United States v. Toth

United States Court of Appeals
For the First Circuit
No. 21-1009
UNITED STATES OF AMERICA,
Appellee,
v.
MONICA TOTH,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Allison D. Burroughs, U.S. District Judge]
Before
Barron, Chief Judge,
Lynch and Lipez, Circuit Judges.
Jeffrey P. Wiesner, with whom Jennifer McKinnon and Wiesner
McKinnon LLP were on brief, for appellant.
Jennifer M. Rubin, Tax Division, Department of Justice, with
whom David A. Hubbert, Acting Assistant Attorney General,
Francesca Ugolini, Tax Division, Department of Justice, and Bruce
R. Ellisen, Tax Division, Department of Justice, were on brief,
for appellee.
April 29, 2022
BARRON, Chief Judge. In 2013, the U.S. Internal Revenue
Service ("IRS") ordered the imposition of a penalty of over
$2 million against Monica Toth for willfully failing to report her
Swiss bank account in violation of the Bank Secrecy Act ("Act").
See 31 U.S.C. § 5314(a). Toth contested the penalty and refused
to pay it. The government filed this suit in the U.S. District
Court for the District of Massachusetts to obtain a judgment
against Toth for the full amount of the penalty and then moved for
summary judgment against Toth. The District Court ruled for the
government on that motion, and Toth now appeals. We affirm.
I.
Congress passed the Act in 1970 to curb the use of
foreign bank accounts to evade taxes. See Cal. Bankers Ass'n v.
Shultz, 416 U.S. 21, 28-30 (1974). The Act requires U.S. residents
and citizens to file reports and keep records of certain
relationships with foreign financial agencies. 31 U.S.C.
§ 5314(a).
U.S. Department of Treasury ("Treasury") regulations
promulgated to implement the Act require an individual to file a
Report of Foreign Bank and Financial Accounts ("FBAR") with the
IRS for each calendar year that individual has more than $10,000
in a foreign bank account. 31 C.F.R. §§ 1010.350(a), 1010.306(c).
If an individual fails to file an FBAR, the Act authorizes the IRS
to impose a civil penalty of up to $10,000 for each violation.
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31 U.S.C. § 5321(a)(5)(B). If an individual "willfully" fails to
file an FBAR, the permissible maximum penalty that the statute
authorizes increases to the greater of either $100,000 or
50 percent of the value in the account at the time of the
violation. Id. § 5321(a)(5)(C)-(D).
Toth is a U.S. citizen who, since 1999, has had a foreign
bank account with the Union Bank of Switzerland ("UBS"). Toth was
subject to the Act's special reporting requirements for that
account for at least the years 2005-2009, as in each of those years
the account had at least $10,000 in it.
Toth first filed an FBAR disclosing her Swiss UBS account
to the IRS in 2010. The next year, the IRS audited Toth. The
audit revealed that Toth had failed to comply with the Act's
reporting requirements prior to 2010, and the IRS filed the
delinquent FBAR forms on her behalf for the relevant period (2005-
2009).1 At the end of the investigation, the IRS concluded that
Toth's failure to file an FBAR had been willful for the 2007
calendar year. The IRS assessed a civil penalty against Toth, in
consequence of her failure to file the requisite form, of
$2,173,703, which, being half the value of her Swiss UBS account
1 Toth contends that she attempted to file the necessary FBARs
for this period in 2010 prior the audit. The forms, however, were
sent to the wrong agency such that the IRS never had a record of
them prior the IRS audit.
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at the time of the violation, was the maximum allowable penalty
set forth in the Act, see id. § 5321(a)(5)(C)-(D).2
Toth did not pay this penalty. The government then filed
a civil suit against Toth in the District of Massachusetts on
September 16, 2015, for a judgment imposing the full penalty that
the IRS had assessed against her, as well as interest and late
fees. Two different process servers attempted unsuccessfully to
serve Toth personally. The government completed service by leaving
a copy of the complaint at her residence on January 11, 2016, as
permitted by Massachusetts Rule of Civil Procedure 4(d)(1) and
Federal Rule of Civil Procedure ("Rule") 4(e)(1).3
A couple of weeks later, on February 5, 2016, the
government moved for a default judgment against Toth on the ground
that she had failed timely to answer the complaint.4 The District
Court granted the government's motion and issued a notice of
default on February 9, 2016.
Shortly thereafter, Toth began to respond to the
government's filings. She opposed the government's motion for
2 The IRS also found, as part of that audit, that Toth had an
outstanding tax liability and assessed against her a tax penalty
for tax fraud.
3 Another copy of the complaint was sent to Toth via certified
mail on January 14, 2016.
4 Toth was required to answer the complaint by February 1,
2016.
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default judgment on April 28, 2016, and the following day the
District Court held a hearing to discuss Toth's opposition to the
government's already granted motion.
At that hearing, the District Court made clear that it
was willing to reconsider the default but only if Toth either
"g[o]t a lawyer or . . . start[ed] showing up in court to defend
it." And, when Toth explained that she had not responded to the
government's complaint because she "didn't know what it was" and
that the law is "a world that . . .[she] d[oes]n't know about,"
the District Court strongly encouraged Toth to hire a lawyer,
worked with the government to provide Toth with a non-compulsory
list of lawyers she could hire, and granted Toth a 30-day
continuance to retain counsel. Following the hearing, Toth moved
to set aside the default judgment, but she did not hire a lawyer.
The District Court granted Toth's motion to set aside
the default judgment on August 17, 2016. The District Court ruled
that "this action should proceed on the merits" due to "the
circumstances, which include a pro se plaintiff, a potential
judgment of over $2 million and a dispute about service and actual
notice of the case."
A little less than two months later, on October 13, 2016,
Toth moved to dismiss the complaint under Rules 12(b)(4)
and 12(b)(5) for untimely service of process, Rule 12(b)(2) for
lack of personal jurisdiction, and Rule 12(b)(6) for failure to
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state a claim. The District Court denied Toth's motion on all
three grounds. United States v. Toth (Toth I), No. 15-CV-13367,
2017 WL 1703936, at *1 (D. Mass. May 2, 2017).
Toth filed her answer to the complaint after the District
Court denied Toth's motion to dismiss. The case then proceeded to
discovery.
At a scheduling conference to set deadlines for
discovery, the District Court noted that Toth had failed to confer
with the government's counsel as required by Rule 26(f). In
response to Toth's expression of confusion as to what initial
disclosures were, the District Court once again urged Toth to hire
a lawyer.
By January 2018, Toth had missed two deadlines for
responding to discovery requests and amending her initial
disclosures set by the District Court. By that time, the
government also had both moved to compel discovery twice and sought
sanctions pursuant to Rule 37. The District Court ordered Toth to
comply with the government's discovery requests and, as a sanction
for having failed to have done so previously, forbade her from
raising any non-privilege-based objections in her responses.
The government then again moved for sanctions against
Toth on March 9, 2018, on the ground that, as of February 9th,
Toth had failed to respond to the government's discovery requests.
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The District Court refrained from ruling on the motion until it
heard from the parties at a hearing scheduled for March 12th.
At that hearing, Toth provided the government with her
amended initial disclosures as well as her responses to the
government's discovery requests. The government in July
nonetheless moved once more for sanctions against Toth on the
ground that her responses were inadequate and noncompliant with
the District Court's prior order imposing sanctions.
Toth did not oppose the government's motion, and the
District Court ordered Toth to "show cause as to why these
sanctions should not be imposed." The District Court noted "the
gravity of the proposed sanctions," which included a finding of
fact necessary for the government to impose the more than
$2 million penalty against Toth -- namely, that Toth had violated
the Act's reporting requirements willfully in 2007. See 31 U.S.C.
§ 5321(a)(5)(C).
Toth then filed four responses on September 10, 2018,
September 14, 2018, September 25, 2018, and October 12, 2018. One
of the responses disputed the government's characterization of her
conduct during discovery. The three other responses disputed that
she had willfully violated the Act.
On October 15, 2018, the District Court granted the
government's motion for sanctions under Rule 37. United States v.
Toth (Toth II), No. 15-CV-13367, 2018 WL 4963172, at *5 (D. Mass.
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Oct. 15, 2018). The District Court ordered as the sanction that
several facts be "taken as established," including that Toth
violated the Act willfully. Id. at *5-6. The District Court
recognized that the order imposed a "strong sanction[]," id. at
*5, but explained that it was necessary due to Toth's "severe,
repeated, and deliberate" "violations of the [District] Court's
discovery orders" that amounted to "a pattern of stonewalling,"
id. at *4.
Discovery continued, and Toth -- after having then hired
a lawyer -- produced documents that she had not previously
disclosed. Toth moved to vacate the sanctions order on March 15,
2019. The District Court refused to do so. United States v. Toth
(Toth III), No. 15-CV-13367, 2019 WL 7039627, at *1, *2 (D. Mass.
Dec. 20, 2019).
The government moved for summary judgment, which the
District Court granted on September 16, 2020. United States v.
Toth (Toth IV), No. 15-CV-13367, 2020 WL 5549111 (D. Mass. Sept.
16, 2020). The District Court in its opinion so ruling reaffirmed
its prior determination that Toth's violation of the Act had been
willful. Id. at *5-*6; see also 31 U.S.C. § 5321(a)(5).
The District Court then turned to the defenses that Toth
had raised in response to the motion for summary judgment with
respect to the size of the penalty that the IRS sought to impose
through the suit. These defenses were based on a Treasury
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regulation and the U.S. Constitution's Excessive Fines and Due
Process Clauses. Id. at *6-9. The District Court rejected each
contention, and, having found as a matter of law that Toth had
willfully failed to report her Swiss UBS account in 2007 and that
the IRS did not err in assessing a penalty equal to the statutory
maximum in this case, entered a judgment against Toth for
$2,173,703.00 for Toth's willful failure to timely file an FBAR
for the 2007 calendar year, $826,469.56 in late fees, and
$137,925.92 in interest. Id. at *9. Toth filed this timely
appeal.
II.
We first consider Toth's challenge to the District
Court's denial of her motion to dismiss the government's suit for
lack of personal jurisdiction based on Rules 12(b)(4) and 12(b)(5).
See Precision Etchings & Findings, Inc. v. LGP Gem, Ltd., 953 F.2d
21, 23 (1st Cir. 1992). We conclude that the challenge is without
merit.
The government filed the complaint in this case on
September 16, 2015. Rule 4(m) required at that time that a
defendant be served with a summons within 120 days of the filing
of the complaint. A new version of Rule 4(m) took effect, however,
on December 1, 2015, which was before the government had completed
service on Toth. That new version shortens the time for completing
service from what it had been -- 120 days -- to 90 days. Proposed
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Amendments to the Federal Rules of Civil Procedure, 305 F.R.D.
457, 463 (U.S. 2015). It also applies to "all proceedings in civil
cases . . . commenced [after December 1, 2015] and, insofar as
just and practicable, all proceedings then pending." Id. at 460.
The parties agree that the government served Toth
118 days after it filed its complaint. They thus agree that the
government served her with process within the 120-day deadline set
by the old version of Rule 4(m) but after the 90-day deadline set
by the new version. For that reason, they also agree that the
service was effective only if it would not be "just and
practicable" to apply the new version of Rule 4(m) to Toth's case,
such that the old version of the rule (with its longer, 120-day
deadline) applies.
The parties agree that our review is de novo. See United
States v. Mojica-Rivera, 435 F.3d 28, 31-32 (1st Cir. 2006).
Assuming that is the case, we discern no error by the District
Court, even under that standard of review.
The District Court made no explicit finding as to whether
it would be "just and practicable" to apply the 90-day deadline
(instead of the 120-day deadline) to this case. But, the District
Court did find that Toth "knew [the government's process server]
was attempting to serve her with legal process and . . . made a
deliberate effort to avoid service." Toth II, 2018 WL 4963172- 10 -
at *1;5 cf. Ruiz Varela v. Sanchez Velez, 814 F.2d 821, 823 (1st
Cir. 1987) (holding, in a case concerning Rule 4(m), that
"[e]vasion of service by a putative defendant constitutes good
cause" for extending the deadline for completing service). Indeed,
the record supportably shows that Toth did so before the 90-day
period itself had run. And, the government had made this point in
its opposition to Toth's motion to dismiss, in which she made the
same argument that she makes to us regarding the "just and
practicable" standard.
Thus, the record leads us to conclude that the District
Court premised its decision not to apply the 90-day deadline on
the implicit determination that it would not be "just and
practicable" to apply that deadline in this case because doing so
would reward deliberate attempts to evade earlier service. Cf.
United States v. Rodriguez, 14 F.3d 45 (1st Cir. 1993) (unpublished
table decision) (affirming the district court's "implicit finding
that [the] appellant's son [in that case] was 'residing' in her
house for the purposes of" determining whether service of process
Toth takes issue with certain statements the District Court
5
made in a hearing regarding her evasion of service of process.
But, she does not challenge on appeal the District Court's finding
of fact that she evaded service of process as premised on these
misstatements. Toth instead relies on these misstatements by the
District Court regarding the government's attempts to serve her to
contend that the government was affirmatively misleading the
District Court in its motion requesting sanctions. We address
that contention when we consider Toth's challenge to the District
Court's order imposing sanctions against her.
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satisfied Rule 4(d)'s requirements). And, we see no basis for
concluding that the District Court erred in making that
determination. See Hinton v. Va. Union Univ., 185 F. Supp. 3d
807, 843 (E.D. Va. 2016) ("As a general matter, . . . it is unjust
to expect parties to abide by deadline-setting rules that were not
in effect when the clock began ticking on a particular activity.");
Freeman v. United States, 166 F. Supp. 3d 215, 218 (D. Conn. 2016)
(applying the 120-day version of Rule 4(m) rather than the 90-day
version); Vela v. City of Austin, No. 1-15-CV-1015, 2016 WL
1583676, at *3 (W.D. Tex. Apr. 19, 2016) (same); Cankat v. Cafe
Iguana, Inc., No. 15-CV-5219, 2016 WL 1383490, at *1 n.1 (E.D.N.Y.
Apr. 7, 2016) (same). Indeed, we note, that as of December 1,
2015, there would have only been 14 days left on the clock for the
government to complete service under the new version of that rule.
Cf. Mojica-Rivera, 435 F.3d at 33 (considering the amount of time
the party would have to file the motion if an amendment to the
Federal Rules of Civil Procedure that shortened the window in which
a party could file a motion was operative to determine whether it
was "just and practicable" to implement that new deadline).
III.
Toth's next challenge is to the grant of summary judgment
against her and depends on her contention that the District Court's
order sanctioning her under Rule 37(a)(2)(A) for discovery
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violations was unwarranted. That order required "the following
facts to be taken as established:
1. Defendant had legal control over, and the
legal authority to direct the disposition of
the funds in, the Account (and any sub-
accounts), by investing the funds, withdrawing
the funds, and/or transferring the funds to
third-parties, between the date the Account
was opened and at least December 31, 2008.
2. Should the United States establish that
Defendant is liable for the penalty alleged in
the complaint, for the purposes of calculating
the amount of such penalty, the Account (and
any sub-accounts) contained $4,347,407 as of
the penalty-calculation date.
3. Defendant had a legal obligation to timely
file an FBAR regarding the Account in each
calendar year that the Account was open,
including with regard to calendar year 2007.
4. Defendant willfully failed to file an FBAR
regarding the Account with respect to calendar
year 2007.
Toth II, 2018 WL 4963172 at *5-6.6
In entering summary judgment against Toth, the District
Court relied on the facts -- including the fact that Toth
"willfully failed to file an FBAR regarding the [Swiss UBS] account
6 Toth also appealed the District Court's decision to deny
her motion to vacate sanctions, which the District Court treated
as a motion to reconsider. Toth, however, makes no distinct
arguments challenging that decision by the District Court, and so
we find any arguments to that effect waived. See United States v.
Zannino, 895 F.2d 1, 17 (1st Cir. 1990) ("[A] litigant has an
obligation to spell out its arguments squarely and distinctly, or
else forever hold its peace." (quoting Rivera–Gomez v. de Castro,
843 F.2d 631, 635 (1st Cir. 1988))).
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with respect to calendar year 2007" -- that the sanctions order
required to be taken as having been established. Thus, the summary
judgment ruling against her cannot stand if the sanctions order
cannot. But, as we will explain, we do not agree with Toth that
the District Court abused its discretion in imposing the sanction
-- severe though it was.
A.
Toth focuses in challenging the sanctions order on the
District Court's decision to require that it be taken as an
established fact that she "willfully failed to file an FBAR" for
the 2007 calendar year. She argues that this requirement was a
particularly harsh sanction because, she contends, it "was
tantamount to a default judgment," in that it precluded her from
denying that she willfully failed to file an FBAR for the 2007
calendar year. She then argues that the sanction, given that
feature of it, was "extreme [and] unwarranted" because her conduct
was far less "severe, repeated and deliberate" than the District
Court found.
We review the District Court's "choice of sanction"
under Rule 37 "for abuse of discretion." AngioDynamics, Inc. v.
Biolitec AG, 780 F.3d 429, 435 (1st Cir. 2015). We consider both
the substantive and the procedural factors that caused the District
Court to impose the sanction. Vallejo v. Santini-Padilla, 607
F.3d 1, 8 (1st Cir. 2010). Substantive factors can include "the
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severity of the violation, the legitimacy of the party's excuse,
repetition of violations, the deliberateness . . . of the
misconduct, mitigating excuses, prejudice to the other side and to
the operations of the court, and the adequacy of lesser sanctions."
Robson v. Hallenbeck, 81 F.3d 1, 2 (1st Cir. 1996). Procedural
ones can include "whether the offending party was given sufficient
notice and opportunity to explain its noncompliance or argue for
a lesser penalty." Malloy v. WM Specialty Mortg., 512 F.3d 23, 26
(1st Cir. 2008) (per curium). We see no abuse of discretion.
B.
The District Court based the sanction on the finding
that Toth's "persistent violations of the Court’s discovery
orders" were "severe, repeated, and deliberate." Toth II, 2018 WL
4963172 at *4. The District Court acknowledged that Toth was
proceeding pro se but explained that it "ha[d] been very
accommodating to [Toth], affording her numerous extensions, ample
notice, and many opportunities to explain herself." Id. The
District Court emphasized that it had "attempted warnings and
lesser sanctions to no avail." Id. at *5. The District Court
then concluded that, in light of Toth's "pattern of stonewalling
this litigation, including not meeting her discovery obligations
despite numerous chances to do so," id. at *4, it saw "no effective
option[] other than" to "tak[e] as established the four facts
identified," id. at *5.
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The record supportably shows that Toth failed from the
outset to respond to the government's discovery requests and
repeatedly missed deadlines for doing so set by the District
Court.7 Hooper-Haas v. Ziegler Holdings, LLC, 690 F.3d 34, 37 (1st
Cir. 2012) ("We have said . . . that a party who flouts a court
order does so at its own peril."). Specifically, Toth did not
respond to the government's discovery requests until March 12,
2018 -- just nine days before discovery overall was scheduled to
end and three months after the District Court had ordered Toth to
respond to the government's discovery requests. Moreover, Toth
did not amend her initial disclosures to conform with the Federal
Rules until March 12, 2018, even though the District Court set
October 6, 2017, as the deadline by which Toth was required to
serve the government with her initial disclosures and had ordered
Toth to amend her initial disclosures one month later.8 Toth II,
2018 WL 4963172, at *3-4.
7 For example, Toth failed to respond to any of the
government's emails and other efforts to communicate with her to
satisfy its obligation to confer prior to the scheduling
conference. See Fed. R. Civ. Proc. 26(f)(1).
8 On appeal, Toth tries to explain away her failure to timely
respond to the government's discovery requests by suggesting that,
as a pro se litigant, she was "overwhelmed with 1,200 pages of
documents produced by the government." But, she does not explain
why she needed to examine the government's documents before
producing her own or why she did not seek an extension of time
from the District Court to do so.
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The record also supportably shows that the District
Court repeatedly gave Toth second chances. For example, the
District Court extended the deadline by which she was ordered to
provide discovery and even cautioned the government "to remember
that [Toth] currently represents herself and that her efforts will
be held to a less demanding standard."
Moreover, the record shows that the District Court
repeatedly warned Toth that she could face sanctions if she
continued to fail to meet the court's deadlines, and that the
District Court did not act on those warnings until three months
had passed in which Toth had failed to amend her initial
disclosures or respond to the government's discovery requests. On
January 19, 2017, for example, the District Court imposed its first
set of sanctions against Toth, "prohibiting her from withholding
documents or information based on non-privilege objections." Toth
II, 2018 WL 4963172, at *4. Toth was also warned that "[i]f [she]
fail[ed] to comply," the District Court "may enter strong sanctions
against her, including, but not limited to, . . . accepting
certain facts as established, including that [she] acted
'willfully' when she failed to file an FBAR" and "entering a
default against [her]."
Nevertheless, the record shows, Toth continued to fail
to meet the District Court's deadlines. It further shows that
when she did eventually serve her initial discovery responses on
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March 12, 2017, her production consisted of just three single-page
documents -- a copy of her college transcript, a copy of an
envelope mailed to her by the District Court, and a Notice of
Electronic Filing generated in this case -- and were replete with
non-privilege-based objections in direct violation of the District
Court's earlier sanction against her.9
Thus, we cannot say that the District Court was mistaken
in its characterization of Toth's discovery violations as
"persistent." Toth II, 2018 WL 4963172 at *4. Nor can we say
9 On appeal, Toth disputes the District Court's
characterization of her initial response to the government's
discovery requests as "facially deficient." She points out that
in total, "her responses comprised 28 single-spaced pages and
included a one-and-a-half-page table of contents with a key to
identify the documents referenced in her responses."
But, the District Court's conclusion that she withheld
documents and produced a facially deficient response was premised
primarily on the fact that "[h]er document production consisted of
just three single-page documents, her responses to the
[g]overnment's requests for production and interrogatories
disregarded the [District] Court's sanction precluding [Toth] from
withholding documents based on non-privilege objections, and her
amended initial disclosures failed to comply with Rule 26." Toth
II, 2018 WL 4963172, at *8.
Toth herself does not dispute the District Court's finding
that her amended initial disclosures were non-compliant. Further,
she admits that her interrogatories contained objections. And,
finally, she does not dispute that her document production
consisted of just three single-page documents; rather she seeks to
excuse this by insisting that she did not withhold documents
because "the government's document requests sought documents that
had been either destroyed or lost over the years." (quotation
omitted). But, after the "willfulness" sanction was imposed, Toth
produced documents that had previously not been disclosed.
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that the District Court abused its discretion in selecting the
sanction it chose. Hooper-Haas, 690 F.3d at 37 ("A court faced
with a disobedient litigant has wide latitude to choose from among
an armamentarium of available sanctions."). The record shows that
the discovery violations continued despite the District Court's
imposition of lesser sanctions against Toth and warnings that if
Toth continued to fail to comply with its discovery orders, she
could be sanctioned severely, including by requiring that it be
taken as established that she willfully failed to file her 2007
FBAR. See Remexcel Managerial Consultants, Inc. v. Arlequin, 583
F.3d 45, 51 (1st Cir. 2009) (noting that a severe discovery
sanction "provides a useful remedy when a litigant is confronted
by an obstructionist adversary and plays a constructive role in
maintaining the orderly and efficient administration of justice."
(quoting KPS & Assocs., Inc. v. Designs by FMC, Inc., 318 F.3d 1,
13 (1st Cir. 2003))).
The sanction did take one of Toth's primary defenses off
the table -- that she did not willfully violate the Act. But, she
still had her other arguments, which she advances on appeal,
including her regulatory and constitutional challenges. Thus, we
agree with the District Court that the sanction at issue does not
rise to the level of a default judgment. Toth II, 2018 WL 4963172,
at *5; cf. Chilcutt v. United States, 4 F.3d 1313, 1320 (5th Cir.
1993) (finding that a sanction "was a far cry from a default
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judgment" when the defendant was still able to present the
affirmative defense of comparative negligence).
Moreover, the District Court gave Toth an opportunity to
explain why this sanction was inappropriate. In fact, the District
Court gave Toth an extended deadline to do so after Toth initially
failed to timely respond to the government's motion seeking the
imposition of the sanctions at issue here.
For these reasons, we reject Toth's contention that the
District Court abused its discretion when it ordered that it was
established for the purposes of this litigation that Toth's failure
to file an FBAR in 2007 was willful. And, in consequence, we
conclude, reviewing de novo, that there is "no genuine issue as to
any material fact" with respect to whether Toth willfully failed
to file an FBAR for the 2007 calendar year and affirm the District
Court's grant of summary judgment on that issue. Lawless v.
Steward Health Care Sys., LLC, 894 F.3d 9, 21 (1st Cir. 2018)
(quoting McKenney v. Mangino, 873 F.3d 75, 80 (1st Cir. 2017)).
IV.
Toth also challenges the District Court's grant of
summary judgment to the government with respect to the amount of
the penalty that was imposed against her. Toth first points to a
Treasury regulation that she contends precludes a penalty of that
amount from having been imposed. Finding no merit to that
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contention, we then also address her constitutionally based
challenges to the amount of the penalty that was imposed.
A.
Toth contends that, even though the more than $2 million
penalty that the IRS assessed against her for her willful failure
to file an FBAR for the year 2007 is permitted by statute, see 31
U.S.C. § 5321(a)(5)(C)(i)(II), (a)(5)(D)(ii), the penalty is still
unauthorized. That is so, she contends, because the amount of the
penalty exceeds the amount that the IRS may impose as a penalty
under a regulation that the Treasury promulgated in 1987.
The regulation in question is 31 C.F.R. § 1010.820(g)(2)
(2012), and Toth is right that it states that the maximum penalty
that may be imposed for a willful failure to file in FBAR is
$100,000. The question, though, is whether that regulation remains
operative in the face of the statutory changes regarding the
maximum penalty that were made after the regulation's issuance.
Toth contends that the 1987 regulation does remain
operative and that it therefore places a ceiling on the penalty
that may be imposed that is much lower than the statutory maximum
that Congress set by statute after the regulation was promulgated.
For that reason, she contends, the penalty at issue is unauthorized
because an agency is required to follow its own regulations, see
Accardi v. Shaughnessy, 347 U.S. 260, 267 (1954).
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We do not agree. Rather, reviewing de novo, see
Rideout v. Gardner, 838 F.3d 65, 71 (1st Cir. 2016), we conclude,
like every other circuit to have considered this issue, see United
States v. Kahn, 5 F.4th 167, 175 (2d Cir. 2021); United States v.
Horowitz, 978 F.3d 80, 90-91 (4th Cir. 2020); United States v.
Rum, 995 F.3d 882, 892 (11th Cir. 2021); Norman v. United States,
942 F.3d 1111, 1117 (Fed. Cir. 2019), that the regulation in
question does not limit the IRS's ability to impose the statutory
maximum penalty against Toth because the statutory amendments that
increased the maximum amount for a civil penalty for a willful
failure to file an FBAR from the $100,000 amount to the present
one superseded the regulation.
At the time that the regulation was promulgated, in 1987,
the maximum penalty under the statute for a willful failure to
file an FBAR was $100,000. 31 U.S.C. § 5321(a)(5) (1987). That
amount, of course, is the precise amount that the 1987 regulation
at issue itself identified as the maximum. 31 C.F.R.
§ 1010.820(g)(2) (1987); see also Rum, 995 F.3d at 892 (noting
that the regulation "mirrored the language of the statute at that
time"); United States v. Garrity, No. 3:15-cv-243, 2019 WL 1004584,
*1-2 (D. Conn. Feb. 28, 2019) (same).
In addition, the regulation was promulgated pursuant to
a grant of statutory authority that did not -- at least in any
clear way -- confer the power on the Treasury to establish a
- 22 -
ceiling on the maximum penalty that would be lower than the maximum
penalty allowed by statute. See also Kahn, 5 F.4th at 175-76
(finding that "[n]othing in [the] language [of § 5321] authorizes
the Secretary to promulgate a rule that would nullify a statutory
provision that was deemed necessary by Congress"); Norman, 942
F.3d at 1117-18 (concluding the same). The regulation was
promulgated instead pursuant to 31 U.S.C. § 5314(b)(5), which is
merely a general grant of authority that provides that Treasury
"may prescribe[]" regulations "necessary to carry out" the Act's
reporting requirements for foreign accounts.
Indeed, there is no statutory provision that expressly
confers on the Treasury the authority to impose a maximum penalty
by regulation that is lower than the one set by statute. By
contrast, there is a provision -- § 5314(b)(3) -- that expressly
confers the authority on Treasury to set by regulation the maximum
size of the transactions that must be reported under the Act.
31 U.S.C. § 5314(b)(3) (permitting the Treasury to set through
regulation "the magnitude of transactions subject to a requirement
or a regulation under" the Act); see also Garrity, 2019 WL 1004584,
at *3 (noting that "where Congress intended in the [Act] to rely
on [Treasury] first to flesh out the clear statutory scheme by
regulation, it made that intention clear" and did not do so with
respect to the size of the maximum civil penalty under
§ 5321(a)(5)(C)-(D)).
- 23 -
Finally, and as we have noted, the regulation was
promulgated as an interpretive rule. Compare Amendments to
Implementing Regulations; the Bank Secrecy Act, 51 Fed. Reg. 30233,
30236 (proposed Aug. 25, 1986) (proposing § 103.47(a)-(b), which
caps the maximum penalty for a willful violation of § 5321(a)(5)
by a financial institution to $10,000), with Amendments to
Implementing Regulations Under the Bank Secrecy Act, 52 Fed. Reg.
11436, 11446 (Apr. 8, 1987) (containing § 103.47(g)(2), which
states that "for any willful violation committed after October 27,
1986" -- the date the Act was amended -- "the Secretary [of the
Treasury] may assess upon any person," "in the case of a
violation . . . involving a failure to report the existence of an
account" "a civil penalty not to exceed the greater of the amount
(not to exceed $100,000) equal to the balance in the account at
the time of the violation or $25,000"); see also Kahn, 5 F.4th at
176-77 (describing the history of the 1987 rule). As such, it is
properly understood to have been clarifying rather than
substantive, which points against the notion that it purported to
set a ceiling on the amount of the penalty different from the one
that Congress had set. See La Casa Del Convaleciente v. Sullivan,
965 F.2d 1175, 1178 (1st Cir. 1992) ("[A]n interpretive rule is
merely a clarification or explanation of an existing statute or
rule and . . . creates no new law and has no effect beyond the
- 24 -
statute." (quotation omitted)); Hoctor v. U.S. Dep't of Agric., 82
F.3d 165, 169 (7th Cir. 1996).
In sum, neither the amount of the maximum penalty
identified in the regulation, nor the statute authorizing the
promulgation of the regulation, nor the means of its promulgation
suggests that the Treasury intended the regulation to set a ceiling
on the penalty that would apply even if the statute that set the
maximum penalty at the time of the regulation's issuance was
amended to raise it. Rather, the text of the regulation, the
statute authorizing its promulgation, and the means of its
promulgation each accords with an understanding that the Treasury
intended the regulation merely to parrot the maximum amount for
the penalty that Congress had set at the time that the regulation
was promulgated. See also Kahn, 5 F.4th at 177 (characterizing
the 1987 regulation as a "parroting regulation"); cf. United States
v. Vogel Fertilizer Co., 455 U.S. 16, 26 (1982) (noting that the
Supreme Court "has firmly rejected the suggestion that a regulation
is to be sustained simply because it is not 'technically
inconsistent' with the statutory language, when that regulation is
fundamentally at odds with the manifest congressional design"
(quoting United States v. Cartwright, 411 U.S. 546, 557 (1973)));
Norman, 942 F.3d at 1118 ("It is well settled that subsequently
enacted or amended statutes supersede prior inconsistent
regulations.").
- 25 -
Moreover, the regulation's history supports the same
conclusion. See also Kahn, 5 F.4th at 176-77 (reviewing the
history of the 1987 regulation at issue here). In 1986, the
Treasury initiated rulemaking to update the regulations
implementing the Act. See Amendments to Implementing Regulations,
51 Fed. Reg. at 30233. Two years earlier, Congress had increased
the civil penalties that applied to violations of recordkeeping
requirements of the Act committed by financial institutions from
$1,000 to $10,000, see Pub. L. 98–473 § 901(a), 98 Stat. 1837,
2135 (1984), and the proposed rules contained a regulation that
reflected that change, see Amendments to Implementing Regulations,
51 Fed. Reg. at 30236.
But, before the Treasury published the final rule
responding to those statutory developments, Congress amended
§ 5321(a)(5)'s maximum penalties once more. This time, though,
the amendments enabled the Treasury to impose a civil penalty up
to "the amount (not to exceed $100,000) equal to the balance in
the account at the time of the violation" or $25,000 against any
person who willfully failed to report the existence of a foreign
account in violation of the Act. 31 U.S.C. § 5321(a)(5)(A)-(B)
(1987). As a consequence, the Treasury adjusted the part of the
rule regarding civil penalties to reflect that newly enabled
$100,000 maximum civil penalty. In fact, the Treasury even
explained in the final rules, published in 1987, that the "maximum
- 26 -
penalty" provided for in the rule "reflect[ed] [the] civil
penalties applicable to . . . violations after October 1986 under
the Anti-Drug Abuse Act of 1986." Amendments to Implementing
Regulations Under the Bank Secrecy Act, 52 Fed. Reg. at 11440
(emphasis added).
Thus, when Congress amended § 5321(a)(5)(C)-(D) to
permit the IRS to impose a penalty in excess of $100,000, the 1987
regulation was superseded because the regulation -- as merely a
regulation parroting a then-operative statutory maximum -- could
have no effect once a new statutory maximum had been set. Cf.
Gonzalez v. Oregon, 546 U.S. 243, 257 (2006) ("[T]he existence of
a parroting regulation" that "merely . . . paraphrase[s] the
statutory language" "does not change the fact that the question
here is not the meaning of the regulation but the meaning of the
statute."). True, the regulation does not expressly state that it
would have no effect in the event Congress set a new statutory
maximum penalty. But, given the parroting nature of the rule, the
regulation's silence on that score cannot fairly be read to reflect
an intent by the Treasury to establish a $100,000 limit for all
time no matter what new maximum Congress might impose by statute.
Cf. United Dominion Indus., Inc. v. United States, 532 U.S. 822,
836 (2001) (refusing to construe a tax regulation that listed
reporting requirements to exclude a reporting item not enumerated
- 27 -
when there was "no reason [for the agency] to [have] consider[ed]"
it "at the time the regulation was drawn").
Toth nonetheless contends that there are reasons to
construe the regulation's text to establish a still-controlling
ceiling, notwithstanding the context and history just described.
We are not persuaded.
Toth first points out that the Treasury did not withdraw
or amend the regulation for twelve years after Congress increased
the maximum penalty to exceed the cap set forth in the
regulation -- a period that included the years she failed to report
her Swiss UBS account as well as the IRS's audit of her. But, the
Supreme Court explained when presented with a similar argument
regarding a failure by the Treasury to amend a prior regulation
that the failure "is more likely a reflection of [its] inattention
than any affirmative intention on its part to say anything at
all" -- especially in light of the Treasury's "relaxed approach to
amending its regulations to track [legislative] changes." United
Dominion Indus., 532 U.S. at 836; cf. Garrity, 2019 WL 1004584, at
*3 ("[The Treasury] could not override Congress's clear directive
to raise the maximum willful FBAR penalty by declining to act and
relying on a regulation parroting an obsolete version of the
statute."). And, we conclude that, in light of the reasons just
recounted that support an understanding of the 1987 regulation to
- 28 -
have merely parroted the then-operative statutory maximum, this
same logic applies equally here.
Toth next argues that the Treasury can be understood to
have reaffirmed its commitment to the $100,000 ceiling based on
other regulations that she purports implement the amended version
of § 5321(a)(5). See 31 C.F.R. § 1010.821. She contends that
these regulations, which left the regulation imposing the $100,000
maximum in place, show the Treasury's implicit approval of that
maximum. But, the regulations Toth points to are merely
congressionally mandated updates to tables listing statutory
maximum penalties to account for inflation; they do not reflect
any policy assessment about the merits of the new statutory maximum
penalty under § 5321(a)(5). See 28 U.S.C. § 2461. Moreover, other
regulations that are not statutorily mandated parrot the language
of the new maximum civil penalty under § 5321(a)(5)(C)-(D), which
indicates that the Treasury does not understand itself to be bound
by the $100,000 regulatory "limit." See, e.g., Financial Crimes
Enforcement Network; Amendment to the Bank Secrecy Act
Regulations—Reports of Foreign Financial Accounts, 75 Fed. Reg.
8844, 8854 (proposed Feb. 26, 2010) (codified at 31 C.F.R. § 1010).
Finally, Toth relies on two interpretive rules that she
contends are applicable: (1) the rule of lenity, which is a
"longstanding principle" of statutory construction that "demand[s]
resolution of ambiguities in criminal statutes in favor of the
- 29 -
defendant," Hughey v. United States, 495 U.S. 411, 422 (1990); and
(2) the canon that "[i]f the words [of a tax statute] are doubtful,
the doubt must be resolved against the government and in favor of
the taxpayer," United States v. Merriam, 263 U.S. 179, 188 (1923).
But, even if we were to assume (contrary to the government's
position) that these canons apply to a regulation implementing
§ 5321 -- which is itself neither a criminal measure nor one that
imposes a tax -- the only question that Toth raises concerns
whether a regulation that was expressly identified as
"reflect[ing]" the terms of statute prior to its amendment is
operative even when it would no longer "reflect[]" the statute's
terms after the amendment. Amendments to Implementing Regulations
Under the Bank Secrecy Act, 52 Fed. Reg. at 11440. We are not
aware of any authority, though, that suggests that the rule of
lenity or the tax canon may be used to resolve a question of such
supersession, especially as she has failed to show that (given the
history we have recounted that underlies the regulation's
promulgation) there is the kind of ambiguity as to that question
that triggers such canons, see, e.g., United States v. Anzalone,
766 F.2d 676, 681 (1st Cir. 1985) (finding an ambiguity created by
a regulation, the validity of which neither party questioned, that
adopted a narrower construction of a statutory provision than the
text of that provision itself would support); see also Kahn, 5
F.4th at 177 (finding that the rule of lenity does not apply to a
- 30 -
penalty under § 5321(a)(5)); United States v. Bittner, 19 F.4th
734, 748 (5th Cir. 2021) (finding that neither the rule of lenity
nor the tax canon applies to a penalty under § 5321(a)(5)). We
thus reject Toth's contention that the Treasury regulation bars
the IRS from imposing a penalty that exceeds $100,000 for her
willful failure to file an FBAR in 2007.10
B.
We turn, then, to Toth's two federal constitutional
grounds for overturning the grant of summary judgment against her,
each of which take aim solely at the amount of the penalty.
Reviewing de novo, Rideout, 838 F.3d at 71, we find neither ground
for so ruling persuasive.
1.
Toth first contends that the more than $2 million penalty
that she faces for willfully failing to file an FBAR for the 2007
calendar year violates the Excessive Fines Clause of the Eighth
Amendment to the U.S. Constitution. See U.S. Const. amend. VIII
("Excessive bail shall not be required, nor excessive fines
imposed, nor cruel and unusual punishments inflicted." (emphasis
10 We also note that to the extent Toth argues that the
disagreement among federal courts as to whether the 1987 regulation
is still operative creates an ambiguity that the rule of lenity
can resolve, such an argument also fails. See Reno v. Koray, 515
U.S. 50, 64–65 (1995) ("A statute is not 'ambiguous' for purposes
of lenity merely because there is a division of judicial authority
over its proper construction." (internal quotation marks
omitted)).
- 31 -
added)). Only monetary penalties that function as "punishment for
some offense" are encompassed by the Clause. United States v.
Bajakajian, 524 U.S. 321, 327-28 (1998) (quoting Browning–Ferris
Industries of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 265
(1989)). Therefore, the penalty at issue here must qualify, at
least in part, as "punishment" even to implicate the Excessive
Fines Clause.
The Supreme Court explained in Austin v. United States,
509 U.S. 602 (1993), that there is no per se rule that the Excessive
Fines Clause only applies to criminal proceedings. Id. at 607.
What matters is whether that penalty, even if only a civil one,
"is punishment." Id. at 610. The Court has also explained that
"a civil sanction that cannot fairly be said solely to serve a
remedial purpose, but rather can only be explained as also serving
either retributive or deterrent purposes, is punishment." Id.(quoting United States v. Halper, 490 U.S. 435, 448 (1989)).
The Court then applied that logic in Austin to hold that
an in rem civil forfeiture under 21 U.S.C. § 881(a)(4) and (a)(7),11
imposed following the successful prosecution of the owner of the
11Section 881(a)(1) and (a)(7) provide that "[t]he following
shall be subject to forfeiture to the United States and no property
right shall exist in them," including "controlled substances which
have been manufactured, distributed, dispensed, or acquired" and
"real property . . . , which is used, or intended to be used, in
any manner or part, to commit, or to facilitate the commission of,
a violation of this subchapter punishable by more than one year's
imprisonment." 21 U.S.C. § 881(a)(1), (a)(7).
- 32 -
property in question for violating state drug laws, was
"punishment" and thus subject to the limitation imposed by the
Eighth Amendment's Excessive Fines Clause. Id. at 606, 620. In
reaching that conclusion, the Court emphasized that the civil
forfeiture at issue could only be imposed following the conviction
of a drug-trafficking crime, id. at 619-20, and relied on
legislative history that suggested that Congress enacted the
forfeiture provision because "traditional criminal sanctions of
fine and imprisonment [were] inadequate to deter or punish the
enormously profitable trade in dangerous drugs," id. at 620, rather
than to redress "any damages sustained by society or to the cost
of enforcing the law," id. at 621.
The Court applied that same logic in a subsequent case,
United States v. Bajakajian, 524 U.S. 321 (1998), to find that a
civil forfeiture under a different statutory scheme, 18 U.S.C.
§ 982(a)(1),12 also was a "fine" under the Eighth Amendment.
Bajakajian, 524 U.S. at 328. As the Court explained in Bajakajian,
the in personam forfeiture was "imposed at the culmination of a
At the time Bajakajian was decided, § 982(a)(1) provided
12
that "the court, in imposing sentence on a person convicted of an
offense in violation of [31 U.S.C. § 5316, which required any
individual who transports more than $10,000 out of the United
States to report it or face criminal penalties,] shall order that
the person forfeit to the United States any property, real or
personal, involved in such offense, or any property traceable to
such property." 18 U.S.C. § 982(a)(1) (1998).
- 33 -
criminal proceeding," id. at 328, in part, for, what the government
in that case conceded, was the punitive purpose of deterrence, id.at 329 & n.4.13
But, unlike the civil forfeitures held to constitute
"punishment" in both Austin and Bajakajian, this civil penalty is
not tied to any criminal sanction. Rather, it was imposed
following an administrative tax audit in which the IRS determined
that Toth had failed to report a foreign bank account. Nor has
the government conceded any punitive purpose.
Moreover, we conclude that, even if those points of
distinction are not themselves dipositive, the civil penalty here
is like the civil forfeitures in One Lot Emerald Cut Stones and
One Ring v. United States, 409 U.S. 232 (1972), Stockwell v. United
States, 80 U.S. 531 (1871), and the other early customs laws that
Bajakajian itself recognized did not constitute punishment for
purposes of the Excessive Fines Clause, 524 U.S. at 342-43(explaining that the "early monetary forfeitures," such as the
ones discussed Stockwell and One Lot Emerald Cut Stones, "were
13The government also asserted that it had "an overriding
sovereign interest in controlling what property leaves and enters
the country" and that seizure of money secretly transported out of
the country in violation of 31 U.S.C. § 5316 would compensate the
government for that informational loss. Id. But, given the
government's concession that the forfeiture was at least in part
punitive, the Court found the deterrent nature of the penalty
"sufficient to bring the forfeiture within the purview of the
Excessive Fines Clause." Id. at 329 n.4.
- 34 -
considered not as punishment for an offense, but rather as serving
the remedial purpose of reimbursing the [g]overnment for the losses
accruing from the evasion of customs duties"). And, too, it is
like the civil tax penalties found not to be punishment for Double
Jeopardy purposes in Helvering v. Mitchell, 303 U.S. 391, 398
(1938), and Excessive Fines purposes in McNichols v. C.I.R., 13
F.3d 432, 434-435 (1st Cir. 1993) (quoting Helvering, 303 U.S. at
401); see also Thomas v. C.I.R., 62 F.3d 97, 98 (4th Cir. 1995)
("[T]he Excessive Fines Clause is not implicated, since the
addition to [the] tax[es] [owed] is not a punitive measure.");
United States v. Alt, 83 F.3d 779, 784 (6th Cir. 1996) (same);
Tyler v. Hennepin Cty., 26 F.4th 789, 794 (8th Cir. 2022); Little
v. C.I.R., 106 F.3d 1445, 1455 (9th Cir. 1997) (same); Kitt v.
United States, 277 F.3d 1330, 1337 (Fed. Cir. 2002) (same); cf.
United States v. Dunkel, 182 F.3d 923 (7th Cir. 1999) (unpublished
table decision).14
14Toth argues in her reply brief that we should not rely on
Double Jeopardy cases in analyzing whether § 5321(a)(5) is
"remedial" because Toth suggests that some statutes may be
considered "remedial" for Double Jeopardy purposes yet remain
subject to the Excessive Fines Clause. But, she has not shown
that the two Double Jeopardy cases on which we rely here -- One
Emerald Lot Cut Stones and Helvering -- involved statutes that,
though remedial for the former purpose, are not for the latter.
See Zannino, 895 F.2d at 17 ("It is not enough merely to mention
a possible argument in the most skeletal way, leaving the court to
do counsel's work, create the ossature for the argument, and put
flesh on its bones."); see also Villoldo v. Castro Ruz, 821 F.3d
196, 206 n.5 (1st Cir. 2016) (noting that new arguments cannot be
- 35 -
We make that assessment because -- unlike the forfeiture
at issue in Bajakajian, which was ordered notwithstanding that
there "was no fraud on the United States, and [the subject of the
forfeiture] caused no loss to the public fisc," id. at 329,
339 -- here there was such a fraud and loss. Indeed, Congress
authorized the imposition of a penalty of this size for willfully
failing to comply with the Act's reporting requirements to address
the fact that "[i]t has been estimated that hundreds of millions
in tax revenues [were] lost" due to the secret use of foreign
financial accounts -- which Congress characterized as the "largest
single tax loophole permitted by American law," H.R. Rep. No. 91-
975, at 4397-98 (1970), and that it was very difficult for law
enforcement to police the use of these accounts, causing costly
investigations to stretch on for years, id. at 4397.15 Cf.
Bajakajian, 524 U.S. at 343 (explaining that the monetary penalty
at issue in One Lot Emerald Cut Stones was remedial in part because
made for the first time in reply briefs). We note, too, that
Bajakajian, in finding the statute there at issue was not "solely"
remedial for Excessive Fines purposes, distinguished it from the
statute at issue in One Emerald Lot Cut Stones. See Bajakajian,
524 U.S. at 342-43.
15Similarly, the Senate Report discussing the 2004 amendments
to § 5321(a)(5) explains that the impetus for those amendments was
that "the number of individuals involved in using offshore bank
accounts to engage in abusive tax scams ha[d] grown significantly
in recent years" -- underscoring the concern that the secret use
of foreign accounts enables individuals to evade taxes. S. Rep.
108-192, at 108 (2003).
- 36 -
the penalty was proportioned on the value of the non-reported
goods); One Lot Emerald Cut Stones, 409 U.S. at 237 (holding that
the forfeiture of goods for a failure to pay import duties on them
is a "reasonable form of liquidated damages," as the more expensive
the illegally imported good, the more the government has likely
missed out on revenue); Stockwell, 80 U.S. at 533, 546-47 (finding
that a statutory scheme that permitted the government to impose on
an individual who deals in illegally imported goods a penalty equal
to double the value of those goods was "remedial" because "[t]he
act of abstracting goods illegally imported, receiving,
concealing, or buying them, interposes difficulties in the way of
a government seizure, and impairs, therefore, the value of the
government right" such that "[i]t is . . . hardly accurate to say
that the only loss the government can sustain from concealing the
goods liable to seizure is their single value").16
Of course, the government does have means for recouping
tax losses from undisclosed foreign assets other than imposing a
penalty for a failure to comply with a reporting requirement about
For that reason, too, Toth's argument that the civil penalty
16
assessed against her is a "fine" because, like in Austin, the
penalty could be subject to "dramatic variations in the value"
fails, Austin, 509 U.S. at 621. Like in One Lot Emerald Cut Stone,
the tax loss to the government is likely to increase the higher
the value in the account, see 409 U.S. at 237. Thus, the fact
that the penalty under § 5321(a)(5)(C)(i) is keyed to the amount
in the bank account at the time of the violation fails in and of
itself to make it a "punishment."
- 37 -
the existence of those assets. But, the fact that Congress may
tax a foreign account once it learns of it does not prevent a
penalty assessed under § 5321(a)(5) from being remedial. In that
regard, Helvering and McNichols make clear that a tax penalty for
failing to file taxes can exceed the amount owed in taxes without
thereby constituting punishment. See Helvering, 303 U.S. at 401(finding that the government could require an individual who had
failed to pay his taxes to both pay the amount owed in taxes that
had not been paid as well as impose a 50 percent penalty for
willfully failing to pay those taxes); McNichols, 13 F.3d at 434-
36 (same); see also Landa v. United States, 153 Fed. Cl. 585, 599
(2021) ("Though the FBAR penalty is not an internal-revenue tax,
the Court finds instructive cases involving tax penalties that
address, as does the FBAR penalty, behavior related to financial
accounts."). And, as Congress explained, governmental
investigations into funds hidden abroad "are often delayed or
totally frustrated," in part due to the "time consuming and
ofttimes fruitless [nature of] foreign legal process." H.R. Rep.
No. 91-975, at 4397 (1970). We add only that the frustration of
governmental efforts to recoup what is owed from a foreign account
is likely to be especially effective in the circumstance in which
- 38 -
this penalty may be imposed -- namely, when the holder of the
undisclosed foreign account is willfully seeking to hide it.17
Nor are we persuaded by Toth's argument that the fact
that § 5321(a)(5) provides for different maximum penalties
depending on the willfulness of the violation necessarily reveals
that a deterrent or retributive purpose underlies the provision
that authorizes the maximum penalty to be imposed. Compare 31
U.S.C. § 5321(a)(5)(C)-(D) (permitting the imposition of a civil
penalty not to exceed $100,000 or the value of the bank account at
the time of the violation, whichever is greater, for willful
violations), with id. § 5321(a)(5)(B)(i) (permitting the
imposition of a civil penalty not to exceed $10,000 for non-willful
violations). The "culpability of the owner" in the forfeiture
scheme at issue in Austin did support the determination that it
was a "fine" for Eighth Amendment purposes. 509 U.S. at 621-22.
But, the petitioner's underlying failure to report income or pay
taxes in McNichols was concededly willful, and there is no
suggestion in our opinion that this fact was sufficient to make it
a "fine" under the Excessive Fines Clause. 13 F.3d at 433-35; see
Notably, 31 U.S.C. § 5322(a) and (b), which makes it a
17
criminal offense to willfully commit the same reporting offense
under the Act, uses the word "fine" to describe the monetary
penalty that could be imposed if an individual is convicted under
it, see One Lot Emerald Cut Stones, 409 U.S. at 236, while there
is no such reference to a "fine" in the civil analog that is at
issue.
- 39 -
also Helvering, 303 U.S. at 399-404 (concluding that a similar
focus on culpability in a provision of the Tax Code that permitted
the imposition of a 50 percent addition to a tax assessment if the
tax evasion was found to be willful was not found by the Supreme
Court to render an otherwise remedial penalty punitive). Toth
develops no argument as to why we should depart from McNichols on
this score.
We also do not see why the existence of a lower penalty
for the same violation when it is not committed willfully in and
of itself makes the higher penalty "punishment." After all,
Congress could choose to permit the government to only recover a
portion of its losses or investigatory costs and the scheme would
be no less remedial. Moreover, the tax scheme at issue in
McNichols provided for a lower 5 percent penalty for a negligent
or intentional, non-fraudulent failure to pay certain taxes, and
the gradient nature of that scheme did not prevent this circuit
from concluding that the 50 percent penalty for tax fraud was
remedial in nature. See McNichols, 13 F.3d at 433-35 (discussing
the penalty assessed against McNichols for tax fraud); 26 C.F.R.
§ 301.6653-1 (providing for a 5 percent penalty for underpayment
due to negligence or intentional disregard, without intent to
defraud).
Thus, for all these reasons, we conclude that a civil
penalty imposed under § 5321(a)(5)(C)-(D) is not a "fine" and as
- 40 -
such the Excessive Fines Clause of the Eighth Amendment does not
apply to it.
2.
Toth bases her final federal constitutional ground for
contending that the grant of summary judgment against her must be
reversed due to the amount of the penalty on the Due Process Clause
of the Fifth Amendment. But, in support of this contention, Toth
cites in her opening brief only to BMW of North America, Inc. v.
Gore, 517 U.S. 559 (1996), which is a case that involves a punitive
penalty imposed by a jury. That choice of argument presents a
problem for Toth because in Sony BMG Music Entertainment v.
Tenenbaum, 719 F.3d 67 (1st Cir. 2013), we held that BMW does not
apply to cases like this one that involve a penalty set by statute.
Id. at 70-71. Moreover, even though the government contends in
its brief to us that the Sony standard and not the BMW standard
applies, Toth in her reply brief does not attempt to show that her
Fifth Amendment rights were violated under the Sony framework.
Rather, she contends only that Sony is distinguishable, such that
BMW applies here, because a penalty imposed pursuant to § 5321
presents a "peculiar[] . . . circumstance" given that "the FBAR
penalty statute conflicts with the applicable Treasury regulation
concerning the amount of the FBAR penalty."
New arguments, however, may not be made in reply briefs.
See Villoldo, 821 F.3d at 206 n.5. In addition, for reasons that
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we have explained, the statute does not conflict with the
regulation. We thus conclude that Toth has waived any argument as
to whether the penalty that the IRS assessed against her violates
the Due Process Clause of the Fifth Amendment. See Zannino, 895
F.2d at 17.
V.
For these reasons, we affirm the judgment of the District
Court.
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