United States v. Easterday

N.R. SMITH, Circuit Judge,

dissenting:

In this case, I find myself between “the proverbial rock and a hard place.” I can either adhere to precedent (with which I do not agree) or I can join the majority and try to overrule bad circuit precedent. Although I agree that United States v. Poll, 521 F.2d 329 (9th Cir.1975) is bad law, Poll is the controlling law of this circuit and I understand a three-judge panel is not able to undo precedent set forth by another three-judge panel. See Hulteen v. AT & T Corp., 498 F.3d 1001, 1009 (9th Cir.2007) (“A three-judge panel must follow a prior circuit decision unless a subsequent decision by a relevant court of last resort either effectively overrules the decision in a case ‘closely on point’ or undercuts the reasoning underlying the circuit precedent rendering the cases *1183‘clearly irreconcilable.’ ” (citation omitted)). In my view, because Poll is not irreconcilable with United States v. Pomponio, 429 U.S. 10, 97 S.Ct. 22, 50 L.Ed.2d 12 (1976) (per curiam), we are required to either follow Poll or make a sua sponte en banc call. See In re Complaint of Ross Island Sand & Gravel, 226 F.3d 1015, 1018 (9th Cir.2000) (per curiam) (“[A]bsent a rehearing en banc, we are without authority to overrule [controlling circuit precedent].”).

The majority, however, has chosen to write around circuit precedent in order to avoid a result that they do not like. I therefore respectfully dissent for the following reasons. First, the majority legally errs by finding that Poll is no longer good law. Second, because of its error in finding that Poll was overruled by Pomponio, the majority incorrectly affirms the district court in its refusal to instruct the jury that the government must prove that Easter-day had the financial ability to meet his tax obligations. Thus, I would reverse and remand for a new trial, because Easter-day’s ability to pay was an element of the crime the government needed to prove beyond a reasonable doubt.

I. Discussion

Poll discusses two separate questions: (a) willfulness, and (b) the relevance of evidence demonstrating an inability to pay in order to rebut the willfulness of a failure to pay over employee payroll taxes. See 521 F.2d at 331 (“These actions raise two questions: Viz. whether the foregoing definition of ‘willfully’ is correct and whether the evidence offered to rebut the presence of willfulness was irrelevant and inadmissible.”). In Poll, we held that the willfulness definition was correct, and that the evidence of inability to pay was relevant to rebut the presence of willfulness. See id.

The majority, however, incorrectly concludes that “Poll’s requirement that the government prove that the taxpayer had sufficient funds to pay the tax was premised on a definition of willfulness that included some element of evil motive.” In Poll, we based our holding, in part, on Supreme Court precedent found in Spies v. United States, 317 U.S. 492, 498, 63 S.Ct. 364, 87 L.Ed. 418 (1943), which states that “[w]e would expect willfulness ... to include some element of evil motive and want of justification in view of all the financial circumstances of the taxpayer.” Poll, 521 F.2d at 333. We also, however, relied on United States v. Hawk, 497 F.2d 365 (9th Cir.1974) to recognize that it is “not error to fail to include the words’ and/or evil motive’ ” when determining the “willfully” standard. Poll, 521 F.2d at 332.

The majority correctly recognizes that the Supreme Court “in Pomponio endeavored to erase the misconception that such different formulations, including the ‘evil motive’ formulation of Spies, actually established different standards.” In Pompo-nio, the Court held that the term “willfully” does not require “proof of any motive other than an intentional violation of a known legal duty.” 429 U.S. at 12, 97 S.Ct. 22. The Court explained the meaning of willfulness by stating that

The Court, in fact, has recognized that the word “willfully” ... generally connotes a voluntary, intentional violation of a known legal duty. It has formulated the requirement of willfulness as “bad faith or evil intent,” or “evil motive and want of justification in view of all the financial circumstances of the taxpayer,” or knowledge that the taxpayer “should have reported more income than he did.”
Our references to other formulations of the standard did not modify the standard [that the word ‘willfully’ ... generally connotes a voluntary, intentional violation of a known legal duty].

Id. (internal citations and quotations omitted).

*1184Thus, even when the formulation of “evil motive” or “bad purpose” is used in explaining the standard for willfulness, the standard is not modified. Willfulness, in the context of tax laws, “simply means a voluntary, intentional violation of a known legal duty.” Id. at 12-13, 97 S.Ct. 22 (emphasis added) (citing Hawk, 497 F.2d at 368); see also Cheek v. United States, 498 U.S. 192, 201-02, 111 S.Ct. 604, 112 L.Ed.2d 617 (1991). There is no requirement the government prove bad purpose or evil motive and want of justification. See Pomponio, 429 U.S. at 12-13, 97 S.Ct. 22; Hawk, 497 F.2d at 368. The holding in Poll is therefore consistent with the Pomponio definition of willfulness.

In Poll, we held that “to establish willfulness the Government must establish beyond a reasonable doubt that at the time payment was due the taxpayer possessed sufficient funds to enable him to meet his obligation or that the lack of sufficient funds on such date was created by (or was the result of) a voluntary and intentional act without justification in view of all the financial circumstances of the taxpayer.” 521 F.2d at 333 (emphasis added). Our holding in Poll therefore relied on the same definition of willfulness as determined in Pomponio (“a voluntary, intentional violation of a known legal duty”). In fact, Pomponio actually supports that idea that Poll used the correct definition of willfulness. See 429 U.S. at 12-13, 97 S.Ct. 22 (noting that “as the other Courts of Appeals that have considered the question have recognized, willfulness in this context simply means a voluntary, intentional violation of a known legal duty” (citing Hawk, 497 F.2d at 366-69)).

As discussed, our determination of willfulness in Poll relied, in part, on Hawk, which the Supreme Court approved in Pomponio. In Hawk, we noted that the Supreme Court, in United States v. Mur-dock, 290 U.S. 389, 54 S.Ct. 223, 78 L.Ed. 381 (1933), held that

[Wjillfulness requires proof that the act was done with knowledge it was wrongful. The Court discussed a number of ways of expressing this type of specific intent, and among the terms mentioned were “bad purpose” and “evil motive.”
However, neither bad purpose nor evil motive is an independent element of a willful failure to file under § 7203. The term “evil motive” is merely a “convenient shorthand expression to distinguish liability based on conscious wrongdoing from liability based on mere carelessness or mistake.” Thus the term expresses, in a brief way, the more cumbersomely stated concept of specific intent in Murdock, a concept the instructions must ultimately convey. This, we think, was all that Murdock- and Bishop-meant by the use of that term.

Hawk, 497 F.2d at 368 (internal citations omitted).

Thus, although Poll quoted Supreme Court precedent regarding the inclusion of “evil motive and want of justification” to determine willfulness, we were referencing the “voluntary, intentional violation of a known legal duty” formulation discussed in Pomponio. Even though the wording was different, Supreme Court precedent dictates that the meaning underlying the term “willfulness” in Poll was the same as used in Hawk and Pomponio. Poll’s definition of willfulness was not premised on a belief that willfulness requires an evil motive or bad purpose. Poll, therefore, still holds that the ability to pay is relevant to demonstrate willfulness, and Pomponio did not state otherwise. Although Pomponio did discuss the willfulness question, see 429 U.S. at 12-13, 97 S.Ct. 22, the portion of our decision in Poll that created an additional requirement of proving ability to *1185pay was not undermined by Pomponio. The basis for Poll’s requirement of proving ability to pay has therefore not been eliminated. No subsequent decision from this circuit or from a relevant court of last resort has overruled the requirement presented in Poll that evidence regarding inability to pay is relevant to rebut the presence of willfulness. See Poll, 521 F.2d at 332 (“We believe, and so hold, that the defendant’s offer of proof regarding the liquid resources of the corporation and his intention to make up the deficiencies later was relevant and admissible in his effort to refute the willfulness of the failure to pay over.”).

Pomponio also did not overrule Poll because Pomponio and Poll address different issues. In Pomponio, the Supreme Court, affirming this court’s holding in Hawk, held that evil motive is not an independent element of filing false income tax returns under 26 U.S.C. § 7206 and that instructions regarding evil motive are thus unnecessary. 429 U.S. at 12-13, 97 S.Ct. 22. In Poll, by contrast, this court considered whether the government must prove that a defendant was capable of meeting his tax obligations. 521 F.2d at 333. We specifically noted that the ability to pay rule was not contrary to Hawk because Hawk addressed “a [w]illful failure to file [a] federal income tax return[ ],” not a crime “involving a failure to pay.” 521 F.2d at 332. Because Pomponio affirmed Hawk, and because this court held, in Poll, that the ability to pay rule is consistent with Hawk, Poll is consistent with Pomponio. Thus, Pomponio is not “clearly irreconcilable” with Poll, and Poll remains good law. See Hulteen, 498 F.3d at 1009. We are therefore bound by Poll because it has not been overruled by an en banc court. See In re Complaint of Ross Island Sand & Gravel, 226 F.3d at 1018.

The majority also references this court’s decision in United States v. Gilbert, 266 F.3d 1180 (9th Cir.2001), for the proposition that Poll is inconsistent with both Pomponio and common sense. In Gilbert, the defendant argued “that his failure to pay over the withholding tax was not willful because [his business] did not have the funds to pay the taxes.” 266 F.3d at 1185. The government responded “that it presented sufficient evidence at trial that Gilbert voluntarily and intentionally paid net wages to his employees with knowledge that withholding taxes were not being remitted to the IRS.” Id. This court affirmed on the basis that the evidence was sufficient. See Id. This court, however, did not explicitly or implicitly overrule the ability to pay rule. The district court in Gilbert had given a Poll instruction, and this court did not criticize the district court for having done so. In fact, this court did not reference the ability to pay rule or Pompo-nio. This court instead discussed how Poll did not concern “whether § 7202 required the failure [to both account for and pay over withholding tax], but instead addressed the issue of how to define willfulness under § 7202.” Id. at 1183. This court held that “whether § 7202 required the failure to both account for and pay over the tax, were dicta.” Id. That holding, however, does not address whether the ability to pay can be used as a defense. Gilbert therefore merely discusses whether § 7202 requires the failure to both account for and pay over withholding tax. Thus, there is no basis in Gilbert for the proposition that Pomponio overruled Poll.

To the extent the district court excluded evidence regarding the financial situation of Easterda/s companies and his inability to pay (based on its flawed interpretation of Pomponio), the district court abused its discretion. See United States v. Gallagher, 99 F.3d 329, 331-32 (9th Cir.1996). Moreover, the district court’s failure to instruct the jury that the government must prove that Easterday had the ability to *1186meet his tax obligations is a constitutional error “because the jury did not have the opportunity to find each element of the crime beyond a reasonable doubt.” Martinez v. Borg, 937 F.2d 422, 423 (9th Cir. 1991). The district court rejected a large amount of evidence regarding Easterday’s nursing homes’ financial difficulties. Because this evidence “could rationally lead to a contrary finding with respect to the omitted element,” the district court’s error was not harmless and Easterday is entitled to a new trial. Neder v. United States, 527 U.S. 1, 19, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999).