Correction of judgment and restitution: “There is something very wrong with this picture – so wrong Stevie Wonder could see the flaw from a phone booth in Chicago:” United States v. Hughes_ F.3d _ (D.C. Circuit, No. 13-3073, February 23, 2016) (Brown, J., concurring)
A unanimous panel of the D.C. Circuit, expressing its distaste for the Internal Revenue Service’s seizure of a tax refund due a small-fry former employee of Blackhawk, Inc., reversed a trial judge’s failure to correct a clerical error in its judgment and in failing to order the refund be returned to the defendant.
In his characteristically crisp way, Circuit Judge Williams expressed distaste with the “ordeal” (slip op. at 2) the Government had put Shawn Hughes to, after she had served her 30-day sentence and towards the end of supervised release. Hughes and a co-defendant had pled guilty to making false statements to government authorities about the (non)-training given guards employed by the now-defunct Blackhawk, Inc. The district court made both jointly and several responsible for $442,000 in restitution but had expressed a clear intention that the actual restitution amount should be much smaller. If Blackhawk paid a $1 million judgment, the court said she would owe nothing, and if it didn’t she would only pay “at a rate of not less than $50 each month.” (slip op. at 2)
A little over a year later, the Treasury, purporting to act under a Treasury Offset Program (“TOP”), seized a $10,000 tax refund, with Hughes’ home on the verge of foreclosure. (Id. at 2-3). There followed four hearings on Hughes’ motion to clarify or modify the supervised release. First the trial judge vacated the sentence. Ultimately the district court re-imposed its original sentence, crediting the Government’s claim that the court lacked authority to modify the sentence. In addition, the trial court declined to direct the Government to return Hughes’ tax refund or stop future withholdings.
On appeal, the court found reversible error under Rule 36, F. R. Crim P., for the court’s failure to limit the payments to $50.00 per month, which the panel observed “is especially clear in light of the court’s plain expression of intent that the Blackhawk fine could offset the entirety of Hughes’s restitution.” (slip op. at 5).
Next, the court ripped asunder a potpourri of defenses the Government advanced to defend the seizure and retain Hughes’s monies. First, the court addressed the Government’s defense of failure to exhaust administrative remedies by pointing out that it had “conspicuously fail[ed] to identify any” and, for good measure, noted that no statute or agency rule required exhaustion. (slip op. at 6 (citing Darby v. Cisneros, 509 U.S. 137, 143 (1993); 5 U.S.C. § 704).
Going onward, the panel rejected the Government’s notion that Hughes should have been required to file a new suit to gain back her refund. Looking to the Administrative Procedure Act’s general right of review, 5 U.S.C. § 702, Circuit Judge Williams observed that “it is hard to see why a motion in the sentencing court should not be an ‘applicable form of legal action’ sufficient to trigger the sentencing court’s duty to ‘issue such commands … as may be necessary or appropriate to effectuate and prevent the frustration of orders [they have] previously issued.’” (slip op. at 6) (citing United States v. New York Telephone Co., 434 U.S. 159, 172 (1977); 28 U.S.C. § 1651). Calling the Government’s assertion that “‘[d]efendants routinely bring civil actions of this nature’ as ‘thinly-supported,’” (slip op. at 7), the court moved to the merits of Hughes’s objections to the TOP offset.
The court had no difficulty disposing of that issue. It found that Hughes’s restitution would begin only when the Blackhawk fine was resolved and, in any event, would only be delinquent if she paid less than $50.00 per month. The cause was remanded with instructions to direct the Government to return Hughes’s tax refund and stop further collection efforts so long as she is not delinquent in payments. (slip op. at 7-8).
A spirited concurrence by Circuit Judge Brown sent the Taxman reeling even further backwards. In her words, “[t]his is a case in which the government behaved badly and – even when the unpalatable implications of their actions became evident – exhibited neither remorse not gallantry.” (slip op. at 1) (Brown, J. concurring). Noting that Ms. Hughes had accepted responsibility for her actions, Judge Brown observed that the “dubious distinction” of being the “instigator of the fraudulent scheme” and/or “its main beneficiary” was Blackhawk. Judge Brown expressed astonishment at the rapacity of a Government that instituted collection procedures against a woman on the verge of losing her home, while jeopardizing any future tax refunds and her Social Security benefits, even though it hadn’t sought to criminally prosecute Blackhawk. Worse yet, insofar as the record revealed, Blackhawk hadn’t paid a cent back. (slip op. at 2) (Brown, J. concurring).
In summarizing this rather sad scenario Judge Brown wrote that “There is something very wrong with this picture – so wrong Stevie Wonder could see the flaw from a phone booth in Chicago: The fact that the government cannot is deeply disturbing.” (id.) (Brown, J., concurring).
As we slog inexorably towards April 15th, it’s good to see a conscientious appointed counsel persuading an appellate court that the IRS’s behavior and litigation posture was as lamentable as it was in this case. So Greg Smith, here’s to you! And to the IRS bureaucrat(s) who brought this about, a well-deserved “boo.”
–Steve Leckar, of counsel to Kalbian Hagerty LLP, enjoys following and occasionally arguing in the D.C. Circuit.