1001 is the Loneliest Number Material Matters in 18 U.S.C. § 1001, 0720 SCBJ, SC Lawyer, July 2020, #34

• Author: By Louis Lang and Ian Duggan
• Position: Vol. 32 Issue 1 Pg. 34

1001 is the Loneliest Number Material Matters in 18 U.S.C. § 1001

Vol. 32 Issue 1 Pg. 34

South Carolina BAR Journal

July, 2020

By Louis Lang and Ian Duggan

“Saints may always tell the truth, but for mortals living means lying.”¹

Example 1: During Prohibition, there is a party at a New York theater. The party includes a woman and a bathtub, the latter maybe containing the woman and some liquid, probably gin. After the party, the authorities investigate whether alcohol was served, a Volstead Act violation. When asked, Carroll, the host, tells authorities nobody got into the bathtub. Carroll is charged with lying.²

Example 2: Looking for a fugitive, federal agents knock on the door of the home of the fugitive’s girlfriend. Girlfriend “A” answers the door. The agents ask if the fugitive is in her house. She says no. They ask to look around. She says yes. The agents notice an upstairs bedroom door is shut and they hear a dog barking behind the closed door. They ask Girlfriend “A” to secure the dog so they can look in the bedroom. She agrees, enters the bedroom where the armed fugitive is hiding, removes the dog, but does not tell the agents the fugitive is in the bedroom and they enter. Girlfriend A is charged with lying.³

Example 3: Looking for another fugitive, federal agents knock on the door of the home of the fugitive’s girlfriend. Girlfriend “B” answers. The agents ask if the fugitive is in her house. She says no. The agents ask to look around. Girlfriend “B” says yes. No fugitive. The agents ask Girlfriend “B” what kind of car the fugitive is driving. She tells them. A few days later, the agents locate the car Girlfriend “B” told them about and put a GPS device on it (having secured a warrant to do so). The GPS device tracks the car to Girlfriend “B’s” home. Several days after that the agents again appear at Girlfriend “B’s” home. They ask if the fugitive is in the house. She says no. They ask to look around. She says yes. No fugitive. They ask Girlfriend “B” if the fugitive was at her house on the day the GPS device tracked the car Girlfriend “B” said the fugitive was driving to her home. She says no. Girlfriend “B” is charged with lying about the fugitive’s alleged visit to her house.⁴

Under 18 U.S.C. § 1001 making a materially false statement – lying – to a government agent, regarding anything within the jurisdiction of the executive, legislative or judicial branches, is a federal felony, subjecting the liar, if convicted, to a sentence of up to five years in prison, and fine in an indeterminate amount.⁵

Girlfriends “A” and “B,” Martha Stewart, Marion Jones, Henry Cisneros, Scooter Libby, Dan Johnson, Michael Cohen and countless others, prominent and unknown, have been accused of § 1001 violations, often with devastating consequences to their lives, families, and careers.

Many scholars and judges have expressed dismay over the reach of § 1001 and the possibility of its abuse by federal prosecutors and law enforcement. Justice Ruth Bader Gins-burg, in her concurring opinion in Brogan v. United States,⁶ observed the “extraordinary authority Congress, perhaps unwittingly, has conferred on prosecutors to manufacture crimes …,” under § 1001.⁷

The following (A) reviews the statutory history and case law of this remarkable section of our federal criminal code⁸, (B) discusses what case law instructs is a “material” lie under this section and C) provides an overview of recent United States Supreme and Circuit Court rulings treat “materiality” under § 1001 and in analogous civil contexts.

A.1. The history of § 1001

Like the False Claim Act,⁹ §1001’s ancestors date to the Civil War when witnesses, testifying in Congressional hearings, “painted a sordid picture of how the United States had been billed for nonexistent or worthless goods, charged exorbitant prices …, and generally robbed in purchasing the necessities of war.”^[10] In 1863, Congress enacted legislation making it a crime to submit fraudulent claims and make false statements related to those fraudulent claim(s).¹¹

In 1918, the statute was broadened to include false statements made for the purpose of “cheating and swindling or defrauding the government of the United States,” whether related to a false claim or not.¹²

The 1918 expansion of the statutory language was limited in 1926 by United States v. Cohn, which held that the 1918 amendment phrase “cheating and swindling or defrauding” applied only to acts of “cheating” the government “out of property or money.”¹³ Thus, to be guilty of a § 1001 type charge from 1863 until the 1930’s, the government had to show the statement was related to actual or possible pecuniary harm.

The Great Depression spawned many new federal agencies overseeing New Deal economic recovery programs. To benefit from these New Deal programs, citizens had to submit all types of information to the government. Congress was concerned government interests could be subverted by the submittal of false or fraudulent information which, while maybe not directly related to possible or actual pecuniary harm, could nonetheless negatively impact government programs. In 1934, Congress responded to this concern by removing the requirement that a false statement have a real or possible financial impact.¹⁴ However, even with this expansion, the reach of § 1001 remained limited “to protect … [government functions] from perversion which might result from deceptive practices …”^[15] [arising from] “affirmative, aggressive and voluntary actions of persons who take the initiative.”¹⁶

In 1948, the statute was divided into two statutes – one proscribing “false claims” (18 U.S.C. § 287) and the second, § 1001, proscribing “false statements.”¹⁷ The False Statements Accountability Act of 1996 made “materiality” an express element of a § 1001 violation,¹⁸ whereas previously it had only been a judicially implied element of a § 1001 crime.¹⁹ Section 1001 has remained substantively unchanged since.

A.2. The demise of the exculpatory “no” - Brogan v. United States

During the development of this law, there was an exception created in the lower courts for a naked denial of wrongdoing. The theory was that the government could not really be misled when a suspected wrongdoer simply denied that wrongdoing. This became known as the “exculpatory no.” Of course, if the suspect went beyond mere denial, the statute still applied.

This died in the Brogan case. Investigating the acceptance by union officials of cash gifts from companies with union employees federal law enforcement agents discovered incontrovertible evidence of cash payments made to Brogan, a union officer.²⁰ The agents paid a surprise visit to Brogan’s home and asked Brogan if he had accepted cash payments from the company whose employees his union represented. Brogan said, falsely, “no.” Brogan was indicted and convicted of accepting unlawful cash payments and lying to federal agents.²¹ Brogan’s conviction was affirmed, and the Supreme Court granted certiorari to determine if Brogan’s “exculpatory no” was an implied exception to § 1001.²²

Writing for the majority, Justice Scalia rejected the implied exculpatory “no” exception, saying, “…[b]y its terms, 18 U.S.C. § 1001 covers ‘any’ false statement – that is a false statement ‘of whatever kind…’”²³

Brogan also argued § 1001 only criminalized statements which “pervert government functions” and simple denials of guilt do not do so.²⁴ Justice Scalia rejected this argument saying, We cannot imagine how it could be true that falsely denying guilt in a Government investigation does not pervert a governmental function. Certainly, the investigation of wrongdoing is a proper governmental function; and since it is the very purpose of an investigation to uncover the truth, any falsehood relating to the subject of the investigation perverts that function.²⁵

Justice Ginsburg’s concurrence expressed concern regarding the broad scope of this statute – “[§ 1001]… arms Government agents with authority not simply to apprehend lawbreakers, but to generate felonies, crimes of a kind that only a Government officer could prompt.”²⁶

B. Materiality – the standard § 1001 formulation

For a false statement to be actionable under § 1001, it must be “material.” In Kungys v. United States, the Supreme Court reiterated the most widely accepted formulation of what § 1001 materiality means - a statement is material if it has a natural tendency to influence, or is capable of influencing, the decision-making body to which it was addressed.²⁷

It is irrelevant whether the false statement actually influenced or affected the government decision in question.^[28] Some courts have added qualifiers such as a material statement must be “predictably capable” of affecting government decision-making,²⁹ or have a “propensity” to influence the decision.³⁰

The Brogan Court did not directly address the materiality of an exculpatory “no,” However, in rejecting the exculpatory “no,” Justice Scalia said, “[i]t could be argued … that a disbelieved falsehood does not pervert an investigation [i.e. is not material]. But making the existence of this crime turn upon the credulousness of the federal investigator (or the persuasiveness of the liar) would be exceedingly strange….”^[31]

The Fourth Circuit, pre-Brogan, had a reasoned view of instances where a criminal suspect, like Brogan, lies to police about his guilt or innocence: A trained agent cannot be overly surprised when a suspected criminal fails to admit his guilt … “[A] thorough agent would continue vigorous investigation of all leads until he personally was satisfied, he has obtained the truth.” A false denial of guilt does not pervert the investigator’s basic function in a manner the statute intended to combat but is merely one of the ordinary obstacles confronted in a criminal investigation.³²

Post-Brogan, however, the Fourth Circuit held in United States v. Fondren,³³ that just because FBI agents “already kn[o]w the answers to the questions” posed to a witness lying about their culpability has no effect on the §1001 materiality of those answers. If the statements are “capable of influencing the FBI; it is not necessary that they actually influenced” the agents in a “particular case.”^[34] This formulation leaves the question of “materiality” substantially (and subjectively) in the hands of the government.

In Universal Health Services v. United States ex rel Escobar,³⁵ the Supreme Court considered the meaning of materiality in the context of one theory of recovery under the civil False Claims Act, which defines “materiality” as the case law under § 1001 does – a statement having the “natural tendency” or “capab[ility]” of influencing a government payment.³⁶

Writing for a unanimous Court, Justice Thomas said that the question of materiality in a False Claims Act case, “look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation,”³⁷ which sounds like a subjective measure of materiality. Justice Thomas goes on, however, to cite tort law saying that a matter is material “only in two circumstances: (1) ‘[if] a reasonable man would attach importance to [it] in determining his choice of action ….;’ or (2) if the defendant knew or had reason to know that the recipient of the representation attaches importance to the specific matter ‘in determining his choice of action,’ even though a reasonable person would not,”^[38] i.e., a mixed objective and subjective standard.

Finally, Justice Thomas observed, [W]hen evaluating materiality . . . the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive. Likewise, proof of materiality can include, … evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.³⁹

Accordingly, the Court’s view of materiality under the False Claims Act is a nuanced one, having both subjective and objective considerations.

Two recent Fourth Circuit cases address the application of Escobar in a criminal setting. In United States v. Palin, a criminal healthcare fraud case, the Defendants charged insurance companies for medically unnecessary tests.⁴⁰ The Defendants argued on appeal, per Escobar, that “because . . . insurers regularly paid [for medically unnecessary testing],” there were no material misrepresentations.^[41] In response, the Fourth Circuit held that “[w]e do not believe the Supreme Court [in Escobar] intended to broadly ‘overrule’ materiality standards that had previously applied in the context of criminal fraud.”⁴²

A month later, the Fourth Circuit relied on its holding in Palin to deny the Defendant relief in United States v. Raza, a criminal wire fraud and conspiracy to commit wire fraud case.⁴³ The court analyzed the Supreme Court’s holding in Escobar and concluded, “[t]o the extent [Escobar] altered the concept of materiality in fraud proceedings, it is not likely that its impact extends beyond the context of quitam [whistleblower] actions.”⁴⁴

The Raza panel also said that if Escobar controls the definition of materiality, the Court’s “juxtaposition” of the objective and subjective materiality standards suggests that they are not in tension. “Put another way, an objective test of materiality does in fact “look to the effect on the likely or actual behavior of the recipient.”⁴⁵ In those circumstances, however, the recipient is a “reasonable man ... determining his choice of action in the transaction in question.”⁴⁶

C. Practical applications

Gone from our recent § 1001 jurisprudence is the characterization of actionable false statements as having to “[arise from] affirmative, aggressive and voluntary actions of persons who take the initiative”⁴⁷ and that such statements must be “predictably capable” of affecting government decisions,⁴⁸ or have a propensity to do so,⁴⁹ leaving us with the Kungys and Fondren subjective standard, with maybe an argument for a more nuanced Escobar subjective/objective test.

Applying these formulations of materiality to the three examples recited above can be difficult.

In the Prohibition-era prosecution, Carroll argued his “no one was in the bathtub” statement was not material to the grand jury’s investigation.⁵⁰ The Second Circuit disagreed, saying Carroll’s statement was “plainly calculated to dissuade the grand jury from further investigation…,” although the point of the investigation was what was in the bathtub, not who, and the bathtub woman’s name had been published in local newspapers so somebody could just ask her what happened.⁵¹ To this “fact” the Second Circuit responded that the common knowledge of the woman’s name was “no answer” to the perjury charge and that the grand jury’s “duty was to obtain competent legal proof of a violation of law….” which did not include “newspaper clippings or mere rumor….”

The fact that Carroll’s lie could easily be discovered by contacting the actual person who may have been in the bathtub, was of no moment, an implicit acceptance of a subjective materiality standard.

Comparing the Brogan and Carroll lies, while both could subjectively have a “natural tendency to influence” the government’s investigation, a reasonable investigator would undoubtedly not have been distracted by either lie. Comparing the two, Brogan’s lie has the least tendency, either objectively or subjectively, to influence the investigation—the agents knew he was lying. Carroll’s lie, although easily discoverable, was not known to be a lie when it was made – it could, therefore subjectively influence the investigation.

While a false denial of guilt is not an exception to § 1001, it seems logical, if that false denial is known to be false, or easily discovered to be, applying an objective materiality standard, such a “lie” is not a “material” false statement, and therefore, not prosecutable. Applying a subjective standard, however, could yield a different result.

How about Girlfriend A’s lie that the fugitive was not present, and her continued silence when the agents sought to enter the one room they had not searched? Given the exceptionally serious consequences of Girlfriend A’s initial lie, and continued silence, it is easy to conclude both were material under an objective, subjective or mixed formulation of materiality.

However, the agents did not believe Girlfriend A’s first lie that the fugitive was not present – otherwise, why ask for permission to search her home? There is at least an argument, just as in Brogan, given the law enforcement’s agents “lack of credulousness” that Girlfriend “A’s” initial lie was not material, at least not subjectively so – despite being told the fugitive was not home, the agents asked for and got permission to search the house.

Courts have held, however, that once a suspect starts talking, she has an obligation to continue to do so, without withholding, as Girlfriend “A” did, material facts. When a citizen responds to questions, she is obligated not to exclude “information necessary to make [her] statements accurate.”⁵² Girlfriend “A’s” continued adherence to her initial lie that the fugitive was not home, even after agents asked her to remove the dog from the room where she knew the fugitive was hiding, especially given what could have been the fatal consequences of that continued course of conduct, make it hard to argue her omission was not material under any formulation of materiality.

Turning to Girlfriend “B”, she did not lie to law enforcement when they first visited her home. The fugitive was not there, although, as with Girlfriend “A,” the agents did not believe her. She cooperated with law enforcement, telling them what kind of car the fugitive was driving. Nor did she lie the second time when she told the agents the fugitive was not at home, as the agents confirmed after a search, again, not believing her denial. Girlfriend “B” was charged, however, with lying about the fugitive not being at her home days before the second law-enforcement visit.

If that was a lie, how is it material?

One could argue the agents needed to confirm the fugitive was driving the car Girlfriend “B” told them about. However, the agents had confirmed that already - the day the car was tracked to Girlfriend’s “B’s” home it ended up at a relative’s house miles away and the relative confirmed the fugitive was driving it. Further, when looking for a fugitive the government wants to discover where he is, not where he was days ago. And, if the agents have confirmed he is driving the car with the GPS device attached, Girlfriend “B’s” supposed lie about the visit would appear objectively immaterial.

Subjectively, however, perhaps law enforcement needed to confirm where the fugitive actually was, and not just where he was suspected to be in times past, to surveil those locations in case he returns.

D. Conclusion.

In her Brogan concurring opinion, Justice Ginsburg pointed out that before investigators spoke with Brogan, they already had records showing he received illegal cash payments. The agents arrived at Brogan’s home unannounced in order to “retain the element of surprise.”^[53] After the agents extracted Brogan’s exculpatory “no” they asked no further questions, the federal crime being committed with the utterance of one word, which, as Justice Ginsburg said, “misled no one.”^[54]

Anyone who has represented a defendant in a criminal case in federal court knows the government’s prosecutorial resources are enormous, and at times overwhelming, which may not be a bad thing. Section 1001, though, does not provide the government more law enforcement investigative or prosecutorial resources or manpower. It does not add to the government’s technological resources to ferret out criminal activity. It does not criminalize new behaviors spawned by the information age or chemical advances in the manufacture of recreational drugs.

What § 1001 does, like the spider saying to the fly, “walk into my parlor…,”^[55] is allow the government to invite the commission of a federal felony simply by asking a question to which it often already knows the answer.

Leaving the materiality analysis solely up to the government’s subjective view of the alleged lie only adds to the overwhelming power of the government to create and prosecute a § 1001 crime. A purely objective materiality test could, however, further divorce the offense from its historical underpinnings – to punish lies which could or might subvert legitimate governmental processes.

One scholar has opined, that while the government is “in the best position to assess harm [of a false statement] to” an investigation, it should nevertheless be the government’s burden to establish the statement’s impact on an investigation, considering such factors as “… whether the lie was induced [by the government agent], how central [the lie] is to the in-vestigation, whether the statement actually misleads or merely inconveniences investigators, and whether the initial investigation of the offense was completed [or nearly complete at the time the statement was elicited ….]”⁵⁶

This formulation balances the purely subjective “if the government says its material it is” approach, with its opposite, the reasonable investigator, a view similar to the Supreme Court’s approach in the civil context in Escobar. Such an interpretation also meshes with the Supreme Court’s “traditional … exercise … of restraint in assessing the reach of a federal criminal statute” to combat “public fear …” of “arbitrary prosecution…”⁵⁷

However, for the foreseeable future at least, silence, in the § 1001 context, is “golden.” Once anyone starts talking even one word is trouble.

Louis Lang, a member of Callison Tighe & Robinson, LLC, has over 30 years of experience as a litigator, focusing on real estate related and other complex business litigation and federal criminal defense. Before entering private practice, Lang served four years on active duty as a member of the Judge Advocate General’s (JAG)Corps in the Navy and retired in 2005 as a Commander, JAG Corps, U.S. Navy Reserve.

Ian Duggan, an associate with Callison Tighe & Robinson, LLC, focuses on complex litigation, including business disputes, qui tam matters, and white-collar crime. Before joining Callison Tighe, Duggan spent over six years on active duty as a Judge Advocate in the Air Force and is presently an officer in the South Carolina Air National Guard.

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Notes:

[1] United States

v. Alverez, No. 08-50345, Order Denying Pet. for Panel Rehearing and Rehearing En Banc (9##sup##th##/sup## Cir., March 21, 2011) Slip. Op. at 3758, Kozinski, C.J., concurring in denial of petition for rehearing en banc.

[2] Carroll v.

United States, 16 F.2d 951 (2^nd Cir. 1927).

[3] United States

v. Barratt, No. 14-cr-00362 (D.S.C. Dec. 16, 2016).

[4] United States

v. Barnes, No. 16-cr-00165 (D.S.C. Feb. 9, 2017).

[5] 18 U.S.C. § 1001(a)(2) (2018) (providing “[w]hoever, in any matter within the jurisdiction of the executive, legislative, or judicial b ranch of the Government of the United States, knowingly and willfully … makes any materially false, fictitious, or fraudulent statement or representation … shall be fined under this title [and] imprisoned not more than 5 years.” Subsection (3) prohibits materially false written submissions.)

[6] Brogan v.

United States, 522 U.S. 398, 118 S.Ct. 805 (1998).

[7] Id. at 408, 118 S.Ct. at 812 (Ginsburg, J. concurring).

[8] After this article was approved for publication, the government, in United States v. Flynn, Crim. No. 17-232 (EGS) (D.D.C., fled May 7, 2020), moved to dismiss the information charging the defendant with a § 1001 offense, to which the defendant, under a plea agreement, had pleaded guilty, and affirmed his guilty plea in a subsequent proceeding. Anyone defending a § 1001 case, or prosecuting one, should read the government’s motion, and a case the government’s cites—United States v. Weinstock, 231 F.2d 699 (D.C. Cir. 1956), which involved the prosecution of an alleged lie in a response to an Attorney General petition seeking a declaration under the McCarran Internal Security Act of 1950 that the “United May Day Committee” was a Communist front organization.

[9] 31 U.S.C. § 3729(b)(4) (2018).

[10] United States v . McNinch, 356 U.S. 595, 599, 78 S.Ct. 950, 953 (1958).

[11] See Act of Mar. 2, 1863, ch. 67, 12 Stat. 696 (preventing and punishing Frauds upon the Government of the United States).

[12] See Act of Oct. 23, 1918, ch. 194, 40 Stat. 1015.

[13] United States

v. Cohn, 270 U.S. 339, 46 S.Ct. 251 (1926).

[14] Act of June 18, 1934, ch. 587, 48 Stat.

[15] United States

v. Bilzerian, 926 F.2d 1285 (2^nd Cir. 1991).

[16] Brogan, 522 U.S. at 413, 118 S.Ct. at 814 (quoting Paternostro v. United States, 311 F.2d 298, 302 (5^th Cir. 1962)).

[17] See Act of June 25, 1948, ch. 645, § 1, 62 Stat. 683.

[18] False Statements Accountability Act of 1996, Pub. L. No. 104-292 (October 11, 1996).

[19] See United

States v. Corsino, 812 F.2d 26 (1^st Cir. 1987) (materiality is an implied element of a § 1001 offense.)

[20] A violation of 29 U.S.C. § 186.

[21] Brogan, at 400, 118 S.Ct. at 808.

[22] Id.

[23] Id. at 400.

[24] Id. at 401.

[25] Id. at 402.

[26] Id. at 409 (emphasis in the original).

[27] Kungys v.

United States, 485 U.S. 759, 771, 108 S.Ct. 1537, 1546 (1988).

[28] United States

v. Fondren, 417 F. App’x 327, 336 (4^th Cir. 2011).

[29] United States

v. Turner, 551 F.3d 657, 663 (7^th Cir. 2009).

[30] United States

v. Silva, 119 F. App’x 892, 894 (9^th Cir. 2004).

[31] Brogan, at 402, 118 S.Ct. at 809.

[32] United States

v. Cogdell, 844 F.2d 179, 184 (4^th Cir. 1988) (quoting United States v. Medina de Perez, 799 F.2d 540, 546 (9^th Cir. 1986)).

[33] Fondren, 417 F. App’x 327 (4^th Cir. 2011).

[34] Id. at 336 (emphasis in original).

[35] Universal Health

Servs., Inc. v. United

States 136 S.Ct. 1989 (2016).

[36] 31 U.S. Code § 3729(b)(4) (2018).

[37] Id. § 2002.

[38] Id. (citing Restatement (Second) of Torts § 538, at 80).

[39] Id. § 2003.

[40] United States

v. Palin, 874 F.3d 418 (4^th Cir. 2017), cert. denied, No. 17-1221, 2018 WL 1142379 (April 2, 2018).

[41] Id. at 423.

[42] Id.

[43] United States

v. Raza, 876 F.3d 604 (4^th Cir. 2017).

[44] Id.

[45] Id.

[46] Id.

[47] Paternostro, 311 F.2d at 302.

[48] Turner, 551 F.3d at 663.

[49] Silva, 119 F. App’x at 894.

[50] Carroll was prosecuted for perjury, not a §1001 violation.

[51] Carroll, 16 F.2d at 953-954.

[52] United States

v. Cisneros, 26 F.Supp.2d 24, 42 (D.D.C. 1998).

[53] Brogan, at 409, 118 S.Ct. at 812 (Ginsburg, J. concurring).

[54] Id., at 409-410.

[55] Mary Howitt, The Spider and

the Fly, (1829).

[56] Lisa K. Griffin, Criminal Lying,

Prosecutorial Power and Social Meaning, 97 Calif. Law Rev. 1515 (2009).

[57]

Marinello v. United

States, 138 S.Ct. 1101, 1108-09 (2018).

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