United States v. Robert L. Steele ( 1991 )

KENNEDY, Circuit Judge.

The issue presented to the en banc court is whether the submission of false documents to the Internal Revenue Service by defendant, who was not a suspect, in response to an inquiry by an IRS agent during the course of a criminal investigation, is a prosecutable offense under 18 U.S.C. § 1001. Defendant urges us to adopt the judicially-created “exculpatory no” exception adopted by several other circuits to limit the application of section 1001. We decline to apply the doctrine to the facts in this case and find it unnecessary to decide whether the doctrine is viable in other circumstances.

I.

A.

Robert Steele (“defendant”) was indicted and subsequently convicted on four counts: conspiring to defraud the Internal Revenue Service (“IRS”) in violation of 18 U.S.C. § 371; filing a false 1981 U.S. Partnership Income Tax Return in violation of 26 U.S.C. § 7206; filing a false 1981 Form 1040 Individual Income Tax Return in violation of 26 U.S.C. § 7206(1); and knowingly submitting false documents to the IRS in violation of 18 U.S.C. § 1001. On appeal, this Court affirmed defendant’s convictions on the first three counts but reversed his conviction based on 18 U.S.C. § 1001. United States v. Steele, 896 F.2d 998 (6th Cir. 1990). This Court then granted the government’s petition for a rehearing en banc thus vacating the opinion and judgment of the appellate panel. However, no member of the en banc court has any disagreement with the panel’s affirmance of the first three counts. The Court therefore adopts the panel’s opinion on the issues related to those counts.

B.

Defendant, a certified public accountant and member of an accounting firm, devoted most of his time to various business interests, including construction, oil and gas exploration, motel operations and residential developments. In May 1981, defendant formed a partnership, called Woodland Heights, with his wife, his accounting partner, Danny Pelphrey, and Pelphrey’s wife. The partnership acquired a tract of land for the purpose of subdividing it and selling the parcels. In June 1981, defendant met with Thomas Duerr (“Duerr”) to discuss the sale of two parcels of the subdivided tract. Duerr agreed to pay defendant $40,000 per parcel, but noted that this would create problems with the IRS because he derived his income illegally — selling controlled substances — and his income tax returns showed an annual income between $12,000 and $15,000. In light of this problem, defendant and Duerr agreed upon a purchase price of $40,000 per parcel, but the sales documents were drafted to reflect a purchase price of $20,000 per parcel. None of these documents revealed the full $80,000 purchase price for the parcels. Duerr made payments according to the terms of these sales contracts and paid defendant $40,000 cash. Defendant paid $19,500 of this cash payment to the Pel-phreys as their share of the proceeds from the sale and kept $20,500 himself.

On March 22, 1982, defendant filed a U.S. Partnership Tax Return for the taxable year 1981 on behalf of the Woodland Heights partnership. Defendant did not report the $40,000 cash payment from Duerr as partnership income. Nor did defendant report his share of the $40,000 payment on his personal income tax return.

In August 1985, Duerr was indicted on various drug charges. At this time the IRS was investigating Duerr for possible fraudulent evasion of tax liability. IRS Special Agent Hall (“Hall”) called defendant on two occasions. On the second occasion in early November, Hall explained the nature of the investigation against Duerr and requested information concerning the purchase of the two parcels of land by Duerr from Woodland Heights in 1981. Defendant was not a suspect in this investigation.¹ Defendant told the agent that he had to go out of town but that he would send Hall copies of all documents relating to the sale of this property.

Immediately thereafter, defendant met with Duerr. Defendant described Hall’s visit and requests, and sought assurances from Duerr that he would represent that the transaction occurred as reflected in the false sales documents. Upon receiving these assurances from Duerr, defendant told Duerr that he would send the documents to Hall and thereafter avoid contact with the agent. Defendant thereupon sent the documents which are the basis of the section 1001 count to Hall.

Duerr subsequently cooperated with the government, disclosing the fraudulent nature of the land transactions conducted between himself and defendant. Had Duerr not supplied this information it was unlikely that the IRS would have learned the true amount of the transaction.²

II.

A. Section 1001

The language of section 1001 is the starting point for our analysis. See United States v. Ron Pair Enters., Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). Any limitation imposed on the application of this section — whether we label it an “exculpatory no” exception or something else — must result from an analysis of the statutory language and legislative history in light of accepted canons of statutory construction. The plain meaning of the statute controls our interpretation, “except in the ‘rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters,’ ” id. at 242, 109 S.Ct. at 1031 (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982)); Bradley v. Austin, 841 F.2d 1288 (6th Cir.1988), or when the statutory language is ambiguous, Blum v. Stenson, 465 U.S. 886, 104 S.Ct. 1541, 79 L.Ed.2d 891 (1984). We are also mindful that this is a criminal statute, and as such, it will be strictly confined within the fair meaning of its terms. But see United States v. Bramblett, 348 U.S. 503, 510, 75 S.Ct. 504, 508, 99 L.Ed. 594 (1955) (stating that this canon of construction “does not mean that every criminal statute must be given the narrowest possible meaning in complete disregard of the purpose of the legislature”).

18 U.S.C. § 1001 states:

Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned not more than five years, or both.

The Supreme Court has noted that this language is broad — applying to any matter within any department or agency — and has rejected the limitation adopted by the Eighth Circuit to exclude statements made to the FBI because the FBI lacked jurisdiction to dispose of the problem. United States v. Rodgers, 466 U.S. 475, 104 S.Ct. 1942, 80 L.Ed.2d 492 (1984). The Eighth Circuit concluded that the phrase “ ‘within the jurisdiction’ ” referred to “ ‘the power to make final or binding determinations.’ ” Id. at 477, 104 S.Ct. at 1945 (quoting Friedman v. United States, 374 F.2d 363 (8th Cir.1967)). The FBI therefore lacked jurisdiction because it had “ ‘no power to adjudicate rights, establish binding regulations, compel the action or finally, dispose of the problem giving rise to the inquiry.’ ” Id. at 478 (quoting Friedman, 374 F.2d at 368). The Supreme Court disagreed with this construction and concluded that this term should not be given “ ‘a narrow or technical meaning.’ ” Id. 466 U.S. at 480, 104 S.Ct. at 1946 (quoting Bryson v. United States, 396 U.S. 64, 70, 90 S.Ct. 355, 359, 24 L.Ed.2d 264 (1969)). The “jurisdiction” of section 1001 is co-extensive with the statutory basis for the authority of an agency— in the case of Rodgers, the FBI — to conduct an investigation triggered by a defendant’s false statements. Such a construction is in keeping with Congress’ purpose to protect the “myriad governmental activities.” Id.³ Accordingly, the language of section 1001 and Rodgers do not limit the scope of this statute; rather, both counsel for a broad reading. Id. at 484, 104 S.Ct. at 1948 (stating that “[Resolution of the pros and cons of whether a statute should sweep broadly or narrowly is for Congress”).

The legislative history does not communicate a congressional intent to restrict the scope of section 1001. The origin of section 1001 is discussed in Bramblett, 348 U.S. at 503, 75 S.Ct. at 505. Its predecessor originally covered false claims against the government by military personnel. False statements made for the purpose of obtaining the approval of such claims were also prohibited. Later, the statute was extended to include all false claims made for the purpose of cheating or defrauding the government of the United States as well as false statements for obtaining payment of a false claim. In 1934, the Secretary of the Interior sought an amendment so that he could prosecute “hot oil” frauds — frauds perpetrated by petroleum producers through falsification of interstate shipment documents but which involved no pecuniary or property loss to the government. United States v. Gilliland, 312 U.S. 86, 92, 61 S.Ct. 518, 522, 85 L.Ed. 598 (1941). This amendment implemented the congressional intent to expand the scope of the statute “to protect the authorized functions of governmental departments and agencies from the perversion which might result from the deceptive practices described.” Id. at 93, 61 S.Ct. at 523. In 1948, the statute took its present form. False claims were severed and are covered by section 287; the false statements provisions were incorporated into section 1001. Hence, the legislative history communicates a congressional intent to expand, not limit, the scope of section 1001. In light of this congressional intent, a broad reading of section 1001 would not arrive at a result “demonstrably at odds” with congressional intent; to the contrary, the Court has consistently indicated that the statute should be construed broadly. See Bramblett, 348 U.S. at 503, 75 S.Ct. at 505 (stating that “[t]here is no indication in either the committee reports or in congressional debate that the scope of [section 1001] was to be in any way restricted”).

In its present form, section 1001 consists of three operative clauses: the first clause prohibits a misstatement of “material” fact; the second clause prohibits a false “statement” or “representation”; and the third clause prohibits false writings containing a false “statement” or “entry.” A literal application of this statute requires a finding of materiality in the first clause, and a finding of a “statement” in the second and third clauses with no requirement of materiality. In keeping with prior case-law, we choose to read the requirement of materiality into all of the clauses so as “ ‘to exclude trivial falsehoods from the purview of the statute.’ ” United States v. Chandler, 752 F.2d 1148, 1151 (6th Cir.1985) (quoting United States v. Abadi, 706 F.2d 178 (6th Cir.1983)); United States v. Beer, 518 F.2d 168 (5th Cir.1975); United States v. Stark, 131 F.Supp. 190 (D.Md.1955).⁴ Accordingly, five elements comprise the section 1001 offense: (1) the defendant made a statement; (2) the statement is false or fraudulent; (3) the statement is material; (4) the defendant made the statement knowingly and willfully; and (5) the statement pertained to an activity within the jurisdiction of a federal agency. Chandler, 752 F.2d at 1150.⁵

A statement is material for purposes of section 1001 if it has a “natural tendency to influence, or be capable of affecting or influencing,” a function entrusted to a governmental agency. United States v. McGough, 510 F.2d 598, 602 (1975); Chandler, 752 F.2d at 1151. It is not necessary to show that the statement actually influenced an agency, but only that it had the capacity to do so. McGough, 510 F.2d at 602; Chandler, 752 F.2d at 1151. A materiality determination is subject to de novo review on appeal. Chandler, 752 F.2d at 1151.

Here there can be little doubt as to the materiality of the false statements in the documents defendant gave to the IRS. Hall’s testimony indicates that had it not been for Duerr’s cooperation, the IRS would have accepted them as true. They were the type of documents on which the IRS would be likely to rely. They were not spontaneous, emotional disclaimers uttered by a suspect to which an experienced investigator would give little credence and on which one would be unlikely to rely. They were provided after a period of deliberation during which defendant discussed his plan of deception with his co-conspirator Duerr. The documents were calculated to influence and were likely to influence the action of the IRS. The function of the IRS to collect Duerr’s taxes would be impaired if the documents were accepted as accurate representations of the parties’ transaction. The requirement of materiality is met under these circumstances.

B. The Exculpatory No Exception

Defendant argues that the “exculpatory no” exception is a necessary limitation upon the broad scope of section 1001, and as applied to the facts of the instant case, this exception exonerates him. The exculpatory no exception appears to have been first adopted by a court of appeals in Paternostro v. United States, 311 F.2d 298 (5th Cir.1962). That court noted that defendant “did not aggressively and deliberately initiate any positive or deliberate statement calculated to pervert the legitimate functions of government” and concluded that section 1001 did not apply. Id. at 309. Defendant was accused of making false statements to an IRS agent investigating unreported income from police graft. He gave negative answers to a number of questions. Following earlier district court opinions that concluded such negative answers were not statements within the contemplation of section 1001, id. at 302-03, the Paternostro court dismissed that count of the indictment. On rehearing, the court restated its holding that “the ‘exculpatory no’ answer without any affirmative, aggressive or overt misstatement on the part of defendant does not come within the scope of the stat-ute_” Id. at 309. Later Fifth Circuit cases stated that the doctrine was based both on the purpose of the statute and the fifth amendment right against self-incrimination. The Fifth Circuit held therefore that the doctrine did not apply when a person attempts to affirmatively mislead a government investigator. Id. at 298. Defendant does not contend he could come within Paternostro’s exception that a simple “no” answer is not a statement. Thus we need not decide the applicability of the statute to that situation.⁶

Defendant urges this Court to adopt the exculpatory no exception established by the Ninth Circuit, see United States v. Equihua-Juarez, 851 F.2d 1222 (9th Cir.1988), and adopted by the Fourth Circuit in United States v. Cogdell, 844 F.2d 179 (4th Cir.1988). This test consists of five parts:

1) the false statement must be unrelated to a claim to a privilege or a claim against the government;

2) the declarant must be responding to inquiries initiated by a federal agency or department;

3) the false statement must not impair the basic functions entrusted by law to the agency;

4) the government’s inquiries must not constitute a routine exercise of administrative responsibility; and

5)a truthful answer would have incriminated the declarant.

Equihua-Juarez, 851 F.2d at 1224.

We decline to adopt this test for several reasons. First, some of the criteria are based on rationales which we are unable to accept. For example, the fourth and fifth criteria are premised on fifth amendment concerns. While no court has held that section 1001 violates the fifth amendment, these criteria purportedly safeguard against the application of section 1001 in circumstances which come “uncomfortably close” to violating the fifth amendment. United States v. Alzate-Restreppo, 890 F.2d 1061 (9th Cir.1989) (Patel, J., and Nelson, J., concurring in the judgment); United States v. Myers, 878 F.2d 1142, 1144 (9th Cir.1989); United States v. Tabor, 788 F.2d 714, 719 (11th Cir.1986); United States v. Rose, 570 F.2d 1358, 1364 (9th Cir.1978). This rationale assumes that section 1001 creates a Hobson’s choice for an individual: admit guilt or be charged with a felony offense. See Cogdell, 844 F.2d at 185 (stating that “[t]he statute ... was not intended to compel persons suspected of crimes to assist criminal investigators in establishing their guilt”).

Fifth amendment concerns, however, fail to justify the fourth and fifth criteria of this test. An individual has a constitutional privilege against self-incrimination, but he has no constitutional right to give an untruthful statement. Bryson v. United States, 396 U.S. 64, 74, 90 S.Ct. 355, 361, 24 L.Ed.2d 264 (1969) (stating that “[a] citizen may decline to answer the question, or answer it honestly, but he cannot with impunity knowingly and willfully answer with a falsehood”); Cogdell, 844 F.2d at 186 (Wilkins, J., dissenting in part). The Hobson’s choice posited by some courts applying this exception is flawed; an individual need not assist an investigating officer or face felony charges. A third option is available to an individual: remain silent and invoke the fifth amendment privilege against self-incrimination, id. at 187 (Wilkins, J., dissenting in part), or here, simply not mail the documents. While we acknowledge the canon of construction that allows a court to construe a statute so as to avoid a constitutional infirmity, DeBartolo Corp. v. Florida Gulf Bldg. & Constr. Trades Council, 485 U.S. 568, 108 S.Ct. 1392, 99 L.Ed.2d 645 (1988), a statute that comes “uncomfortably close” to a constitutional violation does not trigger the application of this canon.

We also conclude that the fourth criterion fails to account for the Supreme Court’s guidance in Rodgers. The Supreme Court expressly recognized that “[a] criminal investigation surely falls within the meaning of “any matter’_” Rodgers, 466 U.S. at 479, 104 S.Ct. at 1946. Thus, a distinction between an agency’s administrative and investigative functions is unwarranted. There is no reason to undertake the superfluous analysis required by the fourth prong of this test because section 1001 applies to all agency actions, criminal or otherwise.⁷ See United States v. Payne, 750 F.2d 844, 863 n. 21 (11th Cir.1985) (rejecting the administrative/investigative distinction because it is unhelpful).

In sum, we share the concerns of other courts concerning the sweeping language of section 1001. As one court noted, “[I]f read literally, [this statute] could make ‘virtually any false statement, sworn or un-sworn, written or oral, made to a Government employee ... a felony.’ ” United States v. Medina de Perez, 799 F.2d 540, 543-44 (9th Cir.1986) (quoting United States v. Bedore, 455 F.2d 1109, 1110 (9th Cir.1972)). Yet, we do not think these concerns legitimize the creation of the Ninth Circuit’s broad exception to this statute. The statute does contain language which reasonably limits its application; only “material” statements are violations. The false documents here were clearly material to ascertaining the tax liability of Duerr. He was using the false price of the lots to conceal a substantial amount of income. Unlike the mere denial of guilt by a suspect, the government would be very likely to rely on the documents submitted by defendant.

Besides this statutory language, Congress appears to have relied primarily upon the discretion of a prosecutor in limiting the potential application of this section. This mechanism — prosecutorial discretion — is a valid means of limiting the potential application of a statute. It is not our role to re-write a statute simply because we are discomforted by the manner in which Congress chose to structure its enforcement. United States v. Lambert, 501 F.2d 943, 946 (5th Cir.1974) (stating that “establishment of different policies for the governmental agencies affected [in order to curb overzealous application of section 1001] is in the executive and legislative rather than the judicial domains”); cf. United States v. Schmoker, 564 F.2d 289, 292 (9th Cir.1977) (Hufstedler, J., concurring specially) (stating that “the court is forbidden to intervene when the choice of charges is legally committed to the prosecutor”).

C. Timing of Statement

Defendant also argues that the documents were not false statements since they were the documents drawn up at the time of the transactions. However, the statute speaks of documents or writings which contain “any false ... statements ... or entry.” These documents contained false entries. They recited a purchase price and payments which did not reflect the actual transaction, but which falsely purported to do so. These statements subsequently were submitted to the IRS by defendant. Hence, these statements fall within the purview of section 1001.

III.

For the foregoing reasons we AFFIRM the judgment of the District Court.

1 . Agent Hall contacted Steele on two separate occasions. Hall, when asked the reason for initially contacting Steele, testified "that at that time we were investigating Mr. Duerr’s finances" and that he recontacted Steele in order to get information to present the case against Duerr to the jury if Duerr did not plead guilty. Hall testified that even when he received the records he did not know that the $30,000 recited in the documents, part of the payment for the properties, was in cash. From this it is fair to infer that he did not yet have Duerr’s confession implicating defendant. Moreover, the exculpatory no issue in the District Court was raised by motion at the close of the government’s case. During argument on the motion, the Assistant United States Attorney represented to the District Court that Steele was not the target of any investigation. The statement was not challenged. Thus, there is no evidence in the record that Steele was the target of any investigation when he was contacted on either occasion and the evidence in the record indicates that a different purpose led to these contacts.

2 . In his testimony, Agent Hall negated the possibility of discovering the fraudulent nature of this transaction through investigative means exclusive of Duerr’s confession. Agent Hall stated that Steele's and the partnership’s federal tax returns were unhelpful. Similarly, the documents involved in this transaction, including the partnership's deposit slip, the cognovit notes, the cashiers’ checks given to the partnership by Duerr, and the land contracts and deed publicly on file, provided no means of uncovering the instant fraud. Indeed, Agent Hall testified that the documents given by Steele to Hall are consistent with the $40,000 purchase price allegedly paid by Duerr for the two parcels. Given the breadth of Hall’s testimony on this subject, it is reasonable to infer that the fraud would have gone undiscovered without the aid of Duerr.

3 . The Court also rejected the Eighth Circuit’s attempt to limit the application of section 1001 by reliance on the social policy of open communication by the public to the FBI. The Court concluded that " ‘individuals acting innocently and in good faith, will not be deterred from voluntarily giving information or making complaints to the F.B.I.' ” Rodgers, 466 U.S. at 483, 104 S.Ct. at 1948 (quoting United States v. Adler, 380 F.2d 917, 922 (2d Cir.), cert. denied, 389 U.S. 1006, 88 S.Ct. 561, 19 L.Ed.2d 602 (1967)).

4 . Defendant argues that a distinction should be made between written and oral statements for purposes of section 1001 analysis. The Supreme Court has held, however, that there is no distinction between written and oral statements under this section, United States v. Bramblett, 348 U.S. 503, 75 S.Ct. 504, 99 L.Ed. 594 (1955), thereby making the interpretation of “statement” equally applicable to all three operative clauses.

5 . The dissent states that the majority opinion fails to specify defendant’s criminal conduct and then proceeds to assume incorrectly that we consider it to be "the act of sending documents to Agent Hall_” The dissent attacks this interpretation imputed to the majority because it fails to account for the statutory term "use." According to the dissent, to "use” a writing, and thus violate section 1001, a defendant must make a representation, either explicitly or implicitly, that a document is correct as to the assertions it makes. The dissent argues that no such representation was made in this case; defendant simply sent the requested documents without making any representations.

The dissent interprets too narrowly both the majority opinion and section 1001. In our view, a defendant “uses” a writing in a manner proscribed by section 1001 when all of the elements of this section are proven: knowingly and willfully submitting a false and material document to an agency on a matter that is within the jurisdiction of such agency. Subsumed in the elements cited by the majority, particularly the mens rea and materiality elements, is the requirement that such conduct amount to a representation to an agency regarding a document's veracity. Inherent in the finding that a document is “material” is the conclusion that a document, based either on its own characteristics or surrounding circumstances, makes a representation and possesses indicia of reliability as to its veracity. The dissent is incorrect to the extent that it would require proof of an additional element beyond those enumerated in the majority opinion, that is, that a defendant must intend to or actually represent to an agency that the facts contained in the submitted documents are correct. Our reading of the elements required to prove a section 1001 violation addresses the concerns raised by the dissent and renders superfluous proof of this additional requirement.

6 . The First Circuit in dicta also has approved an exception for mere negative responses to government inquiries in United States v. Chevoor, 526 F.2d 178 (1st Cir.1975), cert. denied, 425 U.S. 935, 96 S.Ct. 1665, 48 L.Ed.2d 176 (1976). It reasoned that “negative, oral responses to the questioning.... were not 'statements’ within the meaning of 18 U.S.C. § 1001.” Id. at 184. The Second Circuit, in declining to apply the exception where defendant made affirmative representations, stated that if it did adopt the exception, "we would construe it narrowly, ruling that any statement beyond a simple ‘no’ does not fall within the exception." United States v. Capo, 791 F.2d 1054, 1069 (2d Cir.1986) (citations omitted). The principle underlying this exception is that a simple negative response cannot serve as proof of the requisite knowledge and willfulness required to convict under section 1001 absent affirmative steps by the government to make reporting requirements known. See United States v. King, 613 F.2d 670, 675 (7th Cir.1980) (distinguishing United States v. Bush, 503 F.2d 813 (5th Cir.1974), because defendant did not merely give simple negative exculpatory answers and defendant initiated the contact with the government).

7 . Some Ninth Circuit panels have begun to question the usefulness of this multi-part test. See Alzate-Restreppo, 890 F.2d at 1068 (Patel, J., and Nelson, J., concurring in the judgment) (stating that the five-prong test is "cumbersome” and that it “is unnecessary and distortive”). Judge Patel suggests an analysis based on “whether, at the time of the statement, there was reasonable cause to detain or probable cause to arrest the defendant or whether he was the subject of a criminal investigation.” In such circumstances, which implicate fifth amendment concerns, a negative response should not violate section 1001. Id. at 1069-70. However, fifth amendment concerns have led courts to reach different conclusions. Compare United States v. King, 613 F.2d 670 (7th Cir.1980) (holding that the exculpatory no exception did not apply once defendant had been read his Miranda rights, an act informing him that he was under investigation) with Alzate-Restreppo, 890 F.2d at 1069 (Patel, J., and Nelson, J., concurring in the judgment) (discussing cases which have held that the exculpatory no exception applies only when a defendant has been read his Miranda rights).

We also observe that the third criterion appears superfluous in light of the requirement of materiality. As one judge noted, "[s]ince materiality is a critical element of [section 1001], this [third criterion] seems redundant.” Alzate-Restreppo, 890 F.2d at 1068 (Patel, J., and Nelson, J., concurring in the judgment).