Couple Seeks Fourth Circuit Rehearing in FBAR Penalty Case

UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
PETER HOROWITZ and SUSAN HOROWITZ,
Defendants-Appellants.

United States Court of Appeals
for the
Fourth Circuit

Appeal from the United States District Court
for the District of Maryland

APPELLANTS' PETITION FOR REHEARING OR REHEARING EN BANC UNDER FEDERAL RULES OF APPELLATE PROCEDURE 35 AND 40

James N. Mastracchio
Daniel G. Strickland
EVERSHEDS SUTHERLAND (US) LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001
202.383.0100

Stacey M. Mohr
EVERSHEDS SUTHERLAND (US) LLP
999 Peachtree Street, NE, Suite 2300
Atlanta, Georgia 30309-3996
404.853.8000

Attorneys for Defendants-Appellants
Peter and Susan Horowitz

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TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTRODUCTION AND COUNSEL'S STATEMENT

REHEARING IS WARRANTED

CONCLUSION

CERTIFICATE OF COMPLIANCE

APPENDIX

TABLE OF AUTHORITIES

Cases

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986)

Bacon v. City of Richmond, 475 F.3d 633 (4th Cir. 2007)

Chalmers v. Tulon Co., 101 F.3d 1012 (4th Cir. 1996)

Jones v. United States, No. 19-04950, 2020 WL 2803353 (C.D. Cal. May 11, 2020)

Lytle v. Household Mfg. Inc., 494 U.S. 545 (1990)

Merritt v. Old Dominion Freight Line, Inc., 601 F.3d 289 (4th Cir. 2010)

Pender v. Bank of Am. Corp., 788 F.3d 354 (4th Cir. 2015)

Tolan v. Cotton, 572 U.S. 650 (2014)

United States v. Ayyad, No. 18-1784, 2019 WL 4221482 (D. Md. Sept. 5, 2019)

United States v. Clemons, No. 18-258, 2019 WL 7482218 (M.D. Fl. Oct. 9, 2019)

United States v. Cohen, No. 17-1652, 2019 WL 8231039 (C.D. Cal. Dec. 16, 2019)

United States v. Dadurian, No. 18-81276, 2019 WL 2577921 (S.D. Fl. June 24, 2019)

United States v. De Forrest, 463 F. Supp. 3d 1150 (D. Nev. 2020)

United States v. Flume, No. 16-73, 2018 WL 4378161 (S.D. Tex. Aug. 22, 2018)

United States v. Schwarzbaum, No. 18-81147, 2019 WL 3997132 (S.D. Fl. Aug. 22, 2019)

United States v. Williams, No. 09-437, 2010 WL 3473311 (E.D. Va. Sept. 1, 2010)

United States v. Zwerner, No. 13-22082, 2014 WL 11878430 (S.D. Fl. Apr. 29, 2014)

Other Authorities

Fed. R. App. P. 35(b)(1)(A)

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INTRODUCTION AND COUNSEL'S STATEMENT

The Panel's published decision (the “Decision”) should be vacated. This case should be reheard by the Panel or en banc for the following reasons: (1) The analysis is in conflict with decisions of the United States Supreme Court and this Court; and (2) The proceeding involves a question of exceptional importance.

The Decision rules in favor of the government's motion for summary judgment, viewing facts in favor of the government — the moving party — and drawing inferences against Peter Horowitz and Susan Horowitz — the non-moving parties. This approach directly contradicts jurisprudence of the Supreme Court and of this Circuit. “Not only must [this Court] take facts in the light most favorable to the non-moving party, but we must also draw all legitimate inferences in the non-moving party's favor.” Chalmers v. Tulon Co., 101 F.3d 1012, 1022 (4th Cir. 1996) (Niemeyer, J. Dissenting). The court, further, should not make any credibility decisions or weigh evidence. E.g., Lytle v. Household Mfg. Inc., 494 U.S. 545, 554-55 (1990). These functions are for the jury, not for the court. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

The Decision indulges the government's characterization of facts and ignores inferences in support of each of Peter Horowitz's and Susan Horowitz's three claims. Similarly, the Decision ignores obvious questions of material fact:

• Did Ms. Beasley have the sole authority to assess and reverse the FBAR penalties in this case?

• Was Mr. Calamas' authorization required to reverse assessed FBAR penalties?

• Was notice of reversal required to be sent to Peter Horowitz and Susan Horowitz?

Because the Decision is published and can affect each case in this Circuit involving motions for summary judgment, it is exceptionally important. Accordingly, rehearing is merited and necessary to secure and maintain uniformity of this Circuit's decisions. See Fed. R. App. P. 35(b)(1)(A).

REHEARING IS WARRANTED

I. The Proceeding involves a question of exceptional importance because the Panel's published misapplication of this Circuit's standard of review in cases involving cross-motions for summary judgment has broad effect.

The Panel concluded that the lower court (1) properly denied the Horowitzes' motion and (2) properly awarded summary judgment to the government with respect to each of three separate penalties at issue here. In so doing, the Panel did not address or acknowledge the applicable standard of review.

When presented with a district court's grant of summary judgment, this Court's review is de novo, with all doubts and inferences to be resolved in favor of the non-moving party. Tolan v. Cotton, 572 U.S. 650, 656-67 (2014); Bacon v. City of Richmond, 475 F.3d 633, 637-38 (4th Cir. 2007). The “[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge.” Anderson, 477 U.S. at 255.

These rules are applied equally to each motion when cross-motions are involved. Thus, proper analysis requires considering “each motion separately on its own merits to determine whether either of the parties deserves judgment as a matter of law.” Bacon, 475 F.3d at 637-38; Pender v. Bank of Am. Corp., 788 F.3d 354, 361 (4th Cir. 2015) (noting the requirement for examination seriatim).

Reconsideration is required because the Panel conducted only one analysis, resulting in compounded errors.

II. The Decision is erroneous with respect to the statute of limitations.

With respect to each cross-motion, the Panel should have conducted a separate analysis so that inferences could properly be drawn in both directions. In addressing the government's motion, the Panel failed to acknowledge the existing question of material fact, drawing inferences improperly in favor of the government as the moving party in reaching its conclusion that the three separate penalty assessments satisfied the period of limitations. The Panel determined that Ms. Beasley did not reverse the original FBAR assessments against Peter Horowitz and Susan Horowitz by adjusting her official spreadsheet. The Panel determined that Mr. Calamas was required to — but did not — approve the reversal. The Panel also concluded that notice reflecting the reversal would have been issued to Peter Horowitz and Susan Horowitz. These facts are not supported by the record.

Ms. Beasley testified in a deposition that she was the only person at the IRS who was authorized to assess and reverse FBAR penalties. (JA1795.) She next testified that her actions reversed the penalties. (JA1814.) If there is a question about whether Ms. Beasley legally reversed the FBAR penalty when she adjusted her official business record of such assessment — then a trial is needed on this point. The government submitted no evidence at the District Court level finding that Ms. Beasley's initial actions and entries on her spreadsheet did not result in a reversal of FBAR penalties.

Further, there is absolutely no evidence in the record that Mr. Calamas had to approve a reversal of an FBAR penalty for the penalty to be reversed. The record is void of any such statement or requirement. There is also no evidence in the record that Mr. Calamas or Ms. Beasley was required to generate a notice of reversal and send such letter to Peter Horowitz or Susan Horowitz. Not a shred of evidence supports this factual finding exists, was ever entered into the record by the government at the District Court level or subsequently. Thus, these are also material facts in dispute.

If this Panel is correct and Ms. Beasley's actions did not reverse the FBAR penalty assessment — it begs the question: How many U.S. persons still owe FBAR penalties because Ms. Beasley reversed their FBAR penalties by changing her spreadsheet — the only official document maintained by Ms. Beasley for FBAR assessments? If the Decision holds — without sufficient factual development at trial — unsuspecting taxpayers may find themselves with FBAR assessments that everyone — including Ms. Beasley — thought were reversed because of her actions. Clearly there is a question of material fact here requiring a remand to the District Court.

It is the Horowitz's position that the statute of limitations expired prior to Ms. Beasley reassessing the FBAR penalties. Given the lack of evidence in the record, the Panel's conclusion should be reversed so that the fact finder may properly draw inferences supported by the evidence and trial testimony, whether or not Ms. Beasley official actions legally reversed the FBAR penalty.

III. The Decision is erroneous with respect to willfulness.

With respect to each cross-motion, the Panel should have conducted a separate analysis so that inferences could properly be drawn in both directions. Within each respective analysis, the Panel should have conducted three separate inquiries as to willfulness — one for each of the three penalties — because the question of willfulness is answered by looking at the conduct and knowledge of the actor as of a specific date.

For Susan Horowitz, the penalty asserted relates to her failure on June 30, 2008, to report the existence of her 2007 financial interest in the UBS account. For Peter Horowitz, there were two separate penalties asserted: The first, for his failure on June 30, 2008, to report the existence of his 2007 financial interest in the UBS account; the second, for his failure on June 30, 2009, to report the existence of his 2008 financial interest in the Finter account. Susan Horowitz had no interest in the Finter account in 2008; the originally-assessed penalty was withdrawn by the government and is not at issue here.

Each of these penalties is based on the action and knowledge of a single person on a specific date with respect to an identified bank account.

A. Other courts to address willfulness in the FBAR context on summary judgment do not grant summary judgment.

As an initial matter, the primary case upon which this Panel — and the lower court — relies involved a motion for summary judgment filed by the government. Despite the facts as they existed, the district court in Williams denied summary judgment because the question of willfulness was properly determined by the finder of fact. United States v. Williams, No. 09-437, 2010 WL 3473311 (E.D. Va. Sept. 1, 2010) (drawing all reasonable inferences in favor of Williams and concluding that genuine issues of material fact remain in dispute regarding willfulness despite Williams' guilty plea).

Like the Williams court, numerous other courts addressing willful FBAR penalties properly decline to rule on summary judgment — both for and against the government. See, e.g., United States v. Ayyad, No. 18-1784, 2019 WL 4221482 (D. Md. Sept. 5, 2019) (denying motion because the evidence, viewed most favorably to the government as the non-moving party, could allow a reasonable factfinder to conclude that the failure was willful); United States v. Zwerner, No. 13-22082, 2014 WL 11878430 (S.D. Fl. Apr. 29, 2014) (finding that whether the defendant willfully failed to file FBARs was an issue to be decided by the trier of fact because, inter alia, defendant was under the mistaken impression that funds earned overseas were not taxed); United States v. Flume, No. 16-73, 2018 WL 4378161, at *2 (S.D. Tex. Aug. 22, 2018) (denying motion with respect to willfulness because defendant's testimony — “self-serving though it may be — creates a genuine dispute” and because “there is a genuine dispute about whether [defendant] relied on his tax-return preparer to ensure he was fulfilling his reporting obligations”); United States v. Dadurian, No. 18-81276, 2019 WL 2577921 (S.D. Fl. June 24, 2019) (denying motion because a reasonable trier of fact could find defendant willful); United States v. Clemons, No. 18-258, 2019 WL 7482218 (M.D. Fl. Oct. 9, 2019) (denying motion because willfulness “remains an issue to be decided by the trier of fact”); United States v. Cohen, No. 17-1652, 2019 WL 8231039, at *8 (C.D. Cal. Dec. 16, 2019) (declining to rule that defendant was reckless because “it would have to make a credibility determination” and, “[o]f course, on a motion for summary judgment, the Court cannot make such credibility determinations”); United States v. Schwarzbaum, No. 18-81147, 2019 WL 3997132 (S.D. Fl. Aug. 22, 2019) (denying motion because willful failure to comply with a tax reporting requirement is a question of fact) (quoting United States v. Williams, 489 F. App'x 655, 658 (4th Cir. 2012)); United States v. De Forrest, 463 F. Supp. 3d 1150 (D. Nev. 2020) (denying motion as to recklessness because disputed facts and inferences were to be viewed in the light most favorable to defendant); Jones v. United States, No. 19-04950, 2020 WL 2803353, at *8 (C.D. Cal. May 11, 2020) (denying cross-motions with respect to willfulness because “willfulness is a finding of fact”).

While these FBAR penalty decisions are not binding on this Court, their consistency in denying summary judgment on the question of willfulness bears consideration — especially in conjunction with this Circuit's “traditional summary judgment standard, giving the benefit of inferences to the non-moving party,” Merritt v. Old Dominion Freight Line, Inc., 601 F.3d 289, 291 (4th Cir. 2010) (emphasis added), and view[ing] the evidence in the light most favorable to the opposing party,” Tolan v. Cotton, 572 U.S. 650, 657 (2014) (per curiam) (emphasis added).

B. The errors in the analysis of willfulness must be resolved.

The Panel begins its application of the willfulness standard on page 17, noting generally that the government was entitled to summary judgment because the Horowitzes' conduct was objectively reckless. In so holding, a number of errors requiring rehearing.

Those errors can be categorized as: i) erroneous attribution of action to a non-actor; ii) erroneous consideration of facts irrelevant to the willfulness of either Horowitz; and iii) erroneous inferences drawn in favor of the government — the moving party — in consideration of the government's motion. Because the three penalties were not addressed separately, these errors were compounded and will be addressed in the context of each specific penalties.

The analysis should have addressed how, on the respective filing deadlines, each person was separately and distinctively willful. In the analysis there is no mention of the UBS account or specific conduct of Susan Horowitz. Instead, the analysis contains numerous generalizations of joint conduct, joint knowledge, and joint inaction. FBARs are not filed jointly. They are a separate and distinct obligation of each person. Penalties are also not assessed jointly. They are assessed based on the conduct of each party at the time that each FBAR is due to be filed.

1) The facts do not support a finding of willfulness for Susan Horowitz's interest in the UBS account.

With respect to Susan Horowitz, the Panel's conclusion that she willfully failed to report the existence of her interest in the UBS account on June 30, 2008, should not stand.

The Panel's disregard of the fact that Susan Horowitz lacked any education or experience related to finance or taxation is problematic in the context of facts that should have been viewed in the light most favorable to the non-moving party. (JA1029 ¶4.) Although she was generally aware of the existence of the family's savings while held at UBS, the Panel's finding of fact with respect to Susan Horowitz's recognizing that certain income was taxable is erroneous. It is crystal clear that Susan Horowitz left her husband in charge of the finances, which is evinced by the fact that even though she had her own bank account, she never used it. (JA1519; JA1642.) She did not speak with Peter Horowitz's colleagues in the 1980s; instead, she trusted that Peter's beliefs were correct. (JA1425-26; JA1692-93.) From her perspective, there was no reason to question those beliefs because their returns were neither audited nor rejected. (JA1029 ¶¶17-18.) The proper inference in favor of Susan Horowitz as the non-moving party is that any misconduct is limited to trusting her husband. And if there is a question whether her failure to file the 2007 FBAR was willful, it is a question of material fact, not separately answered by the analysis of either the lower court or this Panel.

The Panel suggests that the mistaken understanding of the taxability of interest earned on post-US-tax-paid dollars saved in foreign bank accounts should have been questioned with the accountants and that by not asking, there existed something more than negligence. (Op. 18.) But Susan Horowitz never spoke to the accountants, and because she trusted her husband to prepare the family tax returns, she had no reason to do so. The proper inference in her favor is that the trust and reliance were reasonable, in good faith, and not negligent.

The Panel finds a number of facts about Finter. Since this penalty relates to the UBS account and no penalty is assessed against her for the Finter account, Peter Horowitz's conduct in Switzerland setting up the Finter account is not relevant to Susan's UBS FBAR filing obligation in 2007.

The Panel next finds that the “family tended to th[eir] nest egg, traveling twice to Switzerland specifically to look after it.” (Op. 19.) But Susan Horowitz only traveled once to Switzerland — in 2010 — well after the 2007 FBAR filing deadline and after the UBS account was closed. (JA1596; JA0991.) This cannot support her willfulness on July 30, 2008, the due date for the 2007 FBAR.

Finally, the Panel notes that the Horowitzes signed their joint tax return under penalties of perjury and that the “No” box was checked with respect to foreign bank accounts. This, the Panel finds, was an aspect of their combined recklessness. But there is no mention of the fact that the box was checked by their accountant, the fact that the box is located at the bottom of the fifth page of schedules and attachments, or the fact that for decades, the Horowitzes' accountants prepared their returns, which were neither audited nor rejected by the IRS. (See JA1414, 1416-17, 1420; JA1026-31.) Moreover, it was Susan Horowitz's testimony that she never reviewed her tax returns and that she was entirely unaware of the FBAR reporting requirement when the UBS-related FBAR was due. (JA1743.) These facts should be viewed in a light most favorable to Susan Horowitz.

If there is a question about her knowledge, intent, and credibility it is best left for trial and not decided on summary judgement. Although the inferences for purposes of denying Susan Horowitz's motion for summary judgement might have been proper, it is entirely improper to infer that her conduct was some part of recklessness when considering the government's motion.

Because Susan Horowitz's conduct was not analyzed in the light most favorable to her with respect to the UBS account leading up to her failure to file on June 30, 2008, the Panel's conclusion with respect to her willfulness should be reversed so that a jury may properly find facts and draw inferences supported by the record and trial testimony.

2) The facts do not support a finding of willfulness for Peter Horowitz's interest in the UBS account.

With respect to Peter Horowitz, the Panel's conclusion that he willfully failed to report the existence of his interest in the UBS account on June 30, 2008, should not stand. Again, it bears noting that the Panel does not mention the UBS account in its analysis.

As found by the Panel, Peter Horowitz established a Swiss bank account in the 1980s because it earned interest. (Op. 17.) But that is not the only reason. At that time, the mail service was inconsistent, and neither internet nor email existed. (JA0355 ¶ 8.) The Horowitzes lived in a compound with other Westerners, after surrendering their passports, under constant awareness that the Saudi government could — and might — deport them at any time. (Id. at ¶¶ 5-6; JA1273, JA1284, JA1425, JA1450-51.) In this isolation, their family relied on neighbors and coworkers for advice regarding everything from local customs to school for their children to what to do if a SCUD missile struck the hospital in which Peter Horowitz worked. (JA0355 ¶ 8; JA1425-26.) This is the context in which the Swiss bank account was opened. And in this context, trust for colleagues and neighbors is a necessity.

The Panel disregards these facts, suggesting that Peter Horowitz's 1980s conversation was “significant enough” that he should have asked his accountant. (Op. 18.) But the inferences of significance and impact were improperly drawn in favor of the government's position. Peter Horowitz trusted his accountant, who had been preparing his tax returns for more than a decade before the Horowitzes moved to Saudi Arabia and who never mentioned any separate information reporting requirements for foreign bank accounts despite knowing the location of Peter Horowitz's employment and the family's living arrangements. The accountant earned the trust and reliance of Peter Horowitz because, for over 30 years, the tax returns were never audited. (JA1027 ¶¶12-13; JA1030-31 ¶¶17-18; JA1416.)

The inference drawn by the Panel — that this conduct was somehow more than simple negligence — should have been drawn in favor of Peter Horowitz as the non-moving party. Had the Panel addressed the facts described above, the reasonable inference in favor of Peter Horowitz should have been that the mistake was on the part of the trusted accountant and that Peter Horowitz's reliance the silence of his accountant was, at most, simple negligence. At the very least, ascertaining Peter Horowtiz's credibility should be made at trial.

The Panel addresses the “hold mail” feature of the Finter account and the knowledge of the bank, but these are irrelevant to the UBS account. Similarly, neither of Peter Horowitz's two trips to Switzerland was taken before the FBAR filing for the UBS account was due — June 30, 2008. None of this should be included in an analysis of Peter Horowitz's alleged willfulness with respect to his interest in the UBS account and the related 2007 FBAR filing.

Finally, for the reasons mentioned above with respect to the Panel's treatment of the Horowitzes' tax reporting, the conclusion that Peter Horowitz was willful on June 30, 2008, when he failed to report his interest in the UBS account is improper. The Panel's conclusion for this penalty, too, should be reversed so that the judge as fact finder may properly find facts and draw inferences supported by the record and trial testimony.

3) The facts do not support a finding of willfulness for Peter Horowitz's interest in the Finter account.

In addition to the above-described errors, there are errors with respect to the Panel's conclusion that Peter Horowitz's failure to report the existence of his Finter account on July 30, 2009, was willful.

The Panel begins the Finter-specific analysis by noting that the account was opened with a “hold mail” feature. (Op. 18.) But it improperly disregards the specific testimony of Peter Horowitz that he did not make that selection. The evidence — the account opening document — supports his testimony. The marks Peter Horowitz testified to making with respect to currency, i.e., USD, were checks. To the immediate left of the USD-checked box was the CHF, or Swiss Francs, box with an “x” in it. While subtle, it importantly supports Peter Horowitz's statement that he did not select the hold mail or numbered account features since both were selected with an “x.” (See JA975, JA1375-76, JA1448.) The properly drawn reasonable inferences in favor of the non-moving party are that he did not make the elections and that he was unaware that they were made on his behalf. If there is a question regarding the marked pages, the evaluation of Peter Horowitz's credibility is best left for trial and not decided on summary judgement.

The Panel next describes what “the bank knew.” This knowledge was contained in a report by the financial institution that is unrelated to the audit of Mr. Horowitz; there is no mention of Mr. Horowitz. There is absolutely no connection offered by the government between Finter's statements and conduct and Peter Horowitz's. Nothing ties the report directly to Mr. Horowitz, nor did the actors mentioned in the report ever meet with him.

The report is certainly hearsay without more. But even if it is allowed into evidence over Peter Horowitz's objection, what was known by the bank cannot, without more, be attributed — by inference or otherwise — to Peter Horowitz at any point in time. It should not have even been mentioned by the Panel in its analysis. At the very least, these facts, if material to the Panel, are controverted and in need of development at trial and not decided on summary judgement.

The Panel further suggests improperly without evidence that “he surely became aware” that the account was a “hold mail” account. Because Peter Horowitz denies knowing of this feature, the inference — that he “surely became aware” in the two remaining months in 2008 or the six months in 2009 before the FBAR filing was due for the Finter account — was improperly drawn in favor of the moving party. A reasonable fact finder could find the opposite to be true, based on the credibility of Peter Horowitz's testimony.

Combined with the errors identified above, the Panel improperly concluded that Peter Horowitz was reckless on June 30, 2009, when he failed to report the existence of the 2008 Finter account. The Panel's conclusion for this penalty, like its conclusions for the other two, should be reversed so that the judge as fact finder may properly find facts and draw inferences supported by the record and trial testimony.

CONCLUSION

The Decision should be vacated. This case should be reheard by the Panel or en banc.

This 4th day of December 2020.

Respectfully submitted,

James N. Mastracchio
Daniel G. Strickland
EVERSHEDS SUTHERLAND (US) LLP
700 Sixth Street, NW, Suite 700
Washington, D.C. 20001-3980
202.383.0210

Stacey M. Mohr
EVERSHEDS SUTHERLAND (US) LLP
999 Peachtree Street, NE, Suite 2300
Atlanta, Georgia 30309-3996
404.853.8004

Attorneys for Defendants-Appellants
Peter and Susan Horowitz