United States v. Kerr ( 2021 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 United States of America, No. CV-19-05432-PHX-DJH 10 Plaintiff, ORDER 11 v. 12 Stephen M Kerr, 13 Defendant. 14 15 Pending before the Court is Plaintiff United States’ Motion for Partial Summary 16 Judgment (Doc. 19). Plaintiff seeks to preclude Defendant Stephen Kerr from contesting 17 factual issues discussed at a prior criminal trial. (Id. at 6). Mr. Kerr filed a Response in 18 opposition (Doc. 20), and Plaintiff filed its Reply (Doc. 22). The matter is fully briefed. 19 I. Background 20 If a United States resident or citizen has a foreign bank account worth more than 21 $10,000, that person is required to file a Report of Foreign Bank and Financial Accounts 22 (“FBAR”) every year with the Internal Revenue Service (“IRS”). 31 U.S.C. § 5314; 31 23 C.F.R. §§ 1010.350, 1010.306(c). Willful failure to file an FBAR can result in both civil 24 and criminal penalties. 31 U.S.C. §§ 5321(a)(5)(C), 5322(a). 25 In a 2013 criminal case, Mr. Kerr was convicted of willfully failing to file FBARs. 26 See United States v. Kerr, 2013 WL 4430917, at *14 (D. Ariz. Aug. 16, 2013) (denying 27 motion for judgment of acquittal or, in the alternative a new trial), aff’d United States v. 28 Quiel, 595 F. App’x 692, 694 (9th Cir. 2014). The Indictment specifically listed four Swiss 1 bank accounts and charged Mr. Kerr, in Counts 6 and 7, with willfully failing to file FBARs 2 for those accounts in 2007 and 2008. (Doc. 19-3 at ¶¶ 11–13, 89–90). During the trial, the 3 jury was presented with evidence in the form of bank records for all four accounts. 4 The Jury was also presented with evidence regarding an additional fifth account 5 ending in “-734,” which was not listed anywhere in the Indictment. (Docs. 19-6; 19-7; 6 19-8; 19-9; 19-12). This fifth account, as a Union Bank of Switzerland AG (“UBS”) 7 representative explained to the jury, was a “placeholder” account. (Docs. 19 at 6; 19-11 at 8 33–34). Swiss law required firms to deposit 100,000 Swiss francs with UBS in the 9 placeholder account before they were allowed to open a capital deposit account. (Doc. 19 10 at 9). Without the placeholder account, it would not have been possible to open some of 11 the other accounts listed in the Indictment. (Id.) 12 When the time came, the jury was instructed that, to prove its case, Plaintiff must 13 have shown the following: 14 First, the defendant was a United States person during the years specified in 15 the count. 16 Second, the defendant had a financial interest in or signature or other authority over a bank, securities, or other financial account in a foreign 17 country during each calendar year specified in Counts 6 through 9 of the 18 indictment. 19 Third, the aggregate value of the defendant's foreign accounts exceeded 20 $10,000 during the calendar year specified in Counts 6 through 9 of the indictment. 21 Fourth, the defendant willfully failed to file an FBAR reporting accounts in 22 Switzerland on or before June 30th of the year after the year identified in the 23 count. 24 (Doc. 20-2 at 15). The jury found Mr. Kerr guilty on Counts 6 and 7 for willfully failing 25 to file FBARs. (Doc. 19 at 5). After the trial, the case went on appeal to the Ninth Circuit 26 twice. Quiel, 595 F. App’x at 696 (affirming the conviction for failing to file FBARs); 27 United States v. Kerr, 709 F. App’x 431, 433–34 (9th Cir. 2017) (affirming the district 28 court’s decision to deny Mr. Kerr’s motion for new trial or evidentiary hearing). 1 In 2017, the IRS assessed civil penalties on Mr. Kerr for willfully failing to file his 2 FBARs. (Doc. 1 at ¶ 43). The assessment of $3.8 million encompassed all five accounts, 3 including a penalty of $40,895 for the placeholder account. (Doc. 19 at 5–6). In this action, 4 Plaintiff seeks to recover over $4.2 million due to late payment fees and interest. (Doc. 1 5 at ¶ 47). 6 The parties jointly sought leave for Plaintiff to file its Motion for Partial Summary 7 judgment to determine, under the doctrine of collateral estoppel, what preclusive effect Mr. 8 Kerr’s prior conviction has on this case. (Doc. 17). Because the parties do not dispute the 9 relevant facts, the Court need only address the legal issue in this Motion for Summary 10 Judgment. See Fed. R. Civ. P. 56(a); N. Cal. River Watch v. Wilcox, 633 F.3d 766, 772 11 (9th Cir. 2011). For the reasons that follow, the Court will grant Plaintiff’s Motion in part 12 and deny it in part. Mr. Kerr will be estopped from challenging that he willfully failed to 13 file FBARs with respect to the accounts referenced in Counts 6 and 7 of the prior criminal 14 Indictment. However, the Court will not preclude him from challenging whether he 15 willfully failed to file an FBAR for the placeholder account. 16 II. Collateral Estoppel 17 To apply the doctrine of collateral estoppel on an issue from a criminal trial: “(1) 18 the prior conviction must have been for a serious offense so that the defendant was 19 motivated to fully litigate the charges; (2) there must have been a full and fair trial to 20 prevent convictions of doubtful validity from being used; (3) the issue on which the prior 21 conviction is offered must of necessity have been decided at the criminal trial; and (4) the 22 party against whom the collateral estoppel is asserted was a party or in privity with a party 23 to the prior trial.” United States v. Real Prop. Located at Section 18, 976 F.2d 515, 518 24 (9th Cir. 1992) (citing Ayers v. City of Richmond, 895 F.2d 1267, 1271 (9th Cir. 1990)). 25 The parties agree that Mr. Kerr meets every requirement, except for the third. (Docs. 26 19 at 14, 20; 20 at 3). Therefore, the only specific issue to be decided is whether the earlier 27 case necessarily decided that Mr. Kerr willfully failed to file FBARs for every account. To 28 determine what issues were necessary to a criminal trial’s verdict, the Court must examine 1 “the record, including the pleadings, the evidence submitted, the instructions under which 2 the jury arrived at its verdict, and any opinions of the courts.” Emich Motors Corp. v. Gen. 3 Motors Corp., 340 U.S. 558, 569 (1951). The Ninth Circuit has noted this requirement’s 4 importance to ensure the prior case’s factfinder carefully reviewed the issue at stake. 5 United States v. Weems, 49 F.3d 528, 532 (9th Cir. 1995). Others note that, because issues 6 unnecessary for a decision can escape appellate review, this requirement also protects the 7 legal integrity of an issue precluded from further litigation. Id. at 534 (Norris, J., 8 concurring). 9 III. Discussion 10 The question before the Court is whether the prior criminal trial necessarily decided 11 that Mr. Kerr willfully failed to file FBARs for all five of the accounts assessed by the IRS. 12 Plaintiff argues it did, and so Mr. Kerr is precluded from litigating this issue. (Doc. 19 at 13 6). It argues that the only difference between proving Mr. Kerr willfully failed to file 14 FBARs in the criminal and civil context is that the criminal standard for willfulness is more 15 exacting than the civil standard. (Id. at 16). There is authority supporting Plaintiff’s 16 position, and the Court agrees. See Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 60 (2007) 17 (“[T]he criminal law ‘willfully’ typically narrows the otherwise sufficient intent, making 18 the government prove something extra, in contrast to its civil law usage, giving a plaintiff 19 a choice of mental states to show in making a case for liability . . . .”); United States v. 20 Horowitz, 978 F.3d 80, 88 (4th Cir. 2020) (holding that the criminal standard for willful 21 failure to file FBARs is higher than the civil standard); United States v. Bohanec, 263 F. 22 Supp. 3d 881, 889 (C.D. Cal. 2016) (same). Furthermore, Mr. Kerr does not contest this 23 point. 24 Instead, Mr. Kerr’s only argument focuses on one jury instruction delivered at his 25 criminal trial. The instruction required the jury find “the defendant had a financial interest 26 in or signature or other authority over a bank, securities, or other financial account in a 27 foreign country during each calendar year specified in Counts 6 through 9 of the 28 indictment.” (Doc. 20-2 at 15) (emphasis added). According to Mr. Kerr, the “broad 1 instruction to the jury to find Kerr guilty of Counts 6 and 7 if he failed to report even one 2 bank, securities, or other financial account on his FBAR shows that it was not essential that 3 the jury find that Kerr failed to report each and every” account. (Doc. 20 at 5). 4 a. The Accounts Listed in the Indictment 5 The record shows the jury necessarily decided Mr. Kerr willfully failed to file 6 FBARs for the four accounts listed in the Indictment. The jury’s verdict form specifies 7 that Mr. Kerr is guilty “as charged in Count 6 of the Indictment” and guilty “as charged in 8 Count 7 of the Indictment.” (Doc. 19-4 at 3–4). The Indictment explicitly enumerated 9 each account, except for the placeholder account, and Counts 6 and 7 note the “accounts” 10 at the relevant Swiss banks. (Doc. 19-3 at ¶¶ 11–13, 89–90). The jury also considered 11 detailed evidence on all four accounts. (Docs. 19-6; 19-8; 19-9; 19-12). And as to the jury 12 instructions, the third and fourth instructions require a determination regarding the 13 “accounts,” in the plural. (Doc. 20-2 at 15). It is certainly not the case, as Mr. Kerr argues, 14 that the jury’s decision may have relied on only a single account. 15 Furthermore, the policy considerations for this collateral estoppel element are 16 satisfied. The jury was able to carefully review evidence detailing each account listed in 17 the Indictment. See Weems, 49 F.3d at 532 (noting the importance of careful factfinder 18 review for collateral estoppel). And Mr. Kerr has been able to appeal his conviction and 19 subsequent sentencing for when the jury found him guilty for Counts 6 and 7 as charged in 20 the Indictment. See id. at 534 (Norris, J., concurring) (noting the importance of preserving 21 appellate review when deciding issues of collateral estoppel). Therefore, the Court finds 22 that the jury necessarily decided Mr. Kerr willfully failed to file FBARs for all four of the 23 accounts referenced in Counts 6 and 7 of the Indictment, and Mr. Kerr will therefore be 24 estopped from relitigating this issue. All that remains to discuss is the fifth account, the 25 placeholder. 26 b. The Placeholder Account 27 While the Court will grant Plaintiff’s Motion with respect to the accounts listed in 28 the Indictment, it will deny the Motion with respect to the placeholder account. Plaintiff argues collateral estoppel precludes deciding whether Mr. Kerr willfully failed to file an || FBAR for the placeholder account because it was necessary to open other accounts listed || in the Indictment. (Doc. 19 at 19). Although it may have been necessary to open the other accounts, here the Court finds that the jury did not necessarily decided that Mr. Kerr 5 || willfully failed to file an FBAR on this placeholder account. The placeholder was not listed || in the Indictment, and the jury was not instructed to make a decision with regard to this || particular account. Therefore, while the Court will preclude Mr. Kerr from challenging 8 || that he willfully failed to file FBARs with respect to the accounts listed in the prior Indictment and further specified in Counts 6 and 7, the Court will not preclude him from || challenging whether he willfully failed to file an FBAR for the placeholder account. 11 Accordingly, 12 IT IS HEREBY ORDERED that Plaintiff's Motion for Partial Summary Judgment 13 || on the Preclusion Issue (Doc. 19) is granted in part and denied in part as detailed above. 14 Dated this Ist day of March, 2021. 15 16 fe SZ V7 norable'Diang/. Hurfetewa 18 United States District Judge 19 20 21 22 23 24 25 26 27 28 -6-