Vol. 32, No. 4
From the Courts
U.S. Court of Appeals for the Tenth Circuit
Tenth Circuit Summaries
Whistleblower—Qui Tam Suit—Federal Employee—No "Public Disclosure"—Employee is "Person"
U.S.A. ex rel. Holmes v. Consumer Insurance Group, No. 01-1077, 2/10/03, D.Colo., Judge Briscoe (on rehearing en banc).
Plaintiff was the postmaster in Poncha Springs, Colorado. She discovered that Consumer Insurance Group was defrauding the U.S. Postal Service by providing false information to obtain a lower postal rate. Based on her information, an investigation was initiated and the case was turned over to the U.S. Attorney. Plaintiff then filed this qui tam suit under the False Claims Act ("FCA") to recoup a portion of the proceeds recovered in the case. The district court dismissed plaintiff from the suit.
The original panel decision held that because plaintiff was a federal employee whose job duties included discovery and reporting of postal fraud, she could not pursue a qui tam suit based on information discovered while discharging those duties. On rehearing, the en banc Tenth Circuit Court vacates the prior opinion, holding that plaintiff qualified as a qui tam claimant. A plaintiff cannot maintain a qui tam case if, among other things, the complaint is based on "public disclosure" of pertinent information. The Tenth Circuit Court rejects the government’s claim that "public disclosure" was made when it interviewed two witnesses involved in the fraud. The Court also determines that plaintiff qualified as a "person" entitled to bring suit under the FCA. The Court acknowledges that there may be sound public policy reasons for limiting government employees’ ability to file qui tam actions, but it was for Congress to do so, not the courts. The district court’s dismissal order is reversed and the case is remanded.
Colorado Automobile Insurance—Contract Reformation—PIP Extended Benefits
Clark v. State Farm Mutual Automobile Insurance Co., No. 01-1341, 2/11/03, D.Colo., Judge Murphy.
Plaintiff, as a pedestrian, was hit and injured by a car owned by Hortencia Madrid. Madrid’s vehicle was insured by State Farm Mutual Automobile Insurance Co. ("State Farm"). State Farm had offered Madrid extended personal injury protection ("PIP") benefits for herself and her relatives and passengers, but not for pedestrians. The policy provided only minimum levels of PIP benefits for pedestrians, as required by the Colorado Auto Accident Reparations Act ("CAARA"). Plaintiff filed this class action suit against State Farm, seeking reformation of the insurance policy, as well as damages for breach of contract and breach of the duty of good faith and fair dealing. The district court dismissed the complaint.
On appeal, the Tenth Circuit Court applied Brennan v. Farmers Alliance Mutual Insurance Co., 961 P.2d 550 (Colo. Ct.App.), cert. denied (Colo. 1998), which held that CAARA’s requirement that an insurer offer extended-benefits PIP coverage applied to coverage for pedestrians. Because the insurer had not offered extended PIP benefits to cover pedestrians, the Court reformed the policy to provide those benefits. Accordingly, plaintiff in this case is entitled to reformation of the Madrid policy to include extended PIP benefits.
The trial court has the discretion to ascertain the date of reformation. The case was remanded for the trial court to do so, applying the factors set out in the opinion. Plaintiff’s remaining claims depended on the reformation date because they would remain viable only if the trial court determined that reformation should occur as of a date preceding its order of reformation. Only under those circumstances would there be an extant contract, tort, or statutory duty to be breached. Conversely, if reformation occurred as of the date of entry of the order of reformation, there would be no pre-existing duty to pay extended PIP benefits. The district court’s order of dismissal is reversed and the case is remanded.
Gift Tax—QTIP Trust—Election Not Made—Federal Law Applies
Wells Fargo Bank New Mexico v. United States, No. 01-2212, 2/11/03, D.N.M., Judge Porfilio.
Plaintiff, as personal representative of the estate of Mary Kate Nielsen, challenged the IRS’s decision to deny a gift tax deduction for a transfer Nielsen made to her husband under a Qualified Terminable Interest Property ("QTIP") trust. The district court held that the transfer to Mr. Nielsen was incomplete under state law; thus, no gift took place and the estate owed no federal gift tax.
The Tenth Circuit Court recognizes that a gift tax exemption is available for transfers of life estates to a spouse under a QTIP trust, if an election is made before the date a gift tax return must be filed. Here, it is undisputed that the election was not made. The instrument transferring funds to Mr. Nielsen clearly demonstrated that the transfer of funds was final. Whether a transfer is complete for federal tax purposes is strictly a matter of federal law. Because Mary Kate Nielsen released dominion and control over the funds, the transfer was complete and subject to a gift tax. The district court’s judgment is reversed and the case is remanded with instructions to enter judgment for the United States.
Exigent Circumstances—Manufacture of Methamphetamine—Standing—Social Guest
U.S. v. Rhiger, No. 01-2246, 1/14/03, D.N.M., Judge Seymour.
Defendant appeals his convictions for conspiring to manufacture methamphetamine, and for possessing methamphetamine with intent to distribute. Federal drug agents learned that defendant purchased ingredients used to make methamphetamine. They observed defendant drive two men to several locations, where the other men bought similar materials. The agents tracked defendant and another man to a residence, which they entered with the purchased materials. An hour later, agents noticed the smell of cooking methamphetamine. Fearing that an active methamphetamine lab was in the residence and could explode, the agents entered without a warrant. The agents found an active lab in the garage, arrested both men, and shut down the lab. They secured the residence and obtained a warrant so they could do a further search. The men were indicted for the methamphetamine crimes arising from the evidence obtained in the search of the home. A jury convicted defendant after his co-defendant pled guilty. On appeal, defendant challenges the district court’s denial of his motion to suppress evidence obtained during the warrantless search of the house, asserting that the district court erred in finding that exigent circumstances justified the agents’ entry of the house. Defendant also argues that the district court erred in permitting an agent to testify that he detected methamphetamine odors on defendant’s clothing.
The Tenth Circuit Court of Appeals affirms. The Court holds that defendant has standing to object to the search of his co-defendant’s house. Defendant had a legitimate expectation of privacy as a social guest in the other man’s home. Defendant’s regular presence at the house, his overnight stays, the discovery of his receipts in the house, and his comfort in entering the residence unannounced and taking a nap, support the determination that he had an ongoing and meaningful connection to the co-defendant’s home as a social guest, giving him standing. Next, the district court properly denied defendant’s motion to suppress evidence based on its determination that exigent circumstances justified the agents’ warrantless entry into the home. The evidence regarding defendant and the co-defendant’s purchase and possession of materials used to manufacture methamphetamine, the odor of cooking methamphetamine, and the agents’ knowledge of the inherent dangerousness of an active methamphetamine lab, establishes that reasonable grounds existed for the agents to believe there was an immediate need to protect the public by entering the home and discontinuing the lab’s production. Exigent circumstances justified the agents’ warrantless entry. Even if the district court erred in permitting an agent to testify about the odor of methamphetamine on defendant’s clothing at his arrest, any error was not plain. The judgment is affirmed.
Statute of Limitations for Tax Evasion—Timeliness of Prosecution—Date of Last Evasive Act—Disqualification of Chosen Trial Counsel
U.S. v. Anderson, No. 01-4260, 2/10/03, D.Utah, Judge Briscoe.
Defendant appeals his conviction for tax evasion. He argues that the crime of tax evasion was complete when he filed his return on April 15, 1992, so that the indictment filed on March 24, 1999 fell outside the six-year statute of limitations. The government argues that because defendant filed a false return in 1996, the prosecution was timely. Defendant also argues that the district court erred in disqualifying his chosen trial counsel.
The Tenth Circuit Court affirms. In a question of first impression, the Court holds that when a defendant commits a series of evasive acts over several years after incurring a tax liability, the statute of limitations begins to run on the date of the last evasive act. The Court also holds that the district court did not err in disqualifying defendant’s chosen trial counsel. Given counsel’s involvement in matters related to the charges at hand, counsel was likely to be called as a witness in the case. In that event, counsel’s continued representation of defendant would threaten the integrity of the proceedings. The judgment is affirmed.
Timeliness of Notice of Appeal—Filing Within Thirty-Day Extension Period—Excusable Neglect or Good Cause
U.S. v. Espinosa-Talamantes, No. 02-2065, 2/12/03, D.N.M., Judge Henry.
Defendant, a federal prisoner appearing pro se, appeals the district court’s denial of his motion to modify his term of imprisonment under 18 U.S.C. § 3582(c)(2). In July 2001, defendant was sentenced to thirty-seven months’ imprisonment. In February 2002, he filed a motion under 18 U.S.C. § 3582(c)(2) to modify his prison term, in light of an amendment to the applicable guideline. The district court denied the motion, holding that the amendment was neither retroactive nor clarifying, and that defendant was therefore not entitled to a reduction in his sentence. On March 11, 2002, defendant filed his notice of appeal from the order dated February 13, 2002.
The issue is whether the time period for filing a notice of appeal from the denial of a § 3582(c)(2) motion is the ten-day period for criminal cases, or the sixty-day period for civil cases in which the United States is a party. In a question of first impression, the Tenth Circuit Court holds that the ten-day period for criminal cases under Rule 4(b)(1)(A) applies. Defendant filed his notice of appeal more than ten days after entry of the district court’s order. Under Rule 4(b)(4), the district court can extend the period to file a notice of appeal for an additional thirty days, upon a finding of excusable neglect or good cause. Defendant did not file a motion seeking to extend the period for filing a notice of appeal, but even so, a defendant who files his notice of appeal within the thirty-day extension period may obtain relief by showing excusable neglect or good cause. The case is remanded to the district court for that court to determine if the requisite showing of excusable neglect or good cause for a thirty-day extension of time can be made.
Breach of Plea Agreement—Obstruction of Justice—Reliance Solely on Pre-Sentence Report—Waiver of Appeal—Hearing on Breach of Plea Agreement
U.S. v. Guzman, No. 02-3070, 2/7/03, D.Kan., Judge Oberdorfer.
Defendant pled guilty to conspiracy to possess with intent to distribute marijuana. He was sentenced to eighty months’ imprisonment. On appeal, he first argues that the government breached the plea agreement by making recommendations to the court that were contrary to its promises under the written agreement. Defendant also argues that the district court erroneously imposed an obstruction of justice enhancement under U.S.S.G. § 3C1.1, solely in reliance on his pre-sentence report ("PSR").
Defendant was charged with attempted obstruction of justice and conspiracy. He and the government entered into a plea agreement whereby defendant agreed, in pertinent part, to plead guilty to the drug count, provide a full and truthful accounting and statement of his knowledge relating to the case, and waive his right to appeal his sentence. The government promised to make several recommendations to the sentencing court, including that defendant receive a three-level adjustment for acceptance of responsibility and not receive a two-level enhancement for obstruction of justice, and a sentence at the lower end of the guideline range. It also agreed to file a substantial assistance motion under U.S.S.G. § 5K1.1. During defendant’s cooperation with the government, he alleged that a government investigator asked him to plant drugs in a suspect’s residence. After this, cooperation between defendant and law enforcement ceased. In the PSR, the probation officer recommended that defendant receive the obstruction of justice adjustment. Defendant denied that an alleged threat ever occurred. The government refused to file the § 5K1.1 substantial assistance motion, arguing that defendant had been dishonest and uncooperative. At sentencing, the government argued that defendant should not receive an acceptance of responsibility reduction, should receive an obstruction of justice enhancement, and should receive a sentence at the upper end of the guideline range. The court gave defendant the acceptance of responsibility adjustment, imposed the obstruction of justice enhancement, and held that the government properly exercised its discretion by refusing to file the substantial assistance motion.
The Tenth Circuit Court reverses. The Court holds that it will address the merits of the appeal, because defendant’s waiver of his right to appeal was unenforceable if the government breached the terms of the plea agreement. The Court also holds that the district court should have held a hearing and made a finding whether the defendant or the government breached the plea agreement. Instead, the court permitted the government to unilaterally declare that defendant had breached, without holding a hearing or making the necessary determination. The court erred by imposing the obstruction of justice enhancement based solely on the PSR. A district court may not satisfy its obligation under Fed.R.Crim.P. 32 simply by adopting the PSR as its finding. The sentence is vacated and the case is remanded.
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