NATIONAL TAXPAYERS UNION, Petitioner v. UNITED STATES SOCIAL SECURITY ADMINISTRATION; Office of the Inspector General, Respondent.
No. 07-3381
United States Court of Appeals, Third Circuit
Argued Nov. 20, 2008. Filed: Dec. 11, 2008.
This argument rehashes Farnsworth‘s challenge to the sufficiency of evidence, and it fails for similar reasons. As discussed above, Farnsworth was indicted for multiple affirmative acts of evasion for each of the tax years аt issue. In addition to transfers to fraudulent trusts, he was charged with encumbering assets and hiding his money in overseas bank accounts. At trial, Farnsworth staked his defense not on his compliance with tax law, but on defeating the willfulness element by asserting that he believed compliance to be voluntary. In fact, Farnsworth either admitted or did not deny conduct that was probative оf affirmative acts of evasion other than the knowing use of fraudulent trusts.1 Since a single affirmative act is sufficient under section 7201, we would be unable to find heightened prejudice even if the District Court had clearly erred. We must accordingly reject Farnsworth‘s argument with regard to the fraudulent trust instruction.
CONCLUSION
For the reasons set forth above, we will AFFIRM the Judgment and Commitment Order of the District Court on all grounds.
Nicholas J. Bagley [Argued], Mark B. Stern, United States Department of Justice, N.W. Washington, DC, for Respondent.
Before: FUENTES, HARDIMAN, and GARTH, Circuit Judges.
OPINION OF THE COURT
FUENTES, Circuit Judge:
The National Taxpayers Union (“NTU“) petitions for review of a decision of the Department of Health and Human Services Departmental Appeals Board that upheld a determination by an administrative law judge (“ALJ“) who found that NTU mailed cоrrespondence that used
I. Facts
NTU is a not-for-profit taxpayer advocacy organization. In 2001, NTU sent thousands of direct mail pieces to consumers to solicit donations. The brochures included language in large, red, bold type that stated, “Official National Survey on Social Security.” The brochures also included the statement thаt it was “commissioned by the NTU for the Social Security Administration, White House, and Congress of the United States.” The Social Security Administration (“SSA“) received a complaint, and the Inspector General of the SSA determined that the mailing violated Section 1140 of the Social Security Act. Section 1140 prohibits the use of nineteen phrases, including “social security,” in a mаnner that either (1) the writer knows or should know, or (2) the reader could reasonably perceive as conveying the false impression of official endorsement of the material by the SSA or the government. The Inspector General sent a cease-and-desist letter to NTU, and NTU responded with an apology. SSA subsequently received an additional complaint, and determined that the basis of the new complaint was a slightly altered version of the same brochure which NTU mailed after the cease-and-desist letter. The SSA Inspector General sent another letter to NTU, demanding that NTU provide written confirmation of its intent to comply with Section 1140 within ten days. Instead of complying, NTU filed a lawsuit in United States District Court, claiming that Section 1140 was unconstitutional.2 While the action was pending, NTU mailed a third version of the brochure, which SSA also considered misleading and in violation of Section 1140.
The SSA Inspector General wrote NTU, stating that it planned to impose a penalty in the amount of $274,582, or $.50 per offending direct mail piece.3 NTU requested a hearing in front of an ALJ, who found thаt NTU violated both prongs of Section 1140. Specifically, the ALJ found that NTU knew that the language used in the brochures would induce recipients to read it because the language conveyed the false impression that the SSA authorized the mailing. Similarly, the ALJ found that recipients could reasonably interpret the language on the brochure as conveying the false impression that the SSA authorized the mailing. Finally, the ALJ found that the proposed penalty was reasonable. NTU appealed the ALJ‘s decision to the Appeals Board of the Department of Health and Human Services, which refused to review the decision, thereby adopting the ALJ‘s decision as final. NTU petitions this Court for review of the agency‘s final decision.
In its petition for review, NTU asserts several arguments. First, NTU challenges the constitutionality of Section 1140, arguing that it violates NTU‘s First Amendment rights as-applied, and that it
II. Discussion
A. First Amendment4
1. As-Applied Challenge
NTU first argues that Section 1140 violates the First Amendment as applied because such application penalizes the organization‘s speech without finding “actual intent to defraud.” In other words, according to NTU, government may not limit speech unless that speech intends to defraud or deceive the reader or listener. This assertion requires little analysis, because it is based on an incorrect reading of Vill. of Schaumburg v. Citizens for a Better Env‘t, 444 U.S. 620, 100 S.Ct. 826, 63 L.Ed.2d 73 (1980). Contrary to NTU‘s assertions, Village of Schaumburg acknowledged that a “direct and substantial limitation on protected activity” is constitutional if “it serves a sufficiently strong, subordinating interest.” Id. at 636, 100 S.Ct. 826. Here, the government has a substantial interest in protecting Social Security rеcipients from deceptive mailings. For millions of Americans, Social Security is a vital, if not their only, source of income. Mail that appears to be from the SSA piques beneficiaries’ interest and induces them to read and respond accordingly. Congress enacted Section 1140 to protect seniors and other beneficiaries from fraud, and tо ensure that when the SSA sends legitimate mail to beneficiaries, the recipients will open it and not perceive it as “junk mail.”
2. Facially Overbroad
Section 1140 regulates two types оf conduct. The first type of conduct relates to the intentions of the speaker. This prong states that a speaker cannot use nineteen phrases, including “social security,” “in a manner which such person knows or should know would convey ... the false impression that such item is approved, endorsed or authorized by” SSA.
This Court has held that it will strike down a regulation of speech on its face “if its prohibitions are sufficiently overbroad—that is, if it reaches too much expression that is protected by the Constitution.” DeJohn v. Temple Univ., 537 F.3d 301, 314 (3d Cir.2008). In other words, this Court must find that the very existence of the regulation at issue “will inhibit free expression to a substantial extent.” Id. (quotation marks omitted) (emphasis added); see also Ashcroft v. Free Speech Coalition, 535 U.S. 234, 244-46, 122 S.Ct. 1389, 152 L.Ed.2d 403 (2002) (invalidating the Child Pornogrаphy Prevention Act as facially overbroad because the statute reached a “substantial” amount of protected speech, such as speech that neither appealed to the prurient interest nor was patently offensive, including speech that had serious “literary, artistic, political, and scientific value“); Broadrick v. Oklahoma, 413 U.S. 601, 615, 93 S.Ct. 2908, 37 L.Ed.2d 830 (1973) (“[T]he overbreadth of a statute must not only be real, but substantial as well, judged in relation to the statute‘s plainly legitimate sweep.“); South Inc. v. Fischer, 454 F.3d 223, 235 (3d Cir.2006) (“The overbreadth claimant bears the burden of demonstrating, from the text of the law and from actual fact, that substantial overbreadth exists.“).
In United States v. Williams, — U.S. —, 128 S.Ct. 1830, 170 L.Ed.2d 650 (2008), the Supreme Court implied that it disfavors facial challenges, preferring to review circumstances under which the challenged statute actually infringes protected speech. The Court noted that the overbreadth doctrine tends “to summon forth an endless stream of fanciful hypotheticals” that may potentially implicate the infringement of protected speech. Id. at 1843. The Court further stated that the “mere fact that one can conceive of sоme impermissible applications of a statute is not sufficient to render it susceptible to an overbreadth challenge.” Id. at 1844 (quoting Members of City Council of Los Angeles v. Taxpayers for Vincent, 466 U.S. 789, 800, 104 S.Ct. 2118, 80 L.Ed.2d 772 (1984)). The Court described hypothetical scenarios discussed at oral argument, and noted that if those situations came to pass, the affected parties could bring аn as-applied challenge. Id.; see also Washington State Grange v. Washington State Republican Party, — U.S. —, 128 S.Ct. 1184, 1191, 170 L.Ed.2d 151 (2008) (“Facial chal-
As previously discussed, the first prong of Section 1140 prohibits the use of words such as “social security” in a manner that the speaker “knows or should know would convey” the false impression of government approval or endorsement. Like other forms of public deception, fraudulеnt charitable solicitation is unprotected speech. Illinois v. Telemarketing Assocs., Inc., 538 U.S. 600, 611-12, 123 S.Ct. 1829, 155 L.Ed.2d 793 (2003). Therefore, the prong of Section 1140 that contains the “knowing” standard is not unconstitutionally overbroad. Likewise, the First Amendment does not protect a speaker who uses the prohibited language in such a way that he or she “should know” that the message will mislead or deceive the readеr.
The second part of Section 1140 requires closer analysis because it does not require that the speaker “know” or “should know” that the language could mislead the reader. Rather, the second prong of the statute prohibits the use of the language in such a way that the reader could reasonably interpret as conveying governmental endorsement. Because this prong does not have a scienter requirement for the speaker, it could possibly reach some protected speech. However, it is wholly unclear that such non-deceptive speech reaches a “substantial” amount of protected speech. NTU has failed to provide any significant examples of protected speech falling under the statute and its counsel essentially disavowed the overbreadth claim at oral argument. Given the lack of
We note that the Fourth Circuit has also examined a similar facial challenge to Section 1140 in United Seniors Ass‘n, Inc. v. Soc. Sec. Admin., 423 F.3d 397, 406-07 (4th Cir.2005). As in this case, the Fourth Circuit held that, while the objective prong of Section 1140 could reach some protected speech, any such speech constituted, “at most, a minuscule portion of the speech reached by the statute.” Id. at 407.
For these reasons, we reject NTU‘s facial challenge.
B. Monetary Fine5
NTU next challenges the penalty imposed by the ALJ, arguing that it is criminal in nature and “excessive” in violation of the Eighth Amendment.
In Myrie v. Comm‘r, N.J. Dept. of Corr., 267 F.3d 251 (3d Cir.2001), this Court examined the issue of whether a surcharge at a prison commissary was civil or criminal in nature, and whether the surcharge was excessive. This Court explained that the first step in such an inquiry is to determine whether the legislature, “in establishing the penalizing mechanism, indicated either expressly or impliеdly a preference for one label or the other.” Id. at 256 (quoting Hudson v. United States, 522 U.S. 93, 99, 118 S.Ct. 488, 139 L.Ed.2d 450 (1997)). This inquiry is clear, because Section 1040 expressly permits a “civil money penalty” for violation of the statute.
Under Myrie the Court next examines whether the “statutory scheme [i]s so punitive either in purpose or effect ... as to transfor[m] what was clearly intended as a civil remedy into a criminal penalty.” Myrie, 267 F.3d at 256 (quoting Hudson, 522 U.S. at 99-100) (internal citations omitted). This inquiry requires the Court to apply the seven criteria identified in Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168-69, 83 S.Ct. 554, 9 L.Ed.2d 644 (1963). These criteria include whether the sanction involves an affirmative disability or restraint, whether it has historically been regarded as a punishment, whether it comes into play only on a finding of scienter, whether its operation will promote the traditional aims of punishment-rеtribution and deterrence, whether the behavior to which it applies is already a crime, whether an alternative purpose to which it may rationally be connected is assignable for it, and whether it appears excessive in relation to the alternative purpose assigned.... Id.
Applying these criteria to NTU‘s penalty of $.50 per unit that violаted Section 1140, we conclude that the criteria do not support NTU‘s contention that the penalty is criminal in nature. First, NTU concedes that the penalty does not involve an “affirmative disability or restraint.” (App. Br. at 32.) Second, the Supreme Court has stated that monetary penalties have not “historically been viewed as punishment.” Hudson, 522 U.S. at 104. Next, as discussed in Section II.A.2., supra, a violation of Section 1140 does not necessarily require a finding of scienter. Although Section 1140‘s monetary penalty likely promotes the traditional ends of punishment, retribution and deterrence, to some degree, that alone is not enough to characterize the penalty as penal in na-
Likewise, we find NTU‘s contention that the fine violates the Excessive Fines Clause of the Eighth Amendment meritless. To violate the Excessive Fines Clause, the fine must be both “excessive” and a “fine.” Tillman v. Lebanon County Corr. Facility, 221 F.3d 410, 420 (3d Cir.2000). For the reasons noted above, the penalty at issue is neither “excessive” nor a “fine,” which more commonly refers to a penalty for a criminal offense. Id. (citing Browning-Ferris Indus. of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 265, 109 S.Ct. 2909, 106 L.Ed.2d 219 (1989)).
C. Expert Testimony6
NTU asks this Court to endorse the application of Daubert to administrative proceedings and to strike the testimony of Professor William Arnold, the expert who testified for the government before the ALJ. Daubert sets forth rules for determining whether expert witnesses who testify in federal trials are reliable and relevant as required by the Federal Rules of Evidence. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Here, NTU argues that Professor Arnold‘s testimony was “sloppy and unscientific” and should have been excluded from the administrative hearing under Daubert. However, neither the Federal Rules of Evidence nor Daubert apply to administrative hearings. See, e.g.,
We find NTU‘s arguments without merit. Not only did the ALJ explain the
For the foregoing reasons, we will deny NTU‘s petition.