Most federal criminal cases end in a written plea agreement, and tax cases are no exception. In plea negotiations, prosecutors wield enormous power and can effectively dictate the terms to most defendants. The plea agreements are largely district-specific, boilerplate documents that even individual prosecutors can’t modify outside of the factual basis, minor adjustments to appellate waivers, and options for sentencing recommendations.
Courts recognize the unequal bargaining power in deciding whether a prosecutor has breached a plea agreement. As with any one-sided contract, ambiguities are construed against the drafter (i.e., the government). Beyond charging decisions — which charges and how many counts, both of which affect the statutory maximum sentence and the recommended guideline sentencing range — the primary negotiated benefit in a plea agreement is the government’s promise regarding its sentencing position. Such promises can range from agreeing to recommend a particular sentence, to an agreement that the government can recommend any sentence it wants up to the statutory maximum. Although judges make their own sentencing decisions, the government’s recommendation carries substantial weight in most cases.
Given the importance of the government’s sentencing recommendation, whenever a prosecutor strays from the agreed-to recommendation in the plea agreement, there’s a good chance it will be considered a breach of the plea agreement. Upon a breach, there are two almost inevitable outcomes: a do-over on sentencing and an internal Department of Justice ethics investigation of the prosecutor. Most breaches aren’t fixable unless they are a “slip of the tongue or typographical error.” The 9th U.S. Circuit Court of Appeals appropriately has held that the district court can’t fix the problem by claiming it would disregard the breach. Once the “breach” bell has been rung, the sentencing must proceed before a different judge. This isn’t a comment on the judge’s abilities to disregard the government’s improper argument, but more likely a comment that any sentence imposed by the judge tainted by the government’s breach would carry the appearance of unfairness.
On May 12, the 9th Circuit reversed the sentence imposed by an Idaho district judge and remanded to a new judge for either resentencing or to consider the defendant’s request to withdraw from the guilty plea to a 26 U.S.C. Section 7206(2) charge (aiding and abetting the filing of a false tax return). United States v. David Brannum, 19-30126 (unpublished). Although the plea agreement set the tax loss at just over $100,000, the prosecutor argued in a sentencing brief that the actual loss was $3.3 million and the sentence should reflect the seriousness of criminal conduct associated with the higher number. The government tried to justify this apparent breach of the plea agreement by claiming it wasn’t asking that the guideline sentencing range be based on the $3.3 million figure, but instead the general sentencing factors contained in 18 U.S.C. Section 3553(a) (which actually includes the guidelines as a factor) should take into account the higher figure. The district court found that this argument was not a breach, but likely recognized the 9th Circuit could disagree and tried to appeal-proof the sentencing by stating on the record that it was disregarding the government’s argument and was sentencing the defendant based on the $100,000 loss amount. The sentence was below the guideline range, but well above the straight-probationary sentence recommended in the presentence report drafted by U.S. Probation. The district court’s attempt to save the sentencing on appeal was in vain, as the damage had been done and could not be cured by claiming to ignore the government’s injection of a loss amount 33 times higher than agreed to in the plea agreement. The 9th Circuit found it was a breach, sent it back for resentencing, and now the case will be another judge’s concern.
The case isn’t over for the prosecutor, who (fortunately for his or her sake) wasn’t named in the appellate decision. A judicial finding that a breach occurred means the prosecutor almost certainly will be investigated by the DOJ’s Office of Professional Responsibility. Although the district court found there was no breach, t 9th Circuit’s description of the prosecutor’s course of conduct in the short opinion suggests that the breach was, at a minimum, reckless. Instead of instantly apologizing for taking an inconsistent (and very aggressive) position in the sentencing papers, the prosecutor tried to justify the position in the sentencing hearing by asserting that using a $3.3 million tax loss figure for Section 3553(a) arguments, and $100,000 tax loss for guideline calculations, was consistent with the plea agreement. Although the district court found no breach, the 9th Circuit summarily found that both the sentencing position and arguments during the sentencing hearing constituted breaches of the plea agreement. The 9th Circuit noted that the sentencing position brief alone was sufficient to establish the breach, but the prosecutor’s doubling down on the breach in the sentencing hearing couldn’t have helped the government’s argument on appeal.
Much of the plea-negotiation dance, including convincing the client that he or she will be treated fairly at sentencing, is based on trusting that the prosecutors will stick to the letter and spirit of the plea agreement. This incident presumably will have repercussions for both the prosecutor and the Idaho U.S. Attorney’s Office, at least when dealing with the defense bar and perhaps the Court.
EVAN J. DAVIS – For more information please contact Evan Davis – davis@taxlitigator.com or 310.281.3288. Mr. Davis is a principal at Hochman Salkin Toscher Perez PC. He spent 11 years as an AUSA in the Office of the U.S. Attorney (C.D. Cal), spending three years in the Tax Division of the where he handed civil and criminal tax cases and 11 years in the Major Frauds Section of the Criminal Division where he handled white-collar, tax, and other fraud cases through jury trial and appeal. As an AUSA, he served as the Bankruptcy Fraud coordinator, Financial Institution Fraud coordinator, and Securities Fraud coordinator. Among other awards as a prosecutor, the U.S. Attorney General awarded him the Distinguished Service Award for his work on the $16 Billion RMBS settlement with Bank of America. Before becoming an AUSA, Mr. Davis was a civil trial attorney in the Department of Justice’s Tax Division in Washington, D.C. for nearly 8 years, the last three of which he was recognized with Outstanding Attorney awards.
Mr. Davis represents individuals and closely held entities in criminal tax (including foreign-account and cryptocurrency) investigations and prosecutions, civil tax controversy and litigation, sensitive issue or complex civil tax examinations and administrative tax appeals, and federal and state white-collar criminal investigations including campaign finance, FARA, money laundering, and health care fraud.
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