Individual Argues Court Erred in FBAR Penalty Case

UNITED STATES,
Plaintiff-Appellee,
v.
MONICA TOTH,
Defendant-Appellant.

United States Court of Appeals
For the First Circuit

On Appeal From a Final Order
Entered in the United States District Court
for the District of Massachusetts

Reply Brief of
Defendant-Appellant

Jeffrey P. Wiesner, No. 119207
Jennifer McKinnon, No. 1194292
Wiesner McKinnon LLP
90 Canal Street, Suite 110
Boston, MA 02114
(617) 303-3940
jwiesner@jwjmlaw.com
jmckinnon@jwjmlaw.com

August 25, 2021

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TABLE OF CONTENTS

Table of Authorities

Introduction

Argument

I. The Government's Failure to Serve Ms. Toth within the Period of Time Required by Rule 4(m) of the Federal Rules of Civil Procedures Should Not Be Excused

II. The District Court Erred by Relying on the Government's Mischaracterizations of Ms. Toth's Conduct in Imposing the Sanction

III. The District Court Erred in Adopting the Government's Proffered Evidence of Willfulness in Granting Summary Judgment

IV. The Excessive Fines Clause of the Eighth Amendment Applies to the Multimillion Dollar Penalty in this Case

V. Ms. Toth Did Not Waive her Argument Under the Administrative Procedure Act 

Conclusion

Certificates of Compliance and Service

TABLE OF AUTHORITIES

Federal Cases

Adams v. AlliedSignal Gen. Aviation Avionics, 74 F.3d 882 (8th Cir.1996)

Amen v. City of Dearborn, 532 F.2d 554 (6th Cir.1976)

Audio Enterprises, Inc. v. B & W Loudspeakers of Am., a Div. of Equity Int'l Inc., 957 F.2d 406 (7th Cir.1992)

Austin v. United States, 509 U.S. 602 (1993)

BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996)

Calderon Serra v. Banco Santander Puerto Rico, 747 F.3d 1 (1st Cir.2014)

Dep't of Revenue of Montana v. Kurth Ranch, 511 U.S. 767 (1994)

Facebook, Inc. v. Internal Revenue Serv., No. 17-CV-06490-LB, 2018 WL 2215743 (N.D. Cal. May 14, 2018)

Friedman v. Est. of Presser, 929 F.2d 1151 (6th Cir.1991)

Helvering v. Mitchell, 303 U.S. 391 (1938)

Hinton v. Virginia Union Univ., 185 F. Supp. 3d 807 (E.D. Va. 2016)

Hudson v. United States, 522 U.S. 93 (1997)

Kokesh v. S.E.C., 137 S. Ct. 1635 (2017)

Landa v. United States, 153 Fed. Cl. 585 (2021)

McNichols v. Comm'r, 13 F.3d 432 (1^st Cir.1993)

Murphy Bros. v. Michetti Pipe Stringing, Inc., 526 U.S. 344 (1999)

Nat'l Ass'n of Soc. Workers v. Harwood, 69 F.3d 622 (1st Cir.1995)

Omni Cap. Int'l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97 (1987) 

Pimentel v. City of Los Angeles, 974 F.3d 917 (9^th Cir.2020) 

Sony BMG Music Ent. v. Tenenbaum, 660 F.3d 487 (1st Cir. 2011)

St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63 (1919)

Traina v. United States, 911 F.2d 1155 (5th Cir.1990)

United States v. Bajakajian, 524 U.S. 321 (1998)

United States v. Collins, 2021 WL 456962 (W.D. Pa. 2021)

United States v. Estate of Schoenfeld, 344 F.Supp. 3d 1354 (M.D. Fla. 2018)

United States v. Halper, 490 U.S. 435 (1989)

United States v. Jalaram, Inc., 599 F.3d 347 (4th Cir.2010)

United States v. Krynicki, 689 F.2d 289 (1st Cir.1982)

United States v. Schwarzbaum, No. 18-CV-81147, 2020 WL 2526500 (S.D. Fla. May 18, 2020)

Federal Constitutional Provisions, Statutes and Rules

Eighth Amendment to the United States Constitution

Administrative Procedure Act (5 U.S.C. §552)

21. U.S.C. §§881(a)(4)

18. U.S.C. §982(a)(1)

Fed. R. Civ. P. 4

State Rules

Mass. R. Civ. P. 4

Other Authorities

Internal Revenue Serv., Taxpayer Advocate Serv., “2014 Report to Congress,” https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/08/2014-ARC_EXECUTIVE-SUMMARY-508.pdf (last visited August 24, 2021)

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Introduction

Appellant Monica Toth (“Ms. Toth”) submits this Reply Brief to address certain arguments made by the Government in its brief and otherwise relies upon the arguments made her opening brief. Principally, Ms. Toth responds to the Government's argument that the Eighth Amendment's Excessive Fines clause does not apply to the multi-million-dollar FBAR penalty imposed for Ms. Toth's failure to report her foreign bank account. As set forth below, the Supreme Court has for decades rejected the arguments made by the Government that if a fine is in any sense “remedial” — which the Government contends the FBAR penalty is — even if it also serves a deterrent or retributive purpose it nonetheless falls outside the purview of the Eighth Amendment. Additionally, Ms. Toth responds to the Government's arguments concerning the application of the amended Rule 4(m) of the Federal Rules of Civil Procedure, abridging (from 120 days to 90 days) the time period for service of process for cases “pending” at the time the amendment went into effect. Ms. Toth also responds to certain of the Government's arguments concerning the validity of the sanction imposed by the District Court and aspects of Ms. Toth's argument concerning adequate notice of the FBAR penalty in light of the conflicting Treasury regulation capping the penalty at $100,000.

I. The Government's Failure to Serve Ms. Toth within the Period of Time Required by Rule 4(m) of the Federal Rules of Civil Procedure Should Not Be Excused.

A. Compliance with the Requirements of Service of Process Are a Necessary Prerequisite to a Court's Power over a Defendant.

The Government has argued that Ms. Toth's “substantial rights” were unaffected by its failure to accomplish service within the period of time required by Rule 4(m), and therefore that any error of law committed by the District Court in its failure to apply the 90-day period for service required by the amended Rule is subject to harmless error review. (Gov. Br. 32).¹ This argument has no merit.

It is well settled that “[b]efore a federal court may exercise personal jurisdiction over a defendant, the procedural requirement of service of summons must be satisfied.” Omni Cap. Int'l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 104 (1987). It is equally well-settled that “[s]ervice of process, under longstanding tradition in our system of justice, is fundamental to any procedural imposition on a named defendant.” Murphy Bros. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 350 (1999). See also Friedman v. Est. of Presser, 929 F.2d 1151, 1156 (6th Cir. 1991) (“Due to the integral relationship between service of process and due process requirements, we find that the district court erred in its determination that actual knowledge of the action cured a technically defective service of process.”); Amen v. City of Dearborn, 532 F.2d 554, 557 (6th Cir.1976) (“[D]ue process requires proper service of process in order to obtain in personam jurisdiction.”); Audio Enterprises, Inc. v. B & W Loudspeakers of Am., a Div. of Equity Int'l Inc., 957 F.2d 406, 410 (7th Cir. 1992) (reversing district court's failure to dismiss for lack of service of process); Calderon Serra v. Banco Santander Puerto Rico, 747 F.3d 1, 9 (1st Cir. 2014) (“we see no error in the district court's refusal to sanction plaintiffs' decision to presume that compliance with the clear language of the rule would be excused. As such, we affirm the district court's dismissal of the complaint as to Moreno and Calvo for failure of service.”).

B. Amended Rule 4(m) Applies to Pending Cases if “Just” and “Practicable,” Both of Which Were Satisfied in this Case, and Therefore the District Court Erred in Failing to Apply Amended Rule 4(m).

The Government's argument that amended Rule 4(m) did not apply to this case relies upon several district court cases that have held that the amended Rule 4(m) does not apply to pending actions. (Gov. Br. at 30). Those decisions, however, were wrongly decided. Only one of those decisions employs any rationale at all in reaching its decision, Hinton v. Virginia Union Univ., 185 F. Supp. 3d 807, 842–43 (E.D. Va. 2016). In that case, the plaintiff served his Complaint within the old 120-day window but outside of the new 90-day window.

Ostensibly applying the standard to determine whether application of the amended rule is “just” and “practicable,” the Court held it would be “practicable,” but it would never be “just” to apply the new rule 4(m) to a pending case; thus the Court did not actually apply the standard, but rather simply disagreed with it. That, the Court could not do.

The Government further argues that “if amended Rule 4(m) applied here, the Government would have had only 14 days after its effective date to accomplish service.” (Gov. Br. 31). While that is true, the Government had notice months earlier, the previous April, as did all litigants in Federal Court, that Rule 4(m) would be amended, which afforded the Government the full 90 days after it filed its complaint to serve Ms. Toth.² The Government states that its process server went to Ms. Toth's residence multiple times.³ If this is true, it is a mystery why process could not have been accomplished pursuant to Fed. R. Civ. P. 4(e)(1), providing for valid service by following state law, which in Massachusetts is accomplished by leaving a copy of the summons and complaint at a defendant's last and usual place of abode. See Fed. R Civ. P. 4(e)(1); Mass. R. Civ. P. 4(d)(1).

The Government further argues that had it sought additional time to accomplish service it could have shown “good cause” justifying additional time. (Gov. Br. at 32-33). The Government, however, did not seek additional time, and instead relied upon the argument that amended Rule 4(m) did not apply. That was the Government's prerogative, but it cannot now, on appeal, claim that the District Court would have found good cause had the Government requested it, to now save the Government from its failure to effect valid service. Adams v. AlliedSignal Gen. Aviation Avionics, 74 F.3d 882, 887 (8th Cir. 1996) (“When counsel has ample notice of a defect in service, does not attempt an obvious correction, and chooses to defend the validity of the service attempted, there is no good cause for the resulting delay if that method of service fails.”) Furthermore, the fact that the statute of limitations would have run, as it would have in this case, is not a bar to dismissal. It is well settled that inability to refile a suit does not bar dismissal under Rule 4(j). See Traina v. United States, 911 F.2d 1155, 1157 (5th Cir. 1990).⁴

II. The District Court Erred by Relying on the Government's Mischaracterizations of Ms. Toth's Conduct in Imposing its Sanction.

A. The Government's Assertion that it was Hindered in its Ability to Discover Facts is Belied by the Record Showing the Government had Ample Opportunity, including Deposing Ms. Toth on Three Separate Occasions.

In her opening brief, Ms. Toth argued that the District Court abused its discretion in sanctioning her with a finding on the dispositive element of willfulness, and detailed how the Court erred in relying on the government's mischaracterizations of Ms. Toth's conduct. (Df. Br. 14-22). Ms. Toth relies principally on the arguments presented in her opening brief but responds as follows to certain of the government's arguments.

First, the government asserts without citation that Ms. Toth “does not deny that she continued to rely on non-privilege[d] objections to withhold information or documents” in violation of the Court's orders. The Government, however, fails to cite anything in the record for this assertion. (Gov. Br. 37). As explained in her opening Brief, Ms. Toth did not rely on non-privileged objections to withhold documents. (Df. Br. 19-20). Rather, Ms. Toth repeatedly told the government that she did not have the documents it sought, indicating they had been “either destroyed or lost [ ] over the years” and were not in her possession. (R.A. 243-244).⁵ Ms. Toth did not produce documents because she did not have any documents to produce.⁶

Second, in her opening Brief, Ms. Toth described how the government had ample opportunity during Ms. Toth's three depositions to discover the information it sought as evidenced by its concession that Ms. Toth admitted to all but one of the “Facts” it had sought the Court find as a sanction during her deposition testimony. (Df. Br. 20; R.A. 120-121). In its Brief, the government responds by suggesting that it was still prejudiced because it was unable to discover information during the depositions to “establish willfulness and to respond to Toth's affirmative defenses.” (Gov. Br. 42). Again, the government provides no record support for its assertion. And this assertion is belied by arguments made several paragraphs later in its brief that Ms. Toth's conduct was “willful.” (Gov. Br. at 48-51). In making those arguments, the government marshals facts gleaned from Ms. Toth's three deposition transcripts. (Gov. Br. 48). Appellant has, of course, argued that these facts are insufficient to establish willfulness and are subject to varying interpretations that, at least at summary judgment, ought to have been decided in her favor, thus requiring a trial. (Df. Br. 28-29). The Government points to Ms. Toth's failure to complete Schedule B, Part III of her tax returns, which was testified to at length during her deposition testimony. (Gov. Br. 48; R.A. 1030-1033; R.A. 1060-1062). In addition, the Government relies upon Ms. Toth's testimony relating to transfers of money from her Account as evidence that she sought to keep the Account secret from the government. (Gov. Br. 48). Ms. Toth testified about those money transfers during the depositions. (R.A. 1259-1267). Finally, the Government relies upon Ms. Toth's testimony about her family's warning to her to keep the Account secret as further evidence of her willfulness, (Gov. Br. 48), facts testified to at her deposition. (R.A. 995).⁷

The Government had ample opportunity in the three depositions it conducted of Ms. Toth to discover all of Ms. Toth's defenses, and it did so. The notion that the Government was prejudiced in this context does not withstand scrutiny.

III. The District Court Erred in Adopting the Government's Proffered Evidence of Willfulness in Granting Summary Judgment

In her opening Brief, Ms. Toth argued that her conduct, even using the lesser standard set out in Bedrosian and Williams, was not willful and the Court erred in holding she acted willfully as a matter of law. (Df. Br. 27-29). In its attempt to find any evidence that would support a theory that Ms. Toth acted willfully, the government has assembled a hodgepodge of facts and presented them as evidence of her desire to keep her Account hidden from the IRS. As described in Ms. Toth's opening brief, the District Court erred in relying on several of these facts as they were not established in the record, and additionally, the Court erred in making inferences in the light most favorable to the government rather than Ms. Toth. (Df. Br. 26-28). Ms. Toth relies on these arguments in her opening brief regarding the District Court's decision relating to willfulness, but responds here to an additional argument the government presses as evidence of willfulness.

The Government argues that Ms. Toth “sought to stop UBS from reporting the Account to the IRS” because she did not complete a W-9 in 2001 when account holders that contained U.S. securities were told by UBS they needed to file W-9 forms with the IRS. (Gov. Br. 49). First, the Government relies in part for this argument upon evidence not in the record, of which the District Court declined to take judicial notice. (Add. 40). Nonetheless, the Government continues to argue that because Ms. Toth did not complete a W-9 in 2001, this constitutes evidence that she was trying to hide her account from the IRS and that she was aware she had to file an FBAR. In any event, Ms. Toth was not required to execute a W-9, because only account holders with U.S. securities were required to do so, and she did not possess U.S. securities. (R.A. 3085-3086).

Finally, Ms. Toth's arguments relating to the District Court's willfulness determination echo the concern of the Taxpayer Advocate Service,⁸ detailed in its 2014 Annual Report to Congress, that “the government has eroded the distinction between willful and non-willful violations.” See Internal Revenue Serv., Taxpayer Advocate Serv., “2014 Report to Congress,” https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/08/2014-ARC_EXECUTIVE-SUMMARY-508.pdf, (last visited August 24, 2021), at 33. In particular, the Taxpayer Advocate Service noted that the legislative history suggested that civil FBAR penalties were intended for “bad actors” engaged in criminal activity, but were being applied to taxpayers who did not fall within the “bad actor” category. Id. The Tax Advocate Service also questioned the IRS's reliance on evidence of so-called “willful blindness” to support the imposition of the willful penalty, and noted that it is “unclear if the IRS will distinguish between efforts to conceal the accounts with the intent to evade U.S. taxes or conceal crimes, as opposed to inadvertent concealment, or concealment based on concerns about financial privacy or fears of unwarranted persecution, seizure, or extortion by a government or others (e.g., terrorists or organized criminals).” Id. at 34. Ms. Toth does not remotely fit into the “bad actor” category. Here, the Government has sought to conflate Ms. Toth's (legal and reasonable) desire to keep her Account private, with their accusation that she sought to hide it from the IRS.

IV. The Excessive Fines Clause of the Eighth Amendment Applies to the Multimillion Dollar Penalty in this Case

A. The Government's Arguments Conflict with Supreme Court Precedent.

The Government makes two arguments that the FBAR penalty is not subject to the Excessive Fines Clause. First, the Government contends that for a fine to be considered a punishment for Eighth Amendment purposes it must be “'imposed at the culmination of a criminal proceeding” and requires “conviction of an underlying crime.'” (Gov. Br. 58, quoting United States v. Bajakajian, 524 U.S. 321, 328 (1998)). Second, the Government argues that “[a] civil penalty is not a punishment if it 'serve[s] the remedial purpose of compensating the Government for a loss.'” (Gov. Br. 59, quoting Bajakajian, 524 U.S. at 329). The Government puzzlingly contends that these arguments are supported by the Supreme Court's decision in Bajakajian, 524 U.S. 321. But, Bajakajian clearly does not support these arguments and neither do prior or subsequent Supreme Court precedents.⁹

To begin, reading the quotations the Government attempts to exploit from Bajakajian in context readily reveal that they do not remotely support its position. In the first quoted portion above (i.e., a fine for Eighth Amendment purposes must be “'imposed at the culmination of a criminal proceeding” and requires “conviction of an underlying crime'”), the Court was simply explaining why the forfeiture in that case indisputably constituted “punishment” for 8^th Amendment purposes. See id. at 328. There is no suggestion in the opinion whatsoever that a criminal conviction is a necessary condition for Excessive Fine purposes. See id. In the second quoted portion above (i.e., “[a] civil penalty is not a punishment if it 'serve[s] the remedial purpose of compensating the Government for a loss”) the Government simply extracts a portion of a sentence in the opinion having nothing to do with the point the Government attempts to make. See id. at 329.

In any case, the Supreme Court's Excessive Fines decisions make it clear that a criminal conviction is not required. The Court, in its unanimous opinion in Austin v. U.S., 509 U.S. 602 (1993), explicitly rejected that view:

The determinative question is not, as the Government would have it, whether forfeiture under §§ 881(a)(4) and (a)(7) is civil or criminal. The Eighth Amendment's text is not expressly limited to criminal cases, and its history does not require such a limitation.

Id. at 602.

Rather (and this gets to the Government's second argument, namely, that “remedial” penalties are not subject to Eighth Amendment scrutiny), the determinative question is whether a particular fine constitutes “punishment.” The Government's position is that if a fine is “remedial” it is not punishment and thus escapes scrutiny under the Excessive Fines Clause. That argument, however, relies upon a false dichotomy of either “remedial” or “punitive” borrowed from the Supreme Court's Double Jeopardy cases, see e.g., Helvering v. Mitchell, 303 U.S. 391 (1938), which was never adopted by the Court in its Excessive Fines cases.¹⁰ The Court in Austin made it clear that a fine's purposes (which may be partially remedial and partially punitive) are not mutually exclusive: “Because sanctions frequently serve more than one purpose, the fact that a forfeiture serves remedial goals will not exclude it from the [Excessive Fine] Clause's purview, so long as it can only be explained as serving in part to punish.” Austin, 509 U.S. at 602. This notion, that fines are not either “remedial” or “punitive,” but are often both, and thus still subject to scrutiny under the Eighth Amendment, was affirmed in Bajakajian.

We do not suggest that merely because the forfeiture of respondent's currency in this case would not serve a remedial purpose, other forfeitures may be classified as nonpunitive (and thus not “fines”) if they serve some remedial purpose as well as being punishment for an offense. Even if the Government were correct in claiming that the forfeiture of respondent's currency is remedial in some way, the forfeiture would still be punitive in part. (The Government concedes as much.) This is sufficient to bring the forfeiture within the purview of the Excessive Fines Clause.

Bajakajian, 524 U.S. at 329, n.4 (citing Austin, 509 U.S. at 621–622) (Emphasis added).

Again, more recently in Kokesh v. S.E.C., 137 S. Ct. 1635 (2017), the Court rejected the Government's argument that disgorgement of funds in a civil proceeding was “remedial,” and thus did not constitute a “penalty” (for statute of limitations purposes). The Court held the Government's action constituted a “penalty” despite the fact that “disgorgement serves compensatory goals in some cases; [ ] we have emphasized 'the fact that sanctions frequently serve more than one purpose.'” Id. at 1645 (quoting Austin, 509 U.S. at 610).

Thus, over the course of the last 30 years, the Supreme Court has repeatedly rejected the same arguments the Government makes in the present case. Ms. Toth has argued that the FBAR penalty in this case is not solely remedial and thus, according to the decisions in Austin and Bajakajian, is subject to the Eighth Amendment. (Df. Br. 40-46).

B. The Cases Cited by the Government Holding the FBAR Penalty is “Remedial” were Wrongly Decided.

The Government argues that “all courts to address the question have determined that §5321 civil penalties offset these losses and, therefore, are remedial and not subject to the Excessive Fines Clause.” (Gov. Br. 59). The Government cites Landa v. United States, 153 Fed. Cl. 585 (2021); United States v. Collins, 2021 WL 456962 (W.D. Pa. 2021); United States v. Schwarzbaum, No. 18-CV-81147, 2020 WL 2526500 (S.D. Fla. 2020); and United States v. Estate of Schoenfeld, 344 F.Supp. 3d 1354 (M.D. Fla. 2018). Each of these opinions were incorrectly decided for the reasons provided above.

Landa held the FBAR penalty was remedial and therefore not subject to the Eighth Amendment. The court reasoned that what is determinative is whether the “penalty imposed was intended to be punitive or remedial.” Landa, 153 Fed. Cl. at 599. The court's reasoning, however, embraces the false dichotomy rejected by the Supreme Court in Austin and Bajakajian and Kokesh. See supra, fn. 10.

In Collins, the Court held that for a “fine” to be subject to the Eighth Amendment it must be “'imposed at the culmination of a criminal proceeding' and requires 'conviction of an underlying' crime.” Collins, 2021 WL 456962 at *8 (quoting Bajakajian, 524 U.S. at 328). As explained above, however, this conclusion is not supported by either Bajakajian or Austin.

In United States v. Schwarzbaum, the court concluded that Supreme Court opinions addressing the applicability of the Eighth Amendment to matters outside the criminal context applied to forfeitures or disgorgements, not fines. 2020 WL 2526500 at * 6. “[T]he FBAR penalties in this case cannot be properly characterized as forfeitures, as in Bajakajian and Austin, or disgorgement, as in Kokesh. Id. On that basis the court refused to extend their reasoning to an FBAR fine. But, there is no principled basis for the court's distinction, and it is irreconcilable with the history of the Eighth Amendments' applicability as set out in Austin. The fact that Bajakajian, Austin and Kokesh happened to arise in the forfeiture or disgorgement context was incidental. See e.g. Pimentel v. City of Los Angeles, 974 F.3d 917 (9^th Cir. 2020) (holding parking fines are subject to Eighth Amendment scrutiny) (See Df. Br. 45 for cases holding the Eighth Amendment applies in civil context.)

United States v. Estate of Schoenfeld was likewise decided on the basis that FBAR penalties are remedial. See Estate of Schoenfeld, 344 F.Supp. 3d at 1371.

C. The Government's Reliance on this Court's Decision in McNichols Ignores the Decisions of the Supreme Court Decided Since that Decision.

The Government further argues, based on this Court's decision in McNichols v. Comm'r, 13 F.3d 432 (1^st Cir. 1993), that “'Austin does not directly or impliedly suggest that either its holdings or statements to the effect that a forfeiture can be an excessive fine under the Eighth Amendment are or should be applicable to any actions other than forfeitures under 21 U.S.C. §§881(a)(4) and (a)(7).'” (Gov. Br. 60, quoting McNichols, at 434). That understanding of Austin, however, was shown to be incorrect in Bajakajian, where the Court held that a forfeiture pursuant to a different statute, 18 U.S.C. §982(a)(1), is also subject to the Eighth Amendment. See Bajakajian, 524 U.S. at 328. Furthermore, the holding in McNichols that an “insurmountable wall of tax cases” stand in the way of the conclusion that tax assessments may be considered “punitive,” McNichols, 13 F.3d at 434, was overruled a year later by the Supreme Court in Kurth Ranch, 511 U.S. 767 (1994), where the Court held that a Montana tax constituted punishment, and thus violated the double jeopardy clause.

In light of Kurth Ranch, the Government's reliance on Helvering, 303 U.S. at 401-405, for the proposition that civil tax penalties are remedial is likewise incorrect. Helvering, a double jeopardy opinion, was based on the “remedial/punitive” dichotomy that Halper rejected. Despite Halper being overruled by Hudson, the Halper standard was incorporated into the Excessive Fines' analysis in Austin and reaffirmed in Bajakajian and Kokesh. See supra, fn. 10.¹¹ The point is that, following Austin, a fine can serve both remedial and punitive purposes and, if so, is subject to Eighth Amendment scrutiny.

Significantly, the Court in Kurth Ranch made it clear that tax penalties, and any other monetary assessment imposed by the Government, are limited by the Constitution. “Criminal fines, civil penalties, civil forfeitures, and taxes all share certain features: They generate government revenues, impose fiscal burdens on individuals, and deter certain behavior. All of these sanctions are subject to constitutional constraints.” Kurth Ranch, 511 U.S. at 778. (Emphasis added).

The multi-million-dollar FBAR penalty in this case certainly is subject to scrutiny under the Eighth Amendment's Excessive Fines clause. Ms. Toth relies upon the arguments made in her opening brief that the FBAR penalty assessed against her is “excessive” under the Eighth Amendment and is thus unconstitutional. (Df. Br. 46-51).

V. Ms. Toth Did Not Waive her Argument Under the Administrative Procedure Act.

The Government contends that Ms. Toth waived her argument under the Administrative Procedure Act which requires the Treasury Department to repeal defunct regulations. (Gov. Br. 58-59). The Government does not dispute that Ms. Toth argued in the District Court that the Treasury regulation capping the FBAR penalty at $100,000 creates a fair notice issue. In this regard, Ms. Toth argued that due process principles and the doctrine of lenity ought to require applying the $100,000 penalty cap.

On appeal, Ms. Toth raised essentially the same legal argument clothed in the specific requirements of the Administrative Procedure Act. If this Court deems the argument waived, it should make an exception.

“Appellate courts do have discretion to examine issues raised for the first time on appeal, and 'exceptional cases or particular circumstances' may arise where a court will review questions of law neither pressed nor decided below.” United States v. Krynicki, 689 F.2d 289, 291-292 (1st Cir. 1982) (citing Singleton v. Wulff, 428 U.S. 106, 121, (1976) and United States v. Miller, 636 F.2d 850, 853 (1^st Cir. 1980)). Factors courts consider when determining whether to address “new” issues include the following: first, whether “the new issue is purely legal,” and “lends itself to satisfactory resolution on the existing record without further development of the facts. These attributes ease the way for invoking the exception.” Nat'l Ass'n of Soc. Workers v. Harwood, 69 F.3d 622, 627–28 (1st Cir. 1995). Second, the compelling nature of the argument is “a factor that favors review notwithstanding the procedural default.” Id. at 628. Third, whether “the omitted argument is 'highly persuasive,' a circumstance that 'often inclines a court to entertain a pivotal argument for the first time on appeal,' particularly when declining to reach the omitted argument threatens 'a miscarriage of justice.'” Id. at 628 (internal citations omitted). Fourth, the absence of unfairness has a definite bearing on a decision to overlook this type of procedural default. Id.

Here, the issue is law-based and not fact-based, and the Government addressed it in its brief. The issue was generally raised on other legal grounds. The failure of adequate notice of a large monetary penalty as a result of continual publication by a government agency of a deceptive regulation raise a substantial issue affecting the public. See id.

Finally, Ms. Toth argued that the due process clause prohibits the penalty in this case, citing BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996). The Government responded that St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 66 (1919) applies to cases involving statutory damages; not BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), which applies to punitive damages. While in the ordinary case that may be correct, the peculiarity of the present circumstance is that the FBAR penalty statute conflicts with the applicable Treasury regulation concerning the amount of the FBAR penalty. Thus, the statement by this Court in Sony BMG Music Ent. v. Tenenbaum, 719 F.3d 67, 70 (1st Cir. 2013) concerning the applicability of Williams to statutory fines does not quite fit: “The concerns regarding fair notice to the parties of the range of possible punitive damage awards, which underpin Gore, are simply not present in a statutory damages case where the statute itself provides notice of the scope of the potential award.” In the present case, there is indeed a problem of notice on account of the conflict between a published Treasury regulation capping the FBAR at $100,000 and the FBAR statute providing for a penalty of half of subject account. The principals in Gore thus apply to the present circumstances.

Conclusion

For the reasons set forth above and in Appellant's opening brief, this Court should reverse the District Court's denial of Ms. Toth's Motion to Dismiss and enter a dismissal for failure to timely effect service. Alternatively, the District Court's sanction order and order granting summary judgment should be vacated and the case remanded for further proceedings. 

Respectfully submitted,

MONICA TOTH,
By her attorneys,

Jeffrey Wiesner
Jeffrey Wiesner, No. 119207
Jennifer McKinnon, No. 1194292
Wiesner McKinnon LLP
90 Canal Street
Boston, MA 02114
Tel.: (617) 303-3940
Fax: (617) 507-7976
jwiesner@jwjmlaw.com
jmckinnon@jwjmlaw.com