IIl. 1988).

Webb, above, also involved a transaction similar to those found

in this case. There, defendant was an employee of an accounting

firm that had a contract to administer certain HUD grants. The

District Court granted defendant's motion for judgment

notwithstanding the verdict and judgment of acquittal with regard to

his conviction for violation of 18 U.S.C. § 666. The Court

specifically found that the accounting firm for which the defendant

was employed was not an organization within the meaning of the

statute in that the firm was merely paid consideration for

administering certain HUD grants. Webb at 1167.

in other cases examining 18 U.S.C. § 666. the issues presented

involved matters other than whether or not “benefits” or “federal

assistance” was received by the organization. See e.g., United States

v. Cicco, 938 F.2d 441 (3rd Cir. 1991) (statute did not apply to the

detendant’s alleged corrupt solicitation of political services and

loyalty in exchange for municipal jobs); United States v. Simas. 937

18

F.2d 459 (9th Cir. 1991) (Government not required to trace federal

funds); United States v. Snyder, 930 F.2d 1090 (Sth Cir. 1990)

(statute applies even if official’s conduct does not directly affect the

federal funds received by the agency); United States v. Reynolds,

919 F.2d 435 (7th Cir. 1990) (money which contractor obtained by

submitting false claims in connection with HUD block grant program

qualified as “money of the United States" within the meaning of the

statute); United States v. Little, 889 F.2d 1367 (Sth Cir. 1989)

(statute applied even in absence that corruption costs would have to

be replaced with federal funds); United States v. Bordallo, 857 F.2d

519 (9th Cir. 1988) (Guam not a “state” for purposes of 18 U.S.C.

666); United States v. Westmoreland, 841 F.2d 572 (Sth Cir. 1988)

(government not required to trace federal revenue sharing funds);

United States v. Barquin, 799 F.2d 619 (10th Cir. 1986) (Indian

tribe not a “local government" within definition of 18 U.S.C. 666);

and United States v. Smith, 659 F. Supp. 833 (S.D. Miss. 1987)

(government not required to trace federal revenue sharing funds).

It should be emphasized that Petitioner does not contend that this

is a “tracing” case similar to Simas, Westmoreland, and Smith cited

above. The issue here presents this Honorable Court with essentially

the following question: At what point do federal monies cease to be

benefits within the meaning of 18 U.S.C. 666? If the Water Works

Board, or any other contractor, fraudulently overbilled the State for

its labor and material, then certainly the monies passing from the

State to the vendor retain their character as benefits, nly to the

extent of the fraudulent overpayment. Such was the case in United

States v. Reynolds, 919 F.2d 435 (7th Cir. 1990). In that case, the

Court affirmed the § 666 conviction of the Defendant for submitting

false and fraudulent invoices for his work on redevelopment projects

for the City of Milwaukee. Because Reynolds was paid on his false

invoices from funds received by the City from Federal HUD grants,

the Court found that jurisdiction was appropriate. /d. at 438.

It is respectfully submitted that Congress clearly did not intend

to extend federal jurisdiction to alleged misuse of funds that occurred

long after they were received from the federal sources in strictly

commercial transactions. If the District Court’s inter-pretation of

benefits, as adopted without opinion by the Eleventh Circuit, is

correct, jurisdiction would lie in the federal courts for the

prosecution of an employee of any vendor doing more than

$10,000.00 worth of business with the federal government, who

19

steals or embezzles over $5,000.00 from the vendor. For instance.

federal jurisdiction would lie in the case of an employee theft from

a vendor who sells over $10,000.00 worth of supplies to this

Honorable Court.

Petitioner submits that the jurisdictional element of 18 U.S.C. §

666 is both vague and ambiguous and arguably susceptible to varying

interpretations. Because of the vast sums of money distributed each

year by the Federal Government, the incredible variety of the

manner and means in which said funds are distributed, and the

incredible number of vendors who do nothing more than “sell”

$10,000.00 worth of supplies or services to the Federal Government.

this issue is likely to present itself time and time again in the future.

The District Court’s interpretation of this statute as it applies to the

Petitioner, and as adopted by the Eleventh Circuit, clearly constitutes

a split from the decisions in Stewart and Webb. it is also a much

more expansive interpretation than four members of this Honorable

Court, including three current members, were willing to give to the

Federal Bribery Statute in Dixson. Dixson, 465 U.S. at 464 (Justice

O’Connor dissenting).

Given the obvious ambiguity and vagueness of this statute,

varying interpretations and additional splits among the District

Courts and Circuit Courts of Appeal are not only likely, but

practically guaranteed. On the other hand, Petitioner has presented

this Honorable Court with the opportunity to address an important

question of federal law and Congressional intent regarding the

, expansion of federal jurisdiction, that will give prosecutors, District

Judges, and Circuit Judges specific guidance with regard to future

prosecutions.

Petitioner was snared in a net that was cast much broader than

Congress intended. There was simply no misuse of any federal

monies in this case. His conviction for violating 18 U.S.C. § 666

is, therefore, due to be reversed.

20

II WHETHER, IN A CRIMINAL TAX CASE, THE BURDEN

OF PERSUASION REGARDING THE DEFENDANT'S

STATE OF MIND IS SHIFTED TO THE DEFENDANT, IN

VIOLATION OF DUE PROCESS, BY THE FAILURE OF

THE TRIAL COURT TO GIVE AN AFFIRMATIVE JURY

INSTRUCTION THAT A SUBJECTIVE GOOD FAITH

BELIEF THAT ONE IS NOT VIOLATING THE LAW CAN

NEGATE THE STATUTORY WILLFULNESS

REQUIREMENT OF CRIMINAL TAX OFFENSES, AS

DELINEATED BY THIS HONORABLE COURT'S

OPINION IN CHEEK V. UNITED STATES, _U.S.__, Ill

S.CT. 604, 112 L.ED.2D 617 (1991), IS AN IMPORTANT

QUESTION OF FEDERAL STATUTORY AND

CONSTITUTIONAL LAW WHICH HAS NOT BEEN, BUT

SHOULD BE, ADDRESSED BY THIS HONORABLE

COURT.

In Cheek v. United States, _ U.S. _, 111 S.Ct. 604, 112

L.Ed.2d 617 (1991), decided approximately one month prior to

Petitioner's trial, this Honorable Court determined that a subjective

"good faith misunderstanding of the law or a good faith belief that

One is not violating the law" can negate the statutory willfulness

requirement of criminal tax offenses. In so holding, this Honorable

Court both expanded the interpretation of the statuiory term

“willfully” within the meaning of Federal tax laws to include an

explanation of the Petitioner's good faith and broadened the scope of

evidence deemed relevant to the issue of a criminal defendant's good

faith. With regard to whether a jury instruction on good faith is

Mecessary in a criminal tax case, the Court’s holding in Cheek

appears to implicitly overrule that portion of the Court’s holding in

United States v. Pomponio, 429 U.S. 10, 97 S.Ct. 22. 50 L.Ed.2d

12 (1976) (per curiam) which held that an additional instruction on

good faith was unnecessary. Further. with the Court now

delineating a clear standard by which to judge a defendant's good

faith within the meaning of criminal tax :aws, the failure to give any

instruction on good faith improperly shifts to the defendant the

burden of proot with regard to his state of mind in violation of Due

Process.

The opinion in Cheek carefully analyzed the historical evolution

of the Court’s interpretation of the statutory term “willfully” as used

tetas

21

in Federal criminal tax statutes, tracing its special treatment to the

complexity of the tax law. Noting the general rule that ignorance of

. . | . . . . .

the law or mistake of law is no defense to a criminal prosecution, the

Cheek opinion went on {to state as follows:

The proliferation of statutes and regulations has sometimes

made it difficult for the average citizen to know and

comprehend the extent of the duties and obligations imposed

by the tax laws. Congress has accordingly softened the

impact of the common-law presumption by making specific

intent to violate the !aw an element of certain federal

criminal tax offenses. Thus, the Court almost 60 years ago

interpreted the statutory term willfully as used in the federal

criminal tax Statutes as carving out an exception to the

traditional rule. This special treatment of criminal tax

offenses is largely ica to the complexity of the tax laws.

|

In United States v. Murdock, 290 U.S. 389, 54 S.Ct. 223,

78 L.Ed. 381 (1933), the Court recognized that:

Congress did not intend that a person, by reason of

a bona fide misunderstanding as to his liability for

the tax, as to his duty to make a return, or as to the

adequacy of the records he maintained, should

become a criminal by his mere failure to measure up

to the prescribed standard of conduct. /d, at 396, 54

S.Ct., at 226. |

The Court held th at_the defendant was entitled to an

instruction with respect to_whether he acted in good faith

based _on his actual belief. In Murdock, the Court

interpreted the term “willfully” as used in the criminal tax

Statutes generally to mean “an act done with a bad purpose,”

id, at 394, 54 S.Ct. at 225, or with “an evil motive." /d.,

at 395, 54 S.Ct.. at 225.

Subsequent decisions have refined this proposition. In

United States v. Bishop, 412 U.S. 346, 93 S.Ct. 208. 36

L.Ed.2d 941 (1973), we described the term “willfully” as

connoting “a voluntary, intentional violation of a known

22

legal duty,” id, at 360, 93 S.Ct., at 2017, and did so with

specific reference to the “bad faith or evil intent" language

employed in Murdock. Still later. United Staies v.

Pomponio, 429 U.S. 10, 97 §.Ct. 22, 50 L.Ed.2d 12 (1976)

(per curiam), addressed a situation in which several

defendants had been charged with willfully filing false tax

returns. The jury was given an instruction on willfulness

similar to the standard set forth in Bishop. In addition, it

was instructed that "[g]ood motive alone is never a defense

where the act done or omitted is a crime.” /d., at 11, 97

S.Ct., at 23.. The defendants were convicted but the Court

of Appeals reversed, concluding that the latter instruction

was improper because the statute required a finding of bad

purpose or evil motive. /bid.

We reversed the Court of Appeals, stating that "the Court of

Appeals incorrectly assumed that the reference to an ‘evil

motive’ in United States v. Bishop, supra, and prior cases,"

ibid, “requires proot of any motive other than an intentional

violation ot a known legal duty.” /d. at 12, 97 S.Ct. at 23.

As “the other courts of appeals that have considered the

question have recognized, willfulness in this context simply

means a voluntary, intentional violation of a known legal

duty." /bid. We concluded that after instructing the jury on

willfulness, “[aln additional instruction on good faith was

unnecessary."__/d. at 13, 97 S.Ct., at 24. Taken together,

Bishop and Pomponio conclusively establish that the standard

for the statutory willfulness requirement is the “voluntary,

intentional violation of a known legal duty."

Cheek, 111 S.Ct. at 609, 610 (emphasis added).

The trial court in Cheek had given the appropriate Bishop

/Pomponio definition of willfulness as a “voluntary and intentional

violation of a known legal duty.” Cheek, 111 S.Ct. at 608 The trial

court then went further and advised the jury that an “objectively

reasonable” good faith misunderstanding of the law would negate

willfulness but mere disagreement with the law would not, and that

"an honest but unreasonable belief is not a detense and does not

negate willfulness.” Cheek, 111 S.Ct. at 608 This Honorable

Court, however, rejected the requirement that a claim of good faith

iceman iii

23

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 a legal duty. The Court reasoned that

holding the Defendant to an "objectively reasonable” standard had

the effect of transforming the inquiry into defendant’ s good faith into

a legal, rather than factual determination. thereby preventing its

consideration by the jury. Cheek, 111 $.Ct. at 611. The Court held

that it was error to instruct the jury to disregard evidence of Cheek’s

understanding that within the meaning of tax law. he was not a

person required to file a return or pay income taxes and that wages

are not taxable income, as incredible as such misunderstandings of

and beliets about the law might be. /d. The Court, therefore.

transformed the analysis of the defendant’s good faith from one of

objective reasonableness to subjective reasonableness.

Petitioner respecttully submits that this Honorable Court's

opinion in Cheek implicitly overrules that portion of the Pomponio

decision that held that a good faith instruction was not necessary

Once the appropriate definition of willful was given to the jury.

With regard to the evolution of the Court’s interpretation of the

Statutory term willfulness, this would, of course, mean that the

Court’s opinion in Cheek has brought said interpretation full circle

back to a portion of the Court’s opinion in Murdock holding that a

defendant was entitled to an instruction with respect to whether he

acted in good faith based on his actual belief. The specific issue of

whether a good faith instruction is now required, however, was not

presented or addressed in Cheek. Moreover, by delineating a

Standard by which a defendant’s good faith is to be judged, within

the meaning of federal criminal tax laws, the failure to give an

affirmative charge regarding good faith raises serious Due Process

implications in that the burden of proving the defendant’s state of

mind has been shifted from the government to the defendant.

In the present case, Petitioner unsuccessfully sought to have the

Court instruct the jury on Petitioner’s good faith with regard to

payment of his 1986 income taxes. Clearly there was evidence in

the record to support such a request, inziuding the following: that

Mr. Emory, the fiduciary of the trust, had advised the Partners that

the fully disclosed income was a long term capital gain (R3-183);

that the partnership returns prepared by Mr. Emory’s independent,

Outside accountant and filed with the IRS indicated that the income

was a long term capital gain (R3-200); that the Petitioner’s Form

24

K-| prepared by Mr. Emory’s accountant indicated that the income

was a long term capital gain (Govt. Ex. 5); and that the Petitioner

fully disclosed this income to his accountant and the IRS by timely

paying over $28,000 in tax on said income at the time that his first

extension to file his return was filed with the IRS. (R3-219, Govt.

Ex. 1) Without further instruction on Petitioner’s “good faith,"

however, the jury was free to apply whatever standard to Petitioner’s

conduct that it deemed appropriate, including whether or not said

conduct was “objectively reasonable." Petitioner respectfully

submits, therefore, that failing to give an affirmative instruction on

good faith in the context of criminal tax laws, is not only

inconsistent with the Court’s opinion in Cheek, but also renders an

instruction on “willfulness” without reference to the Defendant’s

good faith unconstitutional in that it has the effect of shifting the

burden to the Petitioner to prove that he acted in good faith and not

willfully.

This Honorable Court has previously stricken as an

unconstitutional violation of Due Process, jury instructions that had

the effect of shifting the burden of proof on the critical question of

a detendant’s state of mind. See e.g., Francis v. Franklin, 471 U.S.

307, 105 S.Ct. 1965, 85 L.Ed.2d 344 (1985); Sandstrom _v.

Montana, 442 U.S. 510, 99 S.Ct. 2450, 61 L.Ed.2d 39 (1979);

United States v. United States Gypsum Co., 438 U.S. 422, 98 S.Ct.

2864, 57 L.Ed.2d 854 (1978); and Morissette v. United States, 342

U.S. 246, 72. S.Ct. 240, 9 L.Ed. 288 (1952). While these decisions

dealt generally with jury instructions that included presumptions

(i.e., "“[t]he law presumes that a person intends the ordinary

consequences of his voluntary act." Sandstrom, 442 U.S. at 516, 99

S.Ct. at 2455

The same analysis is appropriate in this case. Specifically, in

that line of cases, one of the critical inquiries was whether the jury

instruction left the jury with alternative standards when receiving the

Detendant’s conduct. For instance, in Sandstrom, the Court noted:

First, a reasonable jury could well have interpreted the

presumption as "conclusive," that is, mot technically a

presumption at all, but rather as an irrebuttable direction by

the court to find intent once convinced of the facts triggering

the presumption. Alternatively, the jury may have

interpreted the instruction as a direction to find intent upon

25

proof of the defendant’s voluntary actions (and their

“ordinary” consequences), unless the defendant proved the

contrary by some quantum of proof which may well have

been considerably greater than “some” evidence - thus

effectively shifting the burden of persuasion on the element

of intent.

Sandstrom, 442 U.S. at 517, 99 S.Ct. at 2456.

It is respectfully submitted that when a similar analysis is applied

to jury instructions defining the term “willful” within the meaning of

the criminal tax laws, a reference to defendant’s good faith and an

explanation of the standard by which to judge his good faith is

constitutionally mandated. In the context of the tax laws, it is a

simple matter for the prosecution to prove that Petitioner’s conduct

was both “voluntary” and “intentional” and that Petitioner had a

"legal duty” to pay his taxes or report his income a certain way. By

doing so, and without further instruction, the Petitioner is implicitly

“presumed” to know of his legal duty. This is so because the jury

is left without a standard by which to examine the possibility that the

Petitioner did not know of his duty and/or that, even if he did so, his

actions with respect to his taxes were reasonable and in good faith.

The burden of proving the Petitioner’s state of mind has, therefore,

shifted from the Government to the Petitioner.

In this regard, it should be emphasized that in the case of

' Petitioner’s conviction, the Court is not dealing with a "known legal

duty" as simple as whether one is required to file an income tax

return. Rather, the issue here is whether Petitioner knew that he had

a legal duty to report and pay taxes on the income derived from the

sale of the option contract as a short term capital gain rather than a

long term capital gain. Such a determination, complicated by the

series of transactions that took place with regard to said option, is

beyond the expertise of most taxpayers.

The burden that shifted to Petitioner in this case was further

compounded by two factors. First, in summarizing the evidence to

the jury, the Court stated that once Emory had “assigned” the option

it had acquired, Emory “did not own" the option. . . . the Water

Works Board owned the option after May 21, 1986." (R5-129) The

Court thus established the period that Emory held the option as being

less than six months. With this instruction, the Court removed from

26

the jury's consideration the factual determination of the period that

Emory held the option and thus established as a matter of law that

the income received by the Petitioner was a short term capital gain.

Petitioner's purported “duty” was therefore established as a matter

of law.* Second, the Court prohibited the Petitioner from offering

expert testimony regarding the “substance” of the transaction rather

than its "form." This testimony was an essential part of Petitioner's

defense that: 1) the income was derived from a long term capital

gain, and 2) that it was certainly reasonable for Petitioner to assume

that it was a long term capital gain on which he in good faith timely

disclosed and paid his taxes with his request for an extension to file

his return.’

The argument put forth by Petitioner is limited to jury

instructions of the term "willful" within the context of the federal tax

laws. This is so because of the unique aspects of federal taxation in

> In the court below, Petitioner challenged the tmal court's instruction

regarding the holding period of the option as an improper finding of fact that should

have been decided by the jury. Petitioner alleged that the court improperly singled

out a single document rather than allowing the jury to consider the substance of the

complete transactions in accordance with Commissioner v. Court Holding Company,

324 U.S. 331 (1945). In addition, Petitioner averred that the court’s instruction was

in error in that under Alabama law the date that an “assignment” of a contract

actually occurs is a matter of fact, not law. Baker v. Eufaula Concrete Company,

Inc., 557 So.2d 1228 (Ala. 1990)

* Petitioner also challenged the District Court's refusal to allow the testimony

of the defense expert as an abuse of discretion which denied Petitioner of evidence

supporting this defense, citing United States v_ Opdahi, 930 F.2d 1530 (11th Cir.

1991). Interestingly, the day after the Eleventh Circuit panel issued its opinion in

Petitioner's case, a separate Eleventh Circuit panel issued the decision in United

States v. Lankford, 955 F.2d 1545 (11th Cir. 1992), also a tax evasion case which

is directly opposite to the holding in Petitioner's case. In Lankford, the Court held

that the tnal court abused its discretion in not allowing defendant's tax expert to

testify concerning the reasonableness of defendant's conclusion that unreported

income was a nontaxable gift rather than a political contnbution, particularly as

evidence was offered to rebut expert testumony offered by the government. /d at

1551, citing Cheek.

27

which “substance over form" controls. See Commissioner v. Court

Holding Company, 324 U.S. 331 (1945). It’s magnitude, however,

is of considerable practical and constitutional proportions. Each year

millions of taxpayers, accountants, attorneys, and tax preparers must

interpret federal tax laws, both when filing and preparing returns and

when considering tax planning. Literally thousands of those

individuals will later be called on to justify their tax returns or the

tax returns of their clients in either a civil or criminal proceeding.

Within the context of our federal tax laws, the difference between

the government’s ability to impose only a civil sanction and their

ability to deprive one’s liberty through criminal prosecution is

dependent on the state of mind of the taxpayer. This Court’s

clarification of the apparent inconsistency between the Court’s

opinions in Cheek and Pomponio regarding whether a defendant

accused of criminal tax violations is entitled to an affirmative good

faith charge, coupled with the constitutional ramifications of not

giving such a charge, is an important issue of federal statutory and

constitutional law and is essential so as to give guidance to both the

Courts below and the taxpayers of the United States.

28

CONCLUSION

Petitioner’s conviction under 18 U.S.C. § 666 was based on an

expansive interpretation of the statute’s federal jurisdictional

requirements. The interpretation is inconsistent with the

Congressional intent and purposes behind the enactment of said

statute as was determined in the District Court opinions in Stewart

and Webb. The Petitioner’s conviction under this statute is,

therefore, due to be reversed.

Likewise, the Petitioner’s conviction for income tax evasion is

due to be reversed. This Honorable Court’s decision in Cheek

requires that a trial court give an affirmative charge regarding a

criminal tax defendant’s good faith detense. Such a charge is

mandated in order to prevent the burden of persuasion regarding the

defendant’s state of mind from unconstitutionally shifting to the

detendant, as was done at Petitioner’s trial.

For the foregoing reasons this Petition for a Writ of Certiorari

should be granted.

Respectf ru i

G. Do i 7 es

(Counsel of Record)

Jones & Bowron, P.C.

450 Park Place Tower

Birmingham, Alabama 35203

(205) 254-9600

29

CERTIFICATE OF SERVICE

This is to certify that on the 5A day of October, three copies

of the above and foregoing have been served by United States mail,

postage prepaid, and properly addressed to:

The Solicitor General

United States Department of Justice

Washington, DC 20530

Jack Selden, Esq.

United States Attorney

Bill L. Barnett, Esq.

Assistant United States Attorney

200 Robert L. Vance Federal Building

1800 Sth Avenue, North

Birmingham, Alabama 35203

ef ly L

G. Douglas Jone

APPENDIX

A-I-1

APPENDIX A-I

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 91-7260

Non-Argument Calendar

D.C. Docket No. CR()-H-257-S

UNITED STATES OF AMERICA.

Plaintiff-Appellee.

versus

JOE W. REID.

Detendant-Appellant.

Appeal trom the United States District Court for the

Northern District of Alabama

(March 24, 1992)

Betore: EDMONDSON and COX, Circuit Judges. and TUTTLE.

Senior Circuit Judge.

PER CURIAM: AFFIRMED. See [Ith Cir. R. 36-1.

Date Filed: March 24, 1992

A-II-1

APPENDIX A-II

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 91-7260

UNITED STATES OF AMERICA,

Plainuft-Appellee,

versus

JOE W. REID,

Detendant-Appellant.

On Appeal from the United States District Court for the

Northern District of Alabama

ON PETITION(S) FOR REHEARING AND SUGGESTION(S) OF

REHEARING EN BANC

. Before: EDMONDSON and COX, Circuit Judges. and TUTTLE,

Senior Circuit Judge.

PER CURIAM:

( ) The Petition(s) for Rehearing are DENIED and no member

of this panel nor other Judge in regular active service on the Court

having requested that the Court be polled on rehearing en banc

(Rule 35, Federal Rules of Appellate Procedure: Eleventh Circuit

Rule 35-5), the Suggestion(s) of Rehearing En Bane are DENIED.

ENTERED FOR THE COURT:

/s/ James L. Edmondson Date Filed: July 6, 1992

UNITED STATES CIRCUIT JUDGE

A-III-1

APPENDIX A-III

18 U.S.C. § 666

Theft Or Bribery Concerning Programs Receiving Federal Funds

(a) Whoever, if the circumstance described in subsection (b) of

this section exists -

(1) being an agent of an organization, or of a State. local. or

Indian tribal government, or any agency thereot -

(A) embezzles, steals, obtains by fraud or

otherwise without authority knowingly converts to the use of

any person other than the rightful owner or intentionally

misapplies, property that -

(i) is valued at $5,000 or more. and

(ii) is owned, by, or is under the care. custody, or

control of such organization, government, or agency; or

(B) corruptly solicits or demands for the benefit

of any person, or accepts or agrees to accept, anything of

value from any person, intending to be influenced or

rewarded in connection with any business, transaction. or

Series of transactions of such organization, government. or

agency involving anything of value of $5,000 or more:

Shall be fined under this title, imprisoned not more than 10

years, or both.

(b) The circumstances referred to in subsection (a) of this section

is that the organization, government, or agency receives, in any one

year period, benefits in excess of $10,000 under a Federal program

involving a grant, contract, subsidy, loan, guarantee. insurance. or

other form of Federal assistance.

cma ears aaaenseaaararerareee

A-III-2

(c) This section does not apply to bona fide salary, wages, fees.

Or other compensation paid, or expenses paid or reimbursed, in the

usual course of business.

(d) As used in this section -

(1) the term “agent” means a person authorized to act on

behalf of another person or a government and, in the case of an

organization or government, includes a servant or employee, and

a partner, director, officer, manager, and representative;

(2) the term “government agency” means a subdivision of

the executive, legislative, judicial, or other branch of

government, including a department, independent establishment,

commission, administration, authority, board and bureau, and a

corporation or other legal entity established, and subject to

control, by a government or governments for the execution of a

governmental or intergovernmental program:

(3) the term “local” means of or pertaining to a political

subdivision within a State; and

(4) the term “State” includes a State of the United States,

the District of Columbia, and any commonwealth, territory, or

possession of the United States.

(4) the term “in any one-year period” means a continuous

period that commences no earlier than twelve months before the

commission of the offense or that ends no later than twelve

months after the commission of the offense. Such period may

include time both before and after the commission of the

offense.

A-IV-]

APPENDIX A-IV

COMPREHENSIVE CRIME CONTROL ACT OF 1984

PART C - PROGRAM FRAUD AND BRIBERY

1. In general

This part of title XI is designed to create new offenses to

augment the ability of the United States to vindicate Significant

acts of theft, traud, and bribery involving Federal monies that

are disbursed to private organizations or State and local

governments pursuant to a Federal program. The proposal is

derived from S. 1630, the Criminal Code Reform Act of 198]

approved by the Committee in the 97th Congress.

2. Present Federal law

As indicated, this part of title XI covers both theft and bribery

type offenses. With respect to thett, 18 U.S.C. 665 makes thett

or embezzlement by an officer or employee of an agency

receiving assistance under the Job Training Partnership Act a

Federal offense. However, there is no statute of general

applicability in this area, and thefts from other organizations or

governments receiving Federal financial assistance can be

prosecuted under the general theft of Federal property statute, 18

U.S.C. 641, only if it can be shown that the property stolen is

property of the United States. In many cases, such prosecution

is impossible because title has passed to the recipient before the

property is stolen, or the funds are so commingled that the

Federal character of the funds cannot be shown. This situation

gives rise to a serious gap in the law, since even though title to

the monies may have passed, the Federal Government clearly

retains a strong interest in assuring the integrity of such program

funds. Indeed, a recurring problem in this are (as well as in the

' See, e.g., sections 1731 (Theft) and 1751 (Commercial Bribery) of S. 1630

and the discussion at pages 726 and 803 of S. Rept. No. 97-307 (97th Cong., Ist

Sess.).

A-IV-2

related area ot bribery of the administrators of such funds) has

been that State and local prosecutors are often unwilling to

commit their limited resources to pursue such thefts, deeming

the United States the principal party aggrieved.

With respect to bribery, 18 U.S.C. 201 generally punishes

corrupt payments to Federal public officials, but there is some

doubt as to whether or under what circumstances persons not

employed by the Federal Government may be considered as a

"public official” under the definition of 18 U.s.C. 201(a) as

anyone “acting for or on behalf of the United States, or any

department, agency or branch of Government thereof, including

the District of Columbia, in any official function." The courts

of appeals have divided on the question whether a person

employed by a private organization receiving Federal monies

pursuant to a program is a “public official” for purposes of

section 201. The issue is due to be decided soon by the

Supreme Court,’ at least in the context of the particular HUD

program involved in that case.’

3. Provisions of the bill, as reported

Part C adds a new section 666 to title 18, United States Code.

Subsection (a) makes it a Federal crime for an officer, employee

or agent of an organization or of a State of local government

agency that receives benefits in excess of $10,000 per calendar

year pursuant to a Federal program to steal, embezzie, obtain by

fraud, willfully misapply or otherwise knowingly convert

without authority property valued at $5,000 or more. The

> See United States v. Hinton, 683 F.2d 195 (7th Cir. 1982), cert. granted sub

nom, Dixon v_ United States, _U.S.__ (1982) (Nos. 82-5279 and 82-5331).

> Contrast United States v_Loschiavo, 531 F.2d 659 (2d Cir. 1976) and United

Staies_v. Del Toro, $13 F.2d 656 (2d Cir.) cert. denied 423 U.S. 826 (1975),

reaching the opposite result as to the bnbery of certain persons administering funds

from another HUD program. See also United States v_ Mosley, 659 F.2d 812 (7th

Cir. 1981) (involving bribery by a State administrator of funds from the CETA

program.)

Ne

A-IV-3

offense is punishable by up to ten years in prison and a fine of

up to $100,000 or twice the value of the property obtained in

violation of this section, whichever is greater. The terms

"agent", “organization”, “government agency", and "local" are

defined in subsection (d) and require no further explication. The

Committee intends that the term “Federal program involving a

grant, a contract, a subsidy, a loan, a guarantee, insurance, or

another form of Federal assistance” be construed broadly,

consistent with the purpose of this section to protect the integrity

of the vast sums of money distributed through Federal programs

from theft, fraud, and undue influence by bribery. However,

the concept is not unlimited. The term “Federal program"

means that there must exist a specific statutory scheme

authorizing the Federal assistance in order to promote or achieve

certain policy objectives. Thus, not every Federal contract or

disbursement of funds would be covered. For example, if a

government agency lawfully purchases more than $10,000 in

equipment from a supplier, it is not the intent of this section to

make a theft of $5,000 or more from the supplier a Federal

crime. It is, however, the intent to reach thefts and bribery in

Situations of the types involved in the Del Toro, Hinton, and

Mosley cases cited herein.

A-V-1

APPENDIX A-V

23 U.S.C. § 123

Relocation of Utility Facilities

(a) When a State shall pay for the cost of relocation of utility

facilities necessitated by the construction of a project on any Federal-

aid system, Federal funds may be used to reimburse the State for

such cost in the same proportion as Federal funds are expended on

the project. Federal funds shall not be used to reimburse the State

under this section when the payment to the utility violates the law of

the State or violates a legal contract between the utility and the State.

Such reimbursement shal! be made only after evidence Satisfactory

to the Secretary shall have been presented to him substantiating the

fact that the State has paid such cost from its own funds with respect

to Federal-aid highway projects for which Federal funds are

obligated subsequent to April 16, 1958, for work. including

relocation of utility facilities.

(b) The term “utility”, for the purposes of this section, shail

include publicly, privately, and cooperatively owned utilities.

(c) The term “cost of relocation", for the purposes of this

section, shall include the entire amount paid by such utility properly

attributable to such relocation after deducting therefrom any increase

in the value of the new facility and any salvage value derived from

the old facility.