November 12, 2014
This column reports on significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York addressing cases in tax law.
In United States v. County of Nassau, 99 CV 3334 (Jan. 11, 2000), Judge Arthur D. Spatt, in an apparent case of first impression under the Fair Housing Act of 1968, 42 U.S.C. 3601, dismissed a suit by the federal government challenging certain tax assessment practices of Nassau County. Judge Spatt held that dismissal was compelled by the Tax Injunction Act of 1937, 28 U.S.C. 1341, which "divests this Court of jurisdiction to hear cases seeking to enjoin the collection of state taxes where a 'plain, speedy and efficient remedy' can be had by the plaintiff in state court" (Slip op. 3).
As alleged in the complaint, Nassau County assesses certain classes of residential property taxes by reference to historical rather than current values. The suit alleged that this practice is discriminatory because "property values have risen faster and higher, relative to the historical benchmarks used by the County, in non-minority areas.''
The government asserted that its suit qualified for two recognized exceptions to the Tax Injunction Act: (i) where the United States "is suing to protect itself and its instrumentalities from unconstitutional state taxes," and (ii) where "the United States otherwise has standing to protect and enforce its own policies and programs, such as its policy against racial discrimination in housing."
Judge Spatt disposed of the first ground quickly, noting that the complaint did not allege that any federal instrumentality was affected by the challenged tax. The challenged tax, moreover, is assessed against owners of certain residential property, "defined as one-, two-, and three-family residences, strongly suggest[ing] that no federal instrumentality would be subject to such an assessment."
With respect to the second claimed exception, the government relied principally upon Moe v. Confederated Salish and Kootenai Tribes of the Flathead Reservation, 425 U.S. 463 (1976), for the proposition that the special federal interest in preventing discrimination rendered the Tax Injunction Act inapplicable. But as Judge Spatt observed, Moe had permitted a federal suit regarding state taxation of certain Indian tribes only because "federal law and treaties involving Indian affairs affirmatively pre-empted the challenged tax," and there was a "close relationship of interests between the Government and the Indians."
The court concluded that the federal government's "clear, proper, and important interest in eliminating racial discrimination and achieving equality for all persons" was not sufficiently particularized to qualify for the narrow exception to the Tax Injunction Act recognized by Moe. In reaching this conclusion, it relied upon Fair Assessment in Real Estate Assoc. v. McNary, 454 U.S. 100 (1981), in which the Supreme Court declined to recognize an exception to the Tax Injunction Act where a group of homeowners had alleged that a racially-discriminatory tax assessment system violated their rights under 42 U.S.C. 1983. Judge Spatt concluded, "[i]f the federal policies against discrimination embodied in Section 1983 are not a sufficient basis to defeat the application of the Tax Injunction Act, the Court sees no reason why similar non-discrimination policies in the Fair Housing Act should warrant a different result."
The government had not challenged defendants' assertion "that a speedy and efficient remedy" was available through a pending state lawsuit concerning the "questionable validity of Nassau County's controversial and archaic tax assessment system." Judge Spatt suggested that the government join in the state court action, where it could "obtain all of the relief it seeks here without running afoul of the jurisdiction limits placed on this Court by Congress." After Judge Spatt's ruling, Nassau County announced an overhaul of its tax assessment methods intended to address the challenged practices.
In Elcock v. United States, 99 CV 1757 (EDNY, Jan. 26, 2000), Judge David G. Trager denied a writ of habeas corpus sought by petitioner to bar his extradition to Germany to face bank robbery charges. Petitioner, who had been convicted in 1998 of related charges in the Eastern District, argued that extradition would violate the prior jeopardy provision of the extradition treaty between the United States and Germany.
Petitioner and his German girlfriend, Claudia Conradus, then an employee of a bank in Berlin, stole more than $400,000 from that bank. They mailed the currency in a hollowed-out teddy bear and empty puzzle boxes to petitioner's sister in the United States. Petitioner then went to his sister's house to await the package. Bank officials quickly discovered the theft and arrested Ms. Conradus. When the package containing stolen currency arrived at Kennedy Airport, Customs officials detected the money during a routine X-ray search. Customs agents made a controlled delivery to the address of petitioner's sister. On accepting the package, petitioner was arrested.
A jury found petitioner guilty on counts one and three of the indictment - transporting stolen currency in foreign commerce and smuggling. The jury did not return a verdict on count two - receiving and possessing stolen property.
Petitioner was sentenced to 30 months' imprisonment (the same sentence imposed on Ms. Conradus in Germany, following her plea to theft). In September 1997, a German court issued an arrest warrant charging petitioner with grand larceny and conspiracy to commit grand larceny. At Germany's request the United States filed an extradition complaint.
After further proceedings, petitioner sought a writ of habeas corpus to block his extradition. Petitioner argued that his extradition was barred by Article 8 of the treaty between the United States and Germany. Article 8 provides:
Extradition shall not be granted when the person whose extradition is requested has been tried and discharged or punished with final and binding effect by the competent authorities of the Requested State for the offense for which his extradition is requested.
The question here was "whether the American prosecution for transporting, smuggling and receiving stolen currency and the German changes in the underlying bank robbery constitute sequential prosecutions for the same 'offense' within the meaning of the treaty" (Slip op. 8).
Extensively analyzing principles of both treaty construction and non bis in idem ("not twice for the same [crime]") as applied in both countries, Judge Trager found no bar to extradition here. As the court noted, "Germany most likely places a broader interpretation on the principle of non bis in idem than the United States places on double jeopardy." As the court also observed, "it may be" that the two countries "simply did not have a shared understanding of the term 'offense' when they entered into the treaty." But a federal district court, Judge Trager stated, cannot "declare a treaty signed by the President and ratified by the Senate void on the ground that there was no consensus ad idem between the contracting parties."
Putting aside contract principles, Judge Trager turned to the remaining principles of treaty construction applicable in the extradition context - deference to executive branch interpretations and the preference for constructions that promote extradition. In the court's view those principles supported adoption of the narrow Blockburger test, under which none of the offenses charged in the German arrest warrant are the same "offense" as any of those charged in petitioner's federal indictment. Each substantive offense in the German warrant, that is, required proof of an additional fact that the offense in the American indictment did not.
As Judge Trager also noted, even if the broader "same episode or transaction" test were applied here, the outcome would be the same.
In United States v. Milstein, 98 CR 899 (EDNY, Feb. 8, 2000), Judge Raymond J. Dearie granted defendants' motion to sever a tax charge under 26 U.S.C. 7206(1), added by superseding indictment on the eve of trial. The original indictment included no tax counts. The tax charge, involving a relatively simple question of unreported income, relates to conduct (such as counterfeiting and adulteration) already the focus of the original indictment.
After summarizing the parties' "largely predictable arguments" for and against the motion, the court pointed to a "far more important" reason for severance – the "government should not act this way.''
As Judge Dearie stated:
Whether the tax charge was an innocent afterthought or a designed strategy to bolster the government's chances of success does not matter. To tinker with the charges at this late date imposes undue burdens on the defense. The timing of the superseding indictment invites the court to press the defense on the specifics of how it might be prejudiced by the addition of the tax charge. It is simply inappropriate to impose such a burden on the defense as a result of the government's delay. To do so would likely require the defense to disclose prematurely trial strategies that have been fashioned in the context of the original charges . . . .
Peter R. Schlam and Harvey M. Stone are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.
[Reproduced with permission from New York Law Journal Volume 223, Friday, March 10, 2000. Copyright 2000 ALM Properties, Inc. All rights reserved.]