FindLaw > Criminal Law Summaries > 1998 Index > Neder v. United States

Case: Neder v. United States

Issue: (1) Whether failing to let the jury decide the materiality element of the offense of filing a false income tax return, 26 U.S.C. § 7206(1), constitutes harmless error. (2) Whether there is a materiality requirement under the federal mail fraud, 18 U.S.C. § 1341, wire fraud, 18 U.S.C. § 1343, and bank fraud, 18 U.S.C. § 1344, statutes.

Facts: A jury convicted Defendant Ellis Neder, Jr., of filing a false income tax return, despite the fact that the district court failed to instruct the jury as to materiality being an element of the offense. Over Neder's objection, the district court erroneously concluded that materiality was an issue of law for the court to decide, and, outside the jury's presence, the district court found that Neder's conduct established the materiality of his filing a false income tax return. The jury also convicted Neder of mail fraud, wire fraud, and bank fraud. Similarly, the district court did not include a materiality instruction as to the mail fraud, wire fraud, or bank fraud statutes, again over Neder's objection. Neder appealed. Based on intervening Supreme Court precedent, United States v. Gaudin, 515 U.S. 506 (1995), the Eleventh Circuit concluded that the district court erred in failing to instruct on materiality as to filing a false income tax return, but that the error was harmless because materiality was not in dispute. The Court of Appeals concluded further that materiality was not an element of mail fraud, wire fraud, or bank fraud; accordingly, the district court did not err in refusing to instruct the jury on these offenses.

Holding: First, the failure to instruct the jury as to the materiality requirement for filing a false income tax return is erroneous, but the error is subject to harmless error analysis, and under this analysis, the error was harmless. Second, the federal mail fraud, wire fraud, and bank fraud statutes have a materiality requirement, even though the statutes do no expressly provide for such a requirement.

Reasoning: Respecting the income tax offense, Chief Justice Rehnquist's majority opinion joined by Justices O'Connor, Kennedy, Thomas, and Breyer held that the district court erred in failing to instruct the jury as to materiality respecting the offense of filing a false income tax return, but held further that such an error was subject to harmless error analysis. In reaching this holding, the Court first observed that most constitutional errors were subject to harmless error analysis, with automatic reversal limited to few instances. Second, the Court observed that it had often applied the harmless error analysis to challenges to jury instructions. Applying these observations, the Court noted that the failure to charge an element of the offense was analogous to improperly instructing the jury, to which harmless error analysis applies. The Court reaffirmed Chapman v. California, 386 U.S. 18, 24 (1967), in holding that the test for harmless error is whether "beyond a reasonable doubt that the error complained of did not contribute to the verdict obtained."

Under the harmless error analysis, the majority reasoned that the error was harmless because it did not effect Neder's substantial rights, given that Neder not only failed to contest materiality, but the evidence of materiality was overwhelming. First, the Court explained that the jury trying Neder and the judge presiding over the trial were impartial, the jury was fairly impaneled, and the jury instructions were proper in other respects. According to the Court, such safeguards greatly dispel the probability that any error was reversible. Second, the Court noted that the evidence in this particular trial compelled a single conclusion: Neder failed to report $5 million in income tax, which incontrovertibly establishes materiality. Indeed, Neder did not even argue that his failure to report this income was material, nor did he proffer evidence contesting the omitted element. Under these circumstances, the failure to give the instruction, while erroneous, was harmless.

With regard to deciphering whether the mail fraud, wire fraud, and bank fraud statutes contain a materiality requirement, the Court employed the two part test established in United States v. Wells, 519 U.S. 482 (1997). Under the first part of that test, the Court readily acknowledged that these statutes do not by their language provide for a materiality requirement. Moving onto the second part of the Wells test, the Court sought to determine whether Congressional intent in passing these statutes was to import the materiality requirement of the common law of fraud. According to the Court, common law fraud had traditionally required a materiality requirement, and Congress presumably knew this when enacting the mail fraud, wire fraud, and bank fraud statutes. Because Congress intends to incorporate well-settled common law definitions into statutes, the Court inferred that these fraud statutes had a materiality requirement. The district court erred, therefore, in failing to charge materiality regarding the mail fraud, wire fraud, and bank fraud counts. Because the Eleventh Circuit did not address whether this error was harmless, the Court remanded for a harmless error analysis by the Court of Appeals in the first instance.

Other Opinions: Justice Stevens eschewed the majority's harmless error analysis, but concurred in the judgment. Because the jury found that Neder knowingly and falsely reported his total income in his tax return, failure to give the materiality instruction was harmless error because materiality was subsumed in the finding that Neder's conduct was knowing and false. The verdict therefore necessarily included a finding of materiality. According to Justice Stevens, no further analysis was necessary. As to materiality of mail fraud, wire fraud, and bank fraud, Justice Stevens agreed there is a materiality requirement.

Joined by Justices Souter and Ginsburg, Justice Scalia dissented, concluding that failure to charge an element of an offense can never be harmless. Justice Scalia found three faults with the majority opinion. First, the plain language of the Constitution grants juries, not federal judges, the right to determine guilt, and the district court's failure to instruct as to an element of the offense and reserving that matter for itself permits a federal judge to determine guilt in violation of the Constitution. Second, the majority opinion will create confusion because it does not state how many or which elements of an offense a district court can fail to instruct, yet still have an appellate court declare the error harmless. Such an open-ended result will lead to a plethora of ad hoc decisions. Finally, the dissent maintains that the majority has not remained faithful to harmless error analysis: The test is whether the guilty verdict actually rendered cannot be attributed to the error. The dissent concluded that the jury rendered no verdict because it could not determine materiality, and because no verdict was actually rendered, there can be no harmless error analysis. The theme of the dissent is that condoning a failure to instruct on an element of the offense is an improper encroachment of the federal judiciary on the rights of juries.

Comment: Any white-collar prosecutor who cannot overwhelmingly prove materiality, should not indict the case in the first place.