Opinion ID: 3066115
Heading Depth: 4
Heading Rank: 1

Heading: In this section—(1) gold clause means a

Text: provision in or related to an obligation alleging to give the obligee a right to require payment in—(A) gold; (B) a particular United States coin or currency; or (C) United States money measured in gold or a particular United States coin or currency. ... (d)(1) In this subsection, obligation means any obligation (except United States currency) payable in United States money. (2) An obligation issued containing a gold clause or governed by a gold clause is discharged on payment (dollar for dollar) in United States coin or currency that is legal tender at the time of payment. This paragraph does not apply to an obligation issued after October 27, 1977. 32 UNITED STATES V. KAHRE Id. (internal quotation marks omitted). Assuming arguendo that § 5118 does “legalize” contracts containing gold clauses, it would be of no help to Appellants, because Appellants’ schemes did not implicate gold clause contracts as defined in § 5118. See § 5118(a)(1) (defining “gold clause” as an obligation purporting to give the obligee the right to demand payment in, among other things, gold); see also 60 Am.Jur.2d Payments § 26 (2012) (“A gold clause is a provision in or related to an obligation alleging to give the obligee a right to require payment in gold, a particular United States coin or currency, or United States money measured in gold or a particular United States coin or currency. An obligation issued containing a gold clause or governed by a gold clause is discharged on payment (dollar for dollar) in United States coin or currency that is legal tender at the time of payment. . . .”) (footnote references and internal quotation marks omitted). Rather than utilizing a gold clause, i.e., a clause designed to give employees a right to demand payment in gold, Appellants evaded income and payroll tax obligations by requiring employees to exchange gold and silver coins for cash in order to receive their weekly wages. This practice turned the gold clause standard on its head. Rather than the obligee (the employee) demanding payment in gold from the obligor (Kahre), the obligor (Kahre) required the obligee (the employee) to accept payment in gold that would then be repaid with cash. Nothing in 31 U.S.C. § 5118 or cases interpreting that statute validates Kahre’s practice. Notably, if an employee retained a gold or silver coin in lieu of cash, the fair market value of the coin, as opposed to its face value, was deducted from the employee’s wages. The evidence at trial also established that the Kahres did not UNITED STATES V. KAHRE 33 participate in the gold and silver coin exchange required of Kahre’s employees, a clear indication of the illegitimacy of the practice. Given the inapplicability of § 5118 to Kahre’s scheme, Appellants’ argument regarding their right to contract pursuant to that section is unpersuasive. In the alternative, Appellants maintain that the Department of Justice and the IRS lack authority to value coinage. In essence, Appellants erroneously assume that the IRS thwarted Congress’ monetary powers, including the valuation of money. The flaw in Appellants’ assumption is that the IRS did not establish valuation of coinage as a matter of monetary policy. Rather, the IRS interpreted and applied the tax code defining the taxable value of gold and silver coins as property when used as compensation for services rendered. The IRS’s actions in no way violated the separation of powers, as the IRS is “the authority on the interpretation and application of the Internal Revenue Code . . .” Tualatin Valley Builders Supply, Inc. v. United States, 522 F.3d 937, 942 (9th Cir. 2008); see also 26 U.S.C. § 7805(a) (delegating authority concerning the Internal Revenue Code). Appellants again urge application of the rule of lenity to reverse their convictions, pointing to the “uncertainty” of their tax obligations. “The rule of lenity only applies, however, where there is a grievous ambiguity or uncertainty in the language and structure of the statute, such that even after a court has seized every thing from which aid can be derived, it is still left with an ambiguous statute. . . .” United States v. Carona, 660 F.3d 360, 369 (9th Cir. 2011), as amended (citation, alterations, and internal quotation marks omitted). “Because the meaning of language is inherently contextual, we have declined to deem a statute ambiguous for 34 UNITED STATES V. KAHRE purposes of lenity merely because it was possible to articulate a construction more narrow than that urged by the government. . . .” Id. (citation and alteration omitted) (emphasis in the original). As discussed, several federal courts, as well as the Tax Court, have held that gold and silver coins are assessed at their fair market value when used for compensation for services rendered. The applicable tax laws and corresponding regulations also establish that, when property is used as compensation, it is assessed at fair market value. See 26 U.S.C. § 61(a)(1) (defining gross income as including “[c]ompensation for services, including fees, commissions, fringe benefits, and similar items . . .”); 26 C.F.R. § 1.61-2(d)(1) (“[I]f services are paid for in property, the fair market value of the property taken in payment must be included in income as compensation. . . .”). Additionally, Appellants were charged with violating 26 U.S.C. § 7202, with the operative Indictment alleging that Appellants “willfully fail[ed] to collect or truthfully account for and pay over such tax . . .” (emphasis added). Inclusion of a scienter requirement “mitigates a law’s vagueness, especially with respect to the adequacy of notice to the complainant that his conduct is proscribed.” United States v. Guo, 634 F.3d 1119, 1123 (9th Cir. 2011) (citations, alteration, and internal quotation marks omitted).13 13 Appellants posit that the government’s confusion concerning the valuation of gold and silver coins demonstrates that the law is unsettled. In support of the premise that the government is in fact confused, they point to the indictment in United States v. von Nothaus, Case No. 5:09-27 (W.D. N.C.) (von NotHaus Indictment). Appellants assert that governmental confusion is evidenced by the allegation in the von Nothaus Indictment that coins constitute United States currency, rather than property. However, von Nothaus involved the creation and promotion of UNITED STATES V. KAHRE 35 We hold that the district court correctly determined that gold and silver coins used to pay wages were properly assessed at their fair market value, and that Appellants had sufficient notice that their conduct was illegal under the tax laws. C. Disqualification of the Prosecutor Although we have held that the mere threat of civil litigation does not warrant a prosecutor’s disqualification, see United States v. Wencke, 604 F.2d 607, 611 (9th Cir. 1979), we have not extensively addressed disqualification premised on an extant civil action against the prosecutor. In United States v. Kember, 685 F.2d 451 (D.C. Cir. 1982), the D.C. Circuit addressed an analogous claim. In Kember, the defendants sought disqualification of two federal prosecutors who were named as defendants in a lawsuit concerning a search conducted in bad faith. See id. at 458. The D.C. Circuit held that the lawsuit alone did not require disqualification, explaining that: The potential conflict of interest that might result from a personal civil suit filed against an Assistant United States Attorney (AUSA) by a defendant in a criminal case for acts undertaken by the AUSA in his official capacity in the criminal matter would have to be very strong before disqualification would be justified. It could not be justified by mere a private coin as competing currency, and not violations of the tax code through the use of wage payments in gold and silver coins to avoid paying payroll taxes. As in this case, the legal analysis turned on the manner in which the coins were used. 36 UNITED STATES V. KAHRE inference from the filing of the suit but would require proof, by clear and convincing evidence, of a prima facie case of misconduct on the part of the AUSA. The defendants failed to produce the proof required by this standard. Id. at 459 (citation omitted); see also United States v. Heldt, 668 F.2d 1238, 1275–77 (D.C. Cir. 1981) (per curiam), as amended (clarifying that a lawsuit filed by a criminal defendant against a prosecutor does not result in automatic disqualification of that prosecutor).14 Appellants contend that the district court improperly applied a clear and convincing standard of proof in resolving the disqualification issue because the Supreme Court overruled Kember in Young v. United States ex rel. Vuitton Et Fils, 481 U.S. 787 (1987) (Vuitton). In Vuitton, the Supreme Court considered whether a private attorney, who was the 14 Appellants contend that the denial of qualified immunity in the Bivens action was a unique event demonstrating the impermissible motivation for the criminal prosecution. We disagree. The district court in the civil action was required to assume that the allegations of impermissible motivation were true. See Ctr. for Bio-Ethical Reform, Inc. v. Los Angeles Cnty. Sheriff Dep’t, 533 F.3d 780, 798 (9th Cir. 2008) (assuming the truth of allegations in the Complaint for the purpose of qualified immunity analysis). Given the posture of the civil case, the district court’s denial of qualified immunity does not reflect a “unique event” distinguishing this case from Kembler. We also do not consider the prosecutor’s dismissal of the appeal in the Bivens case as an admission of misconduct, or proof of an impermissible conflict of interest. The record simply reflects that Appellants and the prosecutor, as one of several defendants, dismissed the appeal based on the parties’ stipulations. Moreover, the government had an exceptionally strong case against Appellants irrespective of the prosecutor’s involvement. UNITED STATES V. KAHRE 37 beneficiary of an injunction regarding a trademark, could be appointed to prosecute contempt charges for violations of the injunction. See id. at 790–91. The Supreme Court observed that “[p]rivate attorneys appointed to prosecute a criminal contempt action represent the United States, not the party that is the beneficiary of the court order allegedly violated. . . .” Id. at 804. “A private attorney appointed to prosecute a criminal contempt therefore certainly should be as disinterested as a public prosecutor who undertakes such a prosecution.” Id. (footnote reference omitted). The Supreme Court held that “counsel for a party that is the beneficiary of a court order may not be appointed as prosecutor in a contempt action alleging a violation of that order.” Id. at 809 (footnote reference omitted). The Supreme Court also held that harmless error review was inapplicable because the appointment of an interested prosecutor constitutes structural error. See id. at 809–10. Although the Supreme Court held that, in certain situations, appointment of a prosecutor with a conflict of interest constitutes reversible error, the Court did not alter the standard for determining whether a disqualifying conflict exists, or even discuss Kember. Concluding that a conflict existed in Vuitton was an easy call. The appointed prosecutor was a private attorney who represented Louis Vuitton, the beneficiary of the injunction being enforced. See id. at 791–92. The Supreme Court identified the pecuniary interest of the retained counsel/prosecutor as an “inherent conflict.” Id. at 807. In recognition of that inherent conflict, the Supreme Court held that “counsel for a party that is the beneficiary of a court order may not be appointed as prosecutor in a contempt action alleging a violation of that order.” Id. at 808 (footnote reference omitted). Because of the stark difference in facts between Vuitton and this case, we 38 UNITED STATES V. KAHRE are not persuaded that Vuitton is applicable here. We are, however, persuaded by and adopt the reasoning of the D.C. Circuit in Kember. We therefore hold that proof of a conflict must be clear and convincing to justify removal of a prosecutor from a case. Otherwise, as noted in Heldt, prosecutors could be removed simply by the filing of an action against them. See Heldt, 668 F.2d at 1276. This rule is consistent with our precedent, which has treated the Supreme Court’s ruling in Vuitton as a narrow one. See F.T.C. v. Am. Nat’l Cellular, 868 F.2d 315, 319 (9th Cir. 1989) (“The Vuitton opinion focused quite narrowly on the conflicts of interest faced by private attorneys trying to represent simultaneously both their private clients’ interests and the public interest in prosecuting contemnors. Specifically, the Court in Vuitton appears largely to have been concerned with conflicting financial interests. . . .”) (citation omitted) (emphasis in the original). In Am. Nat. Cellular, we compared the conflict in Vuitton to the financial interests that would foreclose the participation of a government prosecutor. See id. (referencing 18 U.S.C. § 208(a), which prohibits government employees from participating in matters in which they have a financial interest). It is undisputed that the prosecutor’s alleged conflict of interest in this case arose after he was already involved in the case as a government attorney, and in no way involved a financial interest on the part of the prosecutor. The dichotomy between the private attorney’s appointment in Vuitton and non-prejudicial potential conflicts of interest arising in other contexts is exemplified by the facts of United States v. Lorenzo, 995 F.2d 1448 (9th Cir. 1993). In that post-Vuitton case, we considered whether the United States Attorney’s Office in Hawaii should have been disqualified because some of its employees were victims of a tax protest scheme. See id. at 1451–52. Relying on Heldt, UNITED STATES V. KAHRE 39 we held that disqualification was not warranted because the defendants failed to demonstrate prejudice. See id. at 1453. Lorenzo establishes that, at a minimum, defendants must demonstrate prejudice from the prosecutor’s potential conflict of interest. See id. Moreover, under Kember, which was not overruled by Vuitton, clear and convincing evidence of prosecutorial misconduct must be presented. See Kember, 685 F.2d at 459. This burden of presentation is logical, otherwise any defendant could disqualify a prosecutor by simply filing a Bivens action without presenting clear and convincing evidence of prosecutorial misconduct, but only “complain[ing] of some action taken by the prosecutor outside of his quasi-judicial capacity . . .” Heldt, 668 F.2d at 1276. Appellants contend that the prosecutor’s comments regarding threats to his pension from the Bivens action and his statement that the case was “personal” demonstrate the requisite misconduct. We do not agree. As the district court observed, the prosecutor’s remarks occurred in 2008, almost three years after the filing of the initial indictments in 2005, and thereby could not have been the impetus for filing the criminal charges. Moreover, even inflammatory comments made during a trial do not necessarily warrant reversal. See Hein v. Sullivan, 601 F.3d 897, 913, 916 (9th Cir. 2010) (holding that a prosecutor’s derogatory comments in closing argument regarding defendants and defense counsel were not prejudicial). The prosecutor’s isolated remarks do not constitute clear and convincing evidence of misconduct stemming from an impermissible conflict of interest. See id. at 916. In a similar vein, Appellants maintain that disqualification was justified because of the heightened prosecutorial 40 UNITED STATES V. KAHRE discretion in tax cases, i.e., tax deficiencies may be pursued criminally or civilly. However, this argument overlooks the reality that an Assistant United States Attorney does not possess unbridled discretion to pursue prosecution in tax cases. Rather, the Department of Justice’s Tax Division must approve all criminal tax prosecutions. See U.S.A.M. § 6- 4:010 (“To achieve uniform, broad, and balanced criminal tax enforcement, the Attorney General has authorized the Tax Division to oversee all federal criminal tax enforcement and to authorize or decline investigations and prosecutions in tax matters. . . .”) (citation omitted). Appellants do not persuasively contend that the Department of Justice’s Tax Division operated under any conflict or that its supervisory role was ineffective in this case. Appellants next argue that the prosecutor’s trial conduct manifested his conflict of interest. For example, Appellants assert that the prosecutor, due to his conflict of interest, failed to elicit from Molesworth that her testimony in the first trial was perjured. However, Appellants fail to identify any aspect of Moleworth’s testimony that was false. See United States v. Bingham, 653 F.3d 983, 995 (9th Cir. 2011) (“We cannot presume that the prosecutor knew that the prior inconsistent statement was true but elicited perjured testimony anyway, and [Appellants] point[ ] to nothing in the record that shows the intentional use of perjured testimony. . . .”) (citation, alteration, and internal quotation marks omitted). Appellants in no way challenge the district court’s ruling that the government properly disclosed to Appellants prior to trial Molesworth’s statement that she had previously perjured herself and that Appellants’ counsel effectively crossexamined Molesworth on that point. The district court’s unchallenged ruling rebuts Appellants’ allegations of prosecutorial misconduct. UNITED STATES V. KAHRE 41 Finally, Appellants contend that the prosecutor suborned perjury because one witness’ testimony was contradicted by other witnesses. However, Appellants fail again to effectively challenge the district court’s ruling that the contradictory testimony presented a credibility issue, not perjury. Therefore, the district court did not abuse its discretion in ruling that the prosecutor should not be dismissed on this basis. See Davis, 932 F.2d at 761–62.15 Because Appellants failed to present clear and convincing evidence of an impermissible conflict of interest or of prejudice, we conclude that the district court properly denied Appellants’ motion to disqualify the prosecutor. See Lorenzo, 995 F.2d at 1453; see also Kember, 685 F.2d at 459. 15 Appellants posit a litany of alleged discovery violations reflecting the prosecutor’s conflict of interest. However, the district court did not find any such violations, and its rulings with respect to disqualification on these bases did not constitute an abuse of discretion. See United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc) (holding that reversal for “abuse of discretion” is permissible only when the ruling or finding being reviewed “is illogical, implausible, or without support in inferences that may be drawn from the facts in the record”). Appellants also accuse the prosecutor of misrepresenting the factual basis for a summary chart that was received into evidence. The district court ruled that the summary chart was admissible, and that it did not “hurt the defendant in any way, shape, or form.” Here too, the district court did not abuse its discretion by declining to disqualify the prosecutor. 42 UNITED STATES V. KAHRE