304 F. Supp. 3d 267
D. Conn.2018Background
- The United States sued the estate of Paul G. Garrity, Sr. to reduce to judgment an FBAR civil penalty assessed under 31 U.S.C. § 5321(a)(5) for an alleged willful failure to report a 2005 foreign bank account.
- The assessed balance at filing (Feb. 20, 2015) was about $1.06 million; trial was scheduled for June 2018.
- The court was asked to decide two legal questions before trial: (1) the applicable burden of proof (preponderance vs. clear and convincing) and (2) whether "willfulness" requires proof of intentional violation of a known legal duty or can be satisfied by reckless conduct.
- The Government argued for the preponderance standard and that willfulness may be shown by recklessness.
- Defendants (estate fiduciaries) urged a clear and convincing standard and contended willfulness requires intentional violation of a known legal duty.
- The Court concluded the Government prevails on both questions: preponderance of the evidence governs, and willfulness may be established by reckless conduct.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicable burden of proof in a civil FBAR enforcement action | Preponderance of the evidence (typical civil standard) | Clear and convincing evidence (analogous to civil tax fraud and internal IRS memo) | Preponderance of the evidence applies |
| Meaning of "willful" for § 5314 FBAR penalty | "Willful" covers reckless conduct; civil statutory willfulness need not require knowledge of illegality | "Willful" requires intentional violation of a known legal duty (criminal-style standard) | "Willful" may be proved by reckless conduct (civil standard) |
Key Cases Cited
- Herman & MacLean v. Huddleston, 459 U.S. 375 (preponderance is the usual civil standard; heightened standard reserved for especially important interests)
- Grogan v. Garner, 498 U.S. 279 (preponderance applies in civil fraud-like claims absent congressional direction)
- Safeco Ins. Co. v. Burr, 551 U.S. 47 (statutory civil "willful" can include reckless conduct; distinguishes civil and criminal willfulness)
- McLaughlin v. Richland Shoe Co., 486 U.S. 128 (civil "willful" can encompass reckless violations)
- Trans World Airlines, Inc. v. Thurston, 469 U.S. 111 (civil willfulness interpretation includes reckless conduct)
- Ratzlaf v. United States, 510 U.S. 135 (criminal willfulness requires knowledge of illegality — cited to distinguish civil context)
- Cheek v. United States, 498 U.S. 192 (criminal tax mens rea principles; distinguished from civil cases)
- Farmer v. Brennan, 511 U.S. 825 (distinguishes uses of "recklessness" in civil vs. criminal contexts)
- Microsoft Corp. v. i4i Ltd. Partnership, 564 U.S. 91 (example of statutory language supporting a heightened standard where Congress created a presumption)